Africa: A Great Place to Invest from a Loan Capital Markets Perspective
By Samta Lalan, Co-Head: Syndication and Distribution, Nedbank CIB London
Africa remains a great place to invest due to its vast infrastructure requirements and the burgeoning demand from investors seeking yield and reliable track records. The continent's extensive needs for infrastructure development present a unique opportunity for substantial investments aimed at improving transportation, energy, telecommunications, and urbanisation.
Infrastructure Requirements
Africa's infrastructure needs are immense, ranging from railways, highways, ports, and airports to energy plants, water supply systems, and telecommunications networks. Many countries in Africa are focusing on enhancing their infrastructure to stimulate economic development, increase connectivity, and improve living standards. According to the African Development Bank (AfDB), the continent's infrastructure needs amount to $130–$170 billion a year, with a financing gap in the range of $68–$108 billion. This gap is significantly higher than previous estimates of $93 billion in annual needs and annual financing gaps of $31 billion published by the World Bank.1
Investor Demand
Investors are increasingly looking at Africa for attractive yields and proven track records. Hard currency Syndicated Loans in Africa are mostly transacted based on English law and adhere to the Loan Market Association (LMA) standard documentation. This provides a familiar and secure framework for international investors, ensuring transparency and reliability in financial transactions. Moreover, the wide geographical distribution of investors supports diversified and resilient economic growth across the continent.
Risk Mitigation
Investing in Africa, while promising, comes with certain risks that need to be mitigated. These include political instability, currency fluctuations, and market volatility. Effective risk mitigation strategies include:- Insurance: Political and credit risk insurance provides investors with confidence to invest for longer tenors or in new jurisdictions.
- Export Credit Agencies (ECAs): ECAs can provide guarantees and funding support to investors, reducing the risk of non-payment and enhancing transaction security.
- Guarantees: Guarantees from investment grade institutions can further secure new investors, ensuring a higher level of confidence and risk mitigation.
- Local Partnerships: Collaborating with local partners who have in-depth knowledge of the market can help navigate challenges and mitigate risks effectively.
Execution Risk
Execution risk is a critical consideration for borrowers and investors alike. Borrowers should be very careful and ensure that a dedicated team is in place to manage the execution of financing. As recent market turmoil has shown, minimising execution risk is essential. During such periods of instability, difficult conversations around pricing and flex can arise. Adhering to timelines helps one minimise execution risk and come across as professional.
Conclusion
Africa's immense infrastructure needs and the growth in investor interest make it a compelling destination for investment. By focusing on making deals more bankable and employing effective risk mitigation strategies, investors can capitalise on the continent's potential while safeguarding their investments. As Africa continues to develop and integrate into the global economy, it represents an unparalleled opportunity for those looking to invest in transformative financings that drive sustainable growth and prosperity.
Samta Lalan co-heads the Syndication and Distribution business for Nedbank. She has led syndications for corporates, sovereigns, SOEs as well as diversified funding for African borrowers. Samta has arranged several high-profile syndications for Nedbank including Puma Energy, Government of Tanzania, Government of Ivory Coast, Ghana Cocobod, AFC, TDB, Bank of Industry. Prior to joining Nedbank, Samta ran the Syndications desk at Rand Merchant Bank in London where she led syndications for Government of Kenya, Government of Angola, Afreximbank, Puma Energy, AFC, Zenith Bank, KPC, KPLC, among others. She has 17 years of international banking experience, having worked with institutions such as Standard Chartered and IFC in China, India and Indonesia. She holds an MBA from London Business School.
