Seeds of Opportunity: The African Growth Series
March 2022 | Issue 2
In this week's issue, you will learn more about:
- The state of South Africa's national roads
- African tech start-ups funding passing $1 billion in the first 2 months of 2022
- Electric Vehicles in South Africa
- Logistics property investments in South Africa
The state of South Africa's National Roads
The roads are the arteries through which the economy pulses and the lack of road maintenance could cost South Africa billions of Rands every year. The South African road infrastructure is the most developed on the continent and about 90% of the nation’s transportation of goods and services relies on this mode of transportation. As indicated by the Transport Minister Fikile Mbalula, the major problem is the rapid aging of the road infrastructure, with 40% of the provincial and 80% of the national network having reached the end of its 20-year design life. This leads to significant backlog in road construction, maintenance and rehabilitation. The main reason for the poor road condition is the curtailed funding allocations to the road networks, the shrinking project output by the public sector as well as the perceived corruption, specifically on a provincial level. Road maintenance can significantly extend the structural life of a road. But if this does not take place on time, the roads deteriorate rapidly and instead of road maintenance, the roads need to be rehabilitated, which is a considerably more expensive undertaking. The key to improving South Africa’s road network lies in private-public partnerships (PPP) with concessions. South Africa’s PPP regulatory framework has recently been reviewed and the findings indicate that it needs to be simplified and supply-driven, but its well worth it as PPP are proven model and have shown success both on an international and local level (e.g., Bakwena – SANRAL PPP). President Ramaphosa hopes to unlock some R1 trillion through the infrastructure fund which is a blended finance instrument, jointly governed by the public and private sectors as well as Multilateral development banks (MDBs). This approach significantly de-risk projects and makes them more attractive for the private sector.
African tech startup funding passes $1bn in first 2 months of 2022, with Fintech dominating the funding
During the course of 2021, investment into Africa’s tech start – up ecosystem doubled as tech start – ups raised close to US$ 5 billion (9 times the investment size raised 5 years ago). Nigeria, Kenya and South Africa were the three countries driving tech investment into the region, with fintech start – ups dominating and driving the fundraising, accounting for nearly US$ 3 billion of all the investment raised by start – ups across the continent. Among the largest beneficiaries of fintech capital investments were Opay, Flutterwave, TymeBank, Jumo, Zeps (formally WorldRemit), Tala and Wave. As the industry matures and mobile phone usage and internet penetration increases, funding into these fintech’s and tech start – ups is likely to continue across the continent. Already, US$ 1,12 billion has been raised as of the 1st March 2022, by 110 tech start – ups. Once again, fintech start – ups are driving the investment across the continent with 34 fintech’s having raised a total of US$ 434 million in 2022 thus far (38.7% of the overall tally).
Africa has a rapidly growing population, with some of the fastest growing economies and an underdeveloped financial service ecosystem. This presents an attractive opportunity for fintechs to uniquely provide conductive innovative mobile financial solutions that improve financial inclusivity across the continent.
Electric Vehicles in South Africa
Transport in South Africa is 28% of final energy consumption with 97% of it being liquid fuels that contribute 13.1% to SA’s overall greenhouse gas (GHG) emissions. The global shift towards environmental awareness has accelerated the interest in using low-emission transport. Electric vehicles (EVs) are growing in popularity throughout Sub-Saharan Africa and South Africa plans to go from having 1,509 EV cars on the road in 2020 to 2.9 million by 2050. The Government plans to invest R6.5 trillion over four decades into a nationwide plan for Green Transport, with the Department of Forestry, Fisheries, and the Environment stating that the long-term decarbonisation of South Africa's economy will focus on the electricity sector during the 2020s.
The demand for transport services will grow and the question is "Can South Africa maintain a large number of electric vehicles?" The response is Yes and No, due to two restraints; (1) people's mobility patterns and use of public and private transport, (2) the unreliable electricity system. There are approximately 3,9 million daily commuters who use public transport so, the government is heavily investing in having EVs in that system. They could also give tax incentives for companies and individuals who buy EVs. The battery technology for the EVs should allow recharging using renewables to alleviate the growing pressure on the struggling power network. South Africa has 251 publicly accessible charging stations and significant investment needs to go into expanding and maintaining this network as the market grows. The countrywide fuel station network is a potential spine that can be modified to integrate EV charging.
Logistics Property Investments in South Africa
South Africa's warehousing and logistics sector is set to welcome yet another investment as the Dakota Precinct at Rand Airport broke ground during February this year. This comes as the industrial property sector in South Africa continues to see growth, despite other property sectors being hit hard by the Covid-19 pandemic. The 13,000 sqm, A-grade logistics warehouse development will contribute to Johannesburg's 'Gateway to Africa' status when transport and logistics is concerned. A R1.3 billion project has been announced by Improvon and Nedbank Property Partners; which are the major shareholders of the project. Phase 1 of the development is expected to be completed in September 2022. Key advantages of this development are its location, allowing for easy accessibility to major road networks, N17, N3, and the R21, service offering which will cater for specialist manufacturers, assembly plants, processing factories, 3PLs, etc, and its business model focused on flexibility for rental options. The importance of the latter was further echoed by key players like Unitrans, during an assessment of covid-19 induced trends in the industry.
Dakota Precinct will be an important node for companies to breakbulk and will contribute to reducing supply chain constraints in the province. Moreover, it will contribute to job creation during and post-construction phases, in the Gauteng province. With the growth of e-commerce and decentralising trends of warehouses globally, the warehousing logistics space in South Africa may see further upcoming developments in the course of the year.
To find out more about opportunities in Africa, please contact Lynne Martin.
