Infrastructure glory days

Careful picking of investment opportunities and backing management can work

For several decades investors have been looking at Africa as the next Eldorado for infrastructure development, in particular in the digital space, attracted by the population size and lack of essential infrastructure. Many billions of dollars have been invested, but most still argue that this is the tip of the iceberg compared to the need. In the meantime, USA, Europe, China have powered forward and built vast campuses of data centres (good timing for an AI surge), criss-crossed their countries with fibre and rolled out more base stations that we can count. Money is arguably available for investment, what’s the issue with Africa?

African countries still puzzle investors. Many business plans dream of hockey sticks where demand will rocket and supply happily follow, creating a superb case for value creation and shareholder returns. This has been done before in Africa - look at the business of the main mobile operators in the largest countries, where service take-up grew many multiple times what was hoped for. Unfortunately this seems to be the exception. Many data centres are still looking quite empty, a result of a Build-It-They-Will-Come aspirational models. The ecosystem of digital services is growing but from a very low base and one does not see a growth inflection point in the numbers yet. The yield of many fibre projects is very low; while traffic has increased, the ability to pay a premium for high-speed networks has not appeared.

However, select investments in African infrastructure and digital services have good potential. One needs to be overly picky when choosing projects to back and very involved in supporting management. Ecosystems (creating traffic, value and profits) will take time to emerge. We see innovation in African companies, but not enough professionalism (management experience, international thinking, etc). Glory days will come, one needs to be patient.