Japan tops project finance investment into the continent…

Over the last 10 years, the level of project finance investments sponsored by Asian funds in Africa has increased by over 160%, with the amount of fresh capital poured into the continents’ projects such as roads, water sanitation plants and oil and gas pipelines in 2014 alone standing at USD 4.2bn, according to research by global law firm Linklaters.

The surge, especially in the last five years, is perhaps surprisingly attributable to Japanese investors, who have ramped up their project finance commitments in Africa by a staggering 576%, culminating with USD 3.5bn invested in 2014 as a result of a large focus on projects in Morocco. Japan now ranks as the most active Asian project finance sponsor in Africa, investing almost three times as much as China which is often regarded as the most active Asian investor on the continent. John Maxwell, Managing Partner of Linklaters’ Japan office, commented: “Contrary to popular belief about China dominating Asian investments in Africa, Japan has made slow but significant inroads in growing its influence across the continent. This underpins why many in the market are expecting African countries to remain significant investment destinations for Japanese capital over the next decade,” he continued.

Ranking as the number one project finance investor in Africa, over two thirds of all Japanese-led deals over the past decade have focused on Nigeria, making Japan the biggest Asian investor in the West African country. “It’s no surprise to see Nigeria feature so prominently – the investment appetite is huge, with opportunities and a level of return on investment across the energy and infrastructure sectors to match,” added Maxwell. China ranks as the second biggest Asian sponsor into Africa, committing in excess of USD 11.9bn of project financing over the past decade, almost half (USD 4.9bn) focused on South Africa. It is closely followed by India which has bankrolled more than USD 10.5bn of project finance investments, half of which have been based in Mozambique where it stands as the country’s leading investor.

Despite more Asian funds being directed to supporting African project finance, the volume of new project financings in Africa being signed by Asian companies more than halved in 2014 compared to 2013. Japan, India, China and Malaysia accounted for the lion’s share of all deals, their average investment size growing as in the case of Malaysia which has seen its investment in projects over the last five years grow by 140% to USD 2.64bn.

The most attractive project finance investment destinations in Africa for Asian sponsors over the last ten years have been Nigeria (attracting USD 22.8bn) South Africa (USD 6.8bn), Mozambique (USD 5.9bn), Egypt (USD 5.48bn) and the DRC (USD 5.36bn). Projects currently in development with Asian backing include building a road for transporting agricultural products and natural resources between the port of Nacala and landlocked countries Malawi and Zambia, construction of geothermal power plants in Ethiopia and the USD 4bn rehabilitation of the Mombasa to Nairobi railway line, reads the report.

The majority of project financed deals tend to encompass an element of M&A during the project cycle. In relation to mergers and acquisitions that are part of a project financing process, China remains the most active player in Africa having completed 24 deals worth a combined USD 14.3bn over the last decade. Indian investors followed completing deals valued at USD 6.2bn, with Indonesia coming in third with USD 1.8bn.

Andrew Jones, head of Linklaters’ Africa group, believes 2015 will be another bumper year for Asian investors: “For the majority of the continent, there is a strong macroeconomic growth outlook, improving business environment, abundant natural resources, and infrastructure development opportunities so we expect countries such as Nigeria, Mozambique and Kenya to continue to be attractive investment destinations.”