The case for investing in African infrastructure: Interview with Meridiam
This article is a shortened version of an interview produced and published by the African Private Equity and Venture Capital Association (AVCA). See the original here.
Meridiam is a global asset and fund manager specialising in infrastructure. AVCA speaks with Mathieu Peller, partner and chief operating officer for Africa, about Meridiam’s investment theses.
What is the investment appeal of infrastructure in Africa?
We raised our first Africa fund in 2015, on the back of Africa’s large untapped potential. In infrastructure, we observed that in addition to the financing gap, the continent has a large development gap of skilled players willing to develop projects from the outset. We saw that gap as an opportunity to mobilise both our long-term financial resources as well as our development know-how and track record.
The continent is developing at a rapid pace and with the economic growth, we see a clear role for the private sector (both domestic and foreign) to play a part in delivering the goods, services, and infrastructure these economies need to grow. The essential nature of the asset class also presents robust prospects for investors to deliver assets that are changing people’s lives.
Where do you see opportunities for investors in African infrastructure, and how do these differ by region?
Great opportunities exist across the spectrum – but the obvious one is renewable, clean and affordable power for the population. However, we are seeing returns compression for investors in segments becoming more competitive – like solar PV for example – as public authorities demand lower tariffs. Of course, this is great news overall.
We still see stronger opportunities in the lesser developed economies in East and West relative to North and Southern Africa, which have more depth in power procurement and installed capacity. We also see significant opportunities in technologies requiring more development work, such as geothermal energy, hydro, and biomass. Many African countries have huge potential, and such technologies can help with balancing the grids with more stable power production.
We are bullish on transport infrastructure as Africa has major gaps here in terms of roads, clean mass transportation (e.g., electric bus transit), port capacity and airports, which translates into a need for improving existing stock and creating new capacity to efficiently manage growth. Opportunities also exist in digital infrastructure with rapid digitisation of services and consumption trends we are witnessing.
What kind of limited partners do you have and what drives them?
We have many recognisable commercial LPs in our Africa fund, largely European pensions and insurers with some representation from North America and Asia. In addition to these, we have a few DFIs that have been supportive on this journey. All these LPs like the combination of positive impact and financial returns that our type of investments can deliver for them and their mandates.
What differentiates Meridiam from other African infrastructure-focused fund managers?
We are on the ground and have vast development expertise through our team and network of industrial partners. We have one of the largest sub-Saharan African teams (in Addis Ababa and Dakar) and they are skilled individuals who are close to the assets, clients, and partners. This allows timely and locally attuned development decisions for a differentiated outcome.
Our global presence also allows us to bring the best experience to the project as needed.
In your view, what are the key drivers of demand in the infrastructure space?
Demand is being driven by the underlying economic growth in African economies as well as the need for governments to diversify against infrastructure funded by the public balance sheet.
What is your outlook for the industry, and what are Meridiam’s plans for the next 12 months now that the global economy is in recovery?
Our outlook is positive. Covid-19 has shown the resilience of the asset class, and in some sub-sectors, the essential nature of some types of infrastructure.
We are already seeing governments visit or revisit their infrastructure planning.
We continue to grow and harness the opportunity to support the global recovery by delivering the infrastructure we focus on. We are working on our future development both in Europe and Africa and expecting to invest as much in 2021 as we did in 2020 (over $7 billion).
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