CAIRO: Citadel Capital plans to invest up to $400 million in East Africa, the private equity firm said in a statement Sunday.
The firm said it will be eyeing investment opportunities of around $200-400 million in Kenya, Uganda and Tanzania over the coming two years.
Already in the pipeline is a 42 megawatt power plant in Sudan, a joint project with the Sudanese pension fund Taqa Arabia and Asec Cement (of which Citadel owns 32.5 percent and 30 percent, respectively).
Set for inauguration next month, the project requires an investment of $67 million.
Meanwhile, OPEC awarded Egypt’s Ministry of Electricity $80 million to develop power generation in Egypt.
Electricity Ministry Hassan Younes met with Suleiman Al-Herbesh, director general of the OPEC Fund for International Development (OFID), to discuss partnership in Egypt’s energy plan which aims to provide 11,000 megawatts in additional electrical capacity by 2017.
OFID will contribute soft loans for projects including two power stations in the greater Cairo area, north of Giza and south of Helwan, which will require $90 million.
Younes added that international financing companies also intend to contribute funding, which he considered an expression of confidence in Egypt’s energy sector as a lucrative investment.
Improving infrastructure in African countries, including Egypt, has proven a profitable venture for both public and private investors. In its company profile, Citadel Capital proudly states that, “since 2004, the firm has returned more than $2.4 billion in cash to investors, more than any other private equity firm in the region.
Governments are profiting as well: Investment Minister Mahmoud Mohieldin proclaimed on Friday that returns from public sector enterprises topped LE 3.7 billion for fiscal year 2008/09, pointing to their profitability despite the global financial crisis.
Public private partnerships to enhance infrastructure have proved worthwhile, as highlighted by Younes in his praise for the five year energy plan, in operation from 2007 to 2012, and its success in procuring external funds rather than requiring state financing.
Money for the long-neglected sectors of electricity, water treatment and transportation, in Egypt and across the continent, is crucial to implementing a stable framework for generating economic growth.
In a statement from Dar es Salaam regarding Citadel’s intention to invest in $400 million in Tanzania, Kenya and Uganda, the firm’s Managing Director Karim Sadek told The Citizen that, “This is part of a significant movement among emerging markets to build robust local economies by crafting the political frameworks and economic policies that are the foundations of sustainable regional growth.
Yet pouring money into infrastructure without prioritizing that the new systems for electricity, water and transport are ecologically sustainable misses a unique opportunity.
As more developed countries in Europe, North America and Asia struggle to find ways to “green their existing infrastructures, Africa has the chance to bypass more traditional archetypes, and later replace them, with efficient technologies. Yet both public and private bodies have few incentives to undertake any but the cheapest construction methods and models.
Governments and private firms publicly declare their support for sustainable development. Egypt’s Ministry of Electricity alleges that 20 percent of Egyptian electricity will be generated by renewable sources by 2020.
OPEC is a signatory to the EU’s Zero Emissions platform.
Citadel Capital voices support for ecologically minded development.
But few of the new investment projects vary from standard archetypes, either in Egypt or the rest of Africa.
The bottom line remains of primary concern. A statement by Citadel to its investors entitled “Why Africa? gushes, “The region’s large population offers the opportunity to create economies of scale. With an aggregate GDP of $1.417 trillion in 2007, the region constitutes the world’s tenth-largest economic bloc.
“It is also among the most rapidly developing, recording average economic growth of 5.8 percent in the five years to 2007 compared with a global average of 3.8 percent. Going forward, analysts expect regional growth to out-strip the international average through 2012.
Companies such as Taqa Arabia, involved in the construction of Citadel’s power plant in Sudan, are attracting interest. Citadel’s Managing Director Karim Elaraby said Taqa Arabia’s initial public offering (IPO) would likely occur this year, either during the second quarter of 2010 or after Ramadan ends in September.
“We think this is a 2010 IPO but the exact timing and size will be discussed with our financial advisers, he told Reuters. The firm increased its net profits by 30 percent increase in 2009 to almost LE 90 million ($16.53 million), compared to the 2008 figure of LE 68.5 million in 2008. Elaraby expects similar growth in 2010.
With such high growth it seems possible that some could be reinvested in developing or purchasing sustainable technologies in electricity generation, transportation and water treatment. Yet with infrastructure becoming an unlikely cash cow, investors will more probably grow more risk averse, choosing short term gain.
In the energy sector particularly, until generating power using fossil fuels becomes less profitable, as petroleum prices eventually increase, pursuing alternative energy sources remains the more expensive alternative and therefore not a viable option.
