Japanese investors spearhead 160% rise by Asian funds in African project finance

Over the last 10 years, the level of project finance investments sponsored by Asian funds in Africa has increased by over 160%, the amount of fresh capital poured into the continents’ projects such as roads, water sanitation plants and oil and gas pipelines in the last year alone standing at $4.16 billion, according to new research by global law firm Linklaters.

The surge, especially in the last five years, is attributable to Japanese investors, who have ramped up their project finance commitments in Africa by a staggering 576%, culminating with $3.54billion invested in last year alone 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.

Most active nations

China ranks as the second biggest Asian sponsor into Africa, committing in excess of $11.9billion of project financing over the past decade, almost half ($4.9billion) focused on South Africa. It is closely followed by India which has bankrolled more than $10.5billion 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 $2.64bn.

Target countries

The most attractive project finance investment destinations in Africa for Asian sponsors over the last ten years have been Nigeria (attracting $22.8billion) South Africa ($6.8billion), Mozambique ($5.9billion), Egypt ($5.48billion) and the Democratic  Republic of Congo ($5.36billion).

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 $4billion rehabilitation of the Mombasa to Nairobi railway line.

China leads M&A charge

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 $14.33billion over the last decade. Indian investors followed completing deals valued at $6.15billion, with Indonesia coming in third with $1.76billion.

Andrew Jones, head of Linklaters’ Africa group, added: “Africa has faced a number of challenges over the years and the level of political instability in parts of the continent has certainly hindered progress. Yet, some Asian countries, such as South Korea and China, are not new to investing in emerging markets and are used to dealing with political risks or less sophisticated systems.”

Over the last decade, Asian buyers have been behind 450 M&A and project finance African deals totalling more than $109billion combined. 

Jones 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.”

ENDS

For more information, contact Surinder Sian on +44 207 456 4842

 About Linklaters:

  • Linklaters LLP is a leading global law firm, supporting clients in achieving their strategies wherever they do business. We use our expertise and resources to help clients pursue opportunities and manage risk across emerging and developed markets around the world.
  • Linklaters has a long and deep experience of working on matters throughout Africa, helped by its unique ability to cover all three principal legal systems through its offices in London, Paris and Lisbon. These core offices are complemented by Africa experts across Linklaters’ and its alliance firms’ offices in Europe, Asia-Pacific, the Middle East and the Americas allowing Linklaters to service investors into Africa worldwide. Our alliance with Webber Wentzel, South Africa’s leading full-service law firm, complements Linklaters’ market leading Africa practice. Together we provide our clients with a unique advantage through the firms’ combined experience, know-how, and international and on-the-ground resources.
  • Linklaters has been named Law Firm of the Year: Africa 2013, by the Chambers Global directory and Law Firm of the Year 2014 at the Southern African Compliance Awards. The firm is also ranked at the top of the league tables for work in Africa, recently advising a consortium of lenders on financing of US $2.6billion coal power station in Morocco, advising Glencore Finance on US$2.97billion loan facility for Katanga Mining and advising a number of banks on Seplat’s £1.2bn IPO, the first Nigerian oil and gas company to have its shares dual listed on both the London Stock Exchange and the Nigerian Stock Exchange.