Alliances, Risk, and African Investment Trends 

Jason B. Parker, Partner and Project Development Attorney, Hunton Andrews Kurth.

Energy Capital & Power spoke with Jason B. Parker about the recently established Alliance for Green Infrastructure in Africa, global investment trends in the modern context, and how Africa can reduce risk perception.

How will the European Union’s (EU) increased focus in Africa have a tangible impact on infrastructure development and investment?

Initially by increasing competition for investments in infrastructure projects. European countries are already widely active on infrastructure projects across the continent, but have collectively been outspent by Chinese investments. With China purportedly pulling back on its investment in Africa, an increased focus by the EU could fill the gap. This is subject to what is happening in Ukraine, which potentially changes the dynamic. This is mainly because Russia provides large volumes of gas to Europe. Should this be reduced as a consequence of the war, then what we might expect to see, is Europe refocusing its energy – pun unintended – on finding alternate sources of gas. What does this mean for Africa? Does it mean places like Mozambique will have higher interest? Other places like Zambia and Zimbabwe could have renewed interest from the EU on commodity products? The EU’s increased focus could on infrastructure, could narrowed to gas and possibly LNG export terminals.

What role will global alliances and programs such as the Alliance for Green Infrastructure in Africa have on the continent?

A large one, as they have for the past 20+ years. What is important in 2022, is that these alliances are being led by African institutions. They are being formalized, conceptualized, and executed by African institutions, inviting European allies to the table to contribute resources, time, energy, in exchange for what will hopefully be beneficial returns for those allies.

Regarding the EU’s decision to label certain gas projects as green, will more attention be placed on developing Africa’s gas industry, or will renewables continue to offer attractive returns for green investors?

Given the war in Ukraine and Russia’s role as a large supplier of gas to Europe, there is going to be a very large focus on alternative sources of gas. I anticipate that there will be a continued investment in oil and gas and even coal, despite efforts to redirect all roads from carbon emitting technologies to renewables. Nevertheless, we are going see a more diversified portfolio with green projects and renewables for a higher percentage of the overall investment. I don’t know whether calling gas green will have an impact in Africa. I think the global LNG and commodities markets will have an impact more than anything else.

What large-scale green infrastructure projects are currently underway in Africa?

What stands out is the numerous solar projects across the continent. Solar plants between 5MW and 50MW are being built as fast as they can. What also stands out is South Africa’s trend of concentrated solar projects (CSP) being built. These CSP projects- being technically complicated – are currently not being built in high volumes around the world, but South Africa has seen some success in this area. South Africa’s projects, how they have been financed and where they have been built provides a model for other highly irradiant (i.e., very sunny) locations.

What are some of the challenges international investors may face in terms of project take-off and resilience?

You have to consider the perception premium (not a term I coined). We always say projects in Africa are high risk, that it is a difficult and risky environment, but this is a perception more than a reality. Yes, there have been civil wars and changes in governments, but that’s not to say that Europe and the States haven’t had the same. America just had an unprecedented challenge to the change in government, Brexit happened, the invasion of Ukraine, there is a litany of politically risky events occurring all over the world. But Africa, specifically, is penalized for its infrastructure investment for political risk. When I am working on deals, in order to be considered bankable they have to be structured in ways that are impervious to political risk, going as far as when a developer defaults, it still walks away with its equity and the country has to buy the project’s remnants. The perception that default risk and political risk is higher in Africa only adds to the complication of structuring deals making them difficult to get off the drawing board.

How can African stakeholders change this perception?

Firstly, dealing with credit ratings and how credit ratings are assessed. There should be more regulatory oversight in Africa to ensure debt is rated fairly, and without a perception premium. Secondly, utilizing more money from within Africa. Pensions available that should be deployable in countries, subject to appropriate prudential and other protections. Thirdly, information on the success and default of projects goes a long way. Information about projects has improved, drastically, in the past 10 years but there’s more room to grow.

What role will international companies play in Africa?

There is no way out in dealing with a globalized society and economy – from financing to equipment to training to technology transfer. These are all essential to build long-term pipelines and projects. This is global and applies equally from Cleveland to Kampala. Frankly, African countries can do a better job of leveraging the relationships sought after by EU, China, Japan, the United States, etc., and building investment pipelines on their terms.

How can African countries ensure they are both attractive and competitive for increased international company participation?

One way African countries can improve investment attractiveness is to ensure there is clear communication in terms of what the government wants to accomplish and how to plans get there, in terms of infrastructure investments. Public-private partnerships (PPP) are all the rage, as they should be. When a government establishes clear PPP regulations and policies surrounding the deployment of PPPs, and communicates to the investors and contractors, and then those governments stick to the plans, the PPP projects will have a better chance of being financed and coming to fruition. Continuity and communication is what makes a country attractive and competitive and what will make some countries stand out.

What is your 2022 outlook regarding Africa’s green energy landscape? Do you foresee an influx in new developments on the back of the energy transition?

If you had asked me five months ago, I would have a clear answer. But everything has changed over the past two years. Between COVID-19, government balance sheets, inflation, shipping costs, and war, it is hard to say what Africa’s (or anyone’s) green energy landscape will be. I can say that gas will be preeminent in the coming year despite the existential threat of climate change. Europe will have to fill a supply gap before next winter. The next year will be difficult to predict.

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Charné Hundermark

Charné Hundermark

Charné Hundermark is the Deputy Editor at Energy Capital & Power. She holds a Higher Certification in Professional Photography and an Honours degree in Media Theory and Practice. She is also currently completing her Masters in Media Studies.

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