African urbanisation – a changing dynamic
This blog was originally published on the ESI AFRICA website.
On a recent trip to Morocco to attend a conference, I had the pleasure of being seated next to and in front of two young families on the aeroplane, both returning home to Morocco after visiting friends and family abroad. One father I chatted to was born and raised just outside Casablanca. An actuary by profession, he was quick to rattle off some facts and figures about his home country.
The conversation and attending the conference did get me thinking about the thematics synonomous with the African investment narrative, one of which is urban dwelling. In turn, the theme of urbanisation is synonomous with infrastructure.
The overall infrastructure gap in Africa, at an estimated US$90billion per annum, is widely acknowledged. Thus, investment practitioners specialising in infrastructure investment on the continent are increasingly alert to the need to match and tailor the provision of infrastructure funding to Africa's urbanisation realities, and how these realities differ from, or in some instances, closely follow the rest of the world's experiences. Many of the presentations delivered at the AVCA conference gave mention to this statistic. Whilst appreciating the fact that urbanisation will increasingly prove to be a vital and critical element to the transformation of African countries, comprehension of how the narrative of urbanisation has and will continue to evolve is key.
Whilst many of the private equity funds reported participation in extraordinary medium and long-term opportunities across Africa, suffice to say their investment returns could be enhanced if the requisite infrastructure was in place.
An article by Ester Boserup, titled Economic and Demographic Interrelationships in sub-Saharan Africa, comes to mind. The article posits that urbanisation for most African countries started out during their colonial periods in support of colonial economic needs, such as exports to Europe. Unlike the case for other regions, urbanisation was not brought about by, and did not bring about, industrialisation. Now, with increased investment from PE funds, urbanisation is starting to occur intrinsically as people move from rural to urban areas to develop their own economic activities and communities. The Africa Development Forum succinctly supports this changing dynamic in Africa. Across a number of the continent's economic nodes, broad-based economic prosperity and population density are occuring together despite the infrastructural challenges. The collective challenge for African policy-makers is to allow for greater trade and linkages between their economies to create larger markets with better connectivity.
Of equal importance is the need to change the substance of the rural to urban development narrative. According to the Africa Development Forum rural and urban development should demonstrate mutual dependence with economic integration; in doing so, producing inclusive growth and development in both rural and urban areas. Whilst African cities are growing fast, there is a need for the urban infrastructure to support this growth, alongside the provision of adequate basic services to new settlements.
Basic services include, but certainly are not limited to, energy, roads, water, and information and communication technologies (ICTs). Long-term growth requires an efficient system of urban centres that include small, medium, and larger cities that produce industrial goods and high-value services, along with well-functioning transportation networks to link national economies with regional and global markets.
Of course, funding is always an issue, but a constructive development is the convergence between African pensions and savings with infrastructure provision. This is firmly underway, with over US$3,4 billion in capital raised for African infrastructure funds since 2012. Whilst this value only represents just under 4% of the annualised overall infrastructure deficit for Africa, it is a positive indicator of increased private sector involvement in the funding of infrastructure as an asset class.
About the Author
Gerald Gondo serves as an Executive within RisCura Africa and is responsible for Business Development. Prior to joining RisCura, Gerald was also a founding partner of a specialist investment advisory and investment management business (Atria Africa) based in Mauritius. Gerald's passion to have first-hand experience in investing in Africa led him to join a leading pan-African asset manager (Imara Asset Management) where he had dual responsibility of being lead analyst on listed equities in Egypt, Morocco, Zambia and Mauritius whilst also building the fixed income capability of Imara Asset Management in Zimbabwe. He started his career in private equity investment in Sub-Saharan Africa (Business Partners) and has also worked as a credit analyst for a highly-rated specialist institutional fixed income boutique (Futuregrowth Asset Management), where he was responsible for credit analysis for corporate credit and securitisation issuances within South Africa.