This article is sponsored by OMAI.
Digitisation is continuing apace globally, and African markets are no exception. This is creating opportunities for investors in the infrastructure needed for an increasingly digital future. Private Equity International caught up with Paul Boynton, joint CEO of Old Mutual Alternative Investments, to discuss how digital infrastructure can boost African economies, where demand is creating investment opportunities and in what way some of the shifts brought about by covid-19 are expected to endure.
Why is digital infrastructure an attractive investment in African markets?
We have been investing behind Africa’s communications transformation for many years – we were one of the early investors in Celtel, one of the first mobile communications operators on the continent, and we also invested in IHS, a mobile telecommunications towers business. The growth of businesses such as these has laid the foundation for what is happening across the continent today.
There is a real opportunity for African markets to leapfrog to digital technologies. Many parts of the continent lag behind other parts of the world in some areas and as technologies develop, older technologies that other markets might have adopted become less relevant or obsolete. There are some areas of Africa that will never, for example, see fixed-line telephony rolled out – it’s too expensive, especially as some populations are very remote and sit at the bottom of the pyramid and so there is an affordability issue. Yet that doesn’t really matter because mobile telephony and smartphones are enabling people to leapfrog fixed lines and are creating high demand for the digital delivery of services.
Smartphone usage is set to rise to 65 percent of connections by 2025, according to GSMA figures – that is up from 44 percent in 2019. This, combined with other trends, is underpinning significant growth in data consumption. All this clearly creates opportunity for investment in the plumbing that supports the digital economy.
How does this theme play into OMAI’s broader investment mandate?
We invest across a number of verticals – private equity, infrastructure, impact investing, hybrid equity and through our international private equity programme, which is a fund of funds. Given the nature and pace of change driven by digital technologies across Africa, we see our investment in digital infrastructure as supporting our investments across the piece because it enables growth and transformation for companies and whole economies.
If we improve digital infrastructure, we see improvements elsewhere. We are investors in the agriculture space, for example, through UFF, an Old Mutual Investment Group fund. Many farmers across Africa are in remote locations. Through digital services, they can access weather forecasts, market information, pricing data and satellite-based crop assessment on a regular basis. The cost of this type of information, which is critical if you want to optimise food production and yield, used to be prohibitive for most, so bringing in digital technology makes a substantial difference.
What kinds of assets offer the most potential?
We believe some of the best opportunities lie in areas that support the development of the digital economy. We seek to avoid merchant risk and focus on building digital infrastructure where we can secure the offtake in some way.
One area we see as offering significant potential is data centres. This captures the global trend of businesses moving to the cloud – something that is also happening across the African continent – as well as the demand for digital services more generally.
There is a move to bring data centres closer to where the data is being used, in part because it reduces redundancy but also because there is increasing nationalism and concern around where data is held.
That means there is high demand for more in-country data centres to be built. It is also possible to aggregate smaller data centres to benefit from economies of scale. We have made an investment in Etix, a tier-four data centre in Ghana, for example – that is the most complex and resilient type of data centre and it is the only one of its kind in the country.
Fibre-to-the-home is another exciting theme. It requires long-term investment and is necessary to meet demand for high-definition video on demand. We have made an investment here in South Africa in a business called MetroFibre, which is seeking to offer fibre to 300,000 homes over the coming years. There are other areas, too, such as residential rooftop solar, that support digital demand.
Residential rooftop solar may not traditionally be considered as directly supporting digital demand. How do you view it?
I think an example can help illustrate my point. We are investors in a residential rooftop solar business called Bboxx. Part of its mission is to tackle energy poverty. Half of the people in the world with no access to electricity live in Africa, which translates to roughly 600 million people. Clearly, if you don’t have electricity, you can’t charge a mobile phone, so that is the infrastructure strand.
Yet the point about Bboxx is that it is installing rooftop solar in remote homes, it must be able to monitor usage, bill customers and maintain the panels – all at an affordable price. It manages to do this because it uses digital technologies installed with the panels that help the company manage the panels remotely. This means the business is highly scalable and can reach tens of thousands of customers – and that is essential when your customers are among the poorest in the world. You must have scale to reach profitability when price points are low.
How has the pandemic played into demand for digital services in Africa?
Much like the rest of the world, the pandemic has helped accelerate the trend towards digitalisation, but for markets in Africa it has possibly been even more profound in that it has pushed users even further to leapfrog technologies used in other markets. It has, for example, driven faster smartphone adoption and offered the potential to build essential services to deliver through mobile devices.
Our firm has investments in affordable education, for example, through our impact investing arm. When schools switched to remote learning, it was clear that not everyone had access to a PC or tablet, so our education investments were able to develop remote learning tools via WhatsApp and email. Digital devices also allow students to access content from around the world to support them in their learning.
In retail, investments made by one of our portfolio companies, Footgear, in online systems will have an enduring effect. The pandemic has pushed customers to consider different delivery channels and many of them, having through necessity experimented with online engagement, will shift online over the long term and perhaps permanently.