Finnfund

Of investment in developing African infrastructure, the proportion from private sources keeps on increasing. A good example of innovative and productive financial models is the AIG African Infrastructure Fund. Its biggest investor is the US insurer American International Group Inc. The other investors include the IFC, part of the World Bank Group, and the African Development Bank.

Finnfund has taken the decision to invest 12 million dollars in the Fund. The Fund’s total size is about 400 million US dollars and it has a ten-year term.

Careful project selection

The AIG African Infrastructure Fund seeks to finance profitable infrastructure projects where the private sector has a key role. It can also cooperate with state-owned companies providing the state is committed to reducing its shareholding in order to develop the company’s operations.

“We are extremely selective about our countries, sectors and partners,” explains the Fund’s CEO, Kim Jaycox. “We favour companies that operate in several countries because it reduces the political risk in investments and improves the chances of larger, faster growth.”

The main target countries have been defined as Morocco, Tunisia and Egypt in North Africa; Côte d’Ivoire and Ghana in West Africa; Tanzania and Uganda in East Africa; and RSA, Botswana, Mozambique and Namibia in Southern Africa. Projects in the communications and energy sector are receiving priority.

The Fund is managed by a US private equity firm, EMP – Emerging Markets Partnership.

Profitable investment in telecommunications and energy

By May 2004 the AIG African Infrastructure Fund had made 12 investments in nine companies.

Kim Jaycox cites Pan African Energy Corporation, which produces oil off the coast of Gabon and natural gas in Tanzania, as a good example of a profitable investment opportunity.

“Our investment in the company gave our shareholders a 30% annual yield,” he calculates.

The Fund has also made successful investments in Africa in the fast-growing IT sector. One investment has been in the phone operator Celtel. This international holding company has constructed and maintains telephone networks in 12 African countries. The number of subscribers of phone operators owned by Celtel has risen from 40 thousand to about 1.7 million in three years, Jaycox says.

“The number of Celtel customers is increasing all the time through new subscriptions and corporate acquisitions,” he notes. “Another successful investment in telecommunications has been in Algeria’s Orascom, which has shown an even greater proportional increase in subscribers than Celtel.”

The AIG African Infrastructure Fund has also made investments in aviation. All African Airways – headquartered in Abidjan, the largest city of Côte d’Ivoire – is a joint enterprise of the Fund and Air France.

Despite political unrest in Côte d’Ivoire and the deep economic difficulties of airlines in Africa, Jaycox believes in the success of All African Airways.

“Regardless of the unrest, the company is making a good profit and exploring opportunities for expanding elsewhere in West Africa through corporate acquisitions.”

Risks in Africa as in other developing economies

EMP manages similar funds in Asia, Latin America, Eastern Europe and the Middle East. Jaycox believes that the risks are at roughly the same level in all developing economies.

“The only way to curb risks is to be extremely selective in investments. It is also important to know the target countries and business partners and to follow their affairs. The fact that Africa is regarded as a continent of very great risk reduces the competition between investors. This has increased our Fund’s yield.”

Today the situation is changing, Jaycox says, as other investors realise that there are numerous investment opportunities to be found in Africa.

“We firmly believe – and our actions have shown it – that Africa can be attractive to private investment and can produce good returns in honest ways,” he adds. “The situation is improved by the fact that the climate for investors is becoming more favourable in several African countries.”

For further information please contact Mr Thomas Schmidt, tel. +358 9 3484 3327, email firstname.lastname@finnfund.fi