Africans have historically relied on development finance from the West and, more recently, from China. Yet there is US$120bn of potential investment capital housed just within the national pension funds on the continent. The SA government has taken the view that Africans need to determine and start investing in their future by developing their own infrastructure.
Harith Fund Managers was founded in 2007 - as the appointed manager of the Pan African Infrastructure Development Fund (PAIDF), a private equity fund with a 15-year life span - to pursue this vision. It is based in Sandton, and its shareholding is spread between the management of Harith, the Public Investment Corp (PIC), Old Mutual and Absa Bank.
Harith CEO Tshepo Mahloele previously worked for the PIC's domestic private equity arm the Isibaya Fund, the Development Bank of SA and the Commonwealth Development Corp.
The name Harith was chosen as it is a North African word for plough. Harith sees itself as ploughing Africa with the seeds of much-needed infrastructure - which includes information, communications and technology, transport, water and sanitation and energy.
Harith has been given discretion to invest 30% of the fund into investments that fall outside the strict definition of infrastructure. Says Mahloele: "Africa can still do with a lot of support and complementary investment for infrastructure projects." There is a mix of greenfields projects, brownfields projects and refinancing projects such as toll roads. He says the fund complements financing agencies such as the African Development Bank (AfDB), as it provides equity alongside the debt that they provide.
Harith raised $630m for the PAIDF. "Many of the national civil service pension funds are not yet ready to invest in private equity, many are still making the leap from investing purely in local bonds and property into listed equity. An exception was the Social Security & National Insurance Trust (SSNIT) in Ghana."
The Government Employees Pension Fund (GEPF) is the largest participant in the fund with $250m of committed capital; Absa has a further $125m; the Development Bank of Southern Africa (DBSA) $100m; $50m each from AfDB and Old Mutual; $15m each from Liberty Life and Standard Bank ; $10m from Metropolitan and SSNIT; and $5m from the Eskom Pension & Provident Fund.
Says Mahloele: "We do not have the profile of a typical private equity fund, which invests in a business and must invest and exit within five years. We invest primarily in greenfields projects, of which many start generating a cash flow only after four years. But this makes us an ideal investment for life insurers and pension funds, which have a large portion of long-term liabilities. I would consider 15%/year return in dollar terms to be a disappointing performance for this fund, but even that is a very attractive return compared with, say, long-dated bonds. And I believe a 25% internal rate of return is achievable."
The fund has representative offices in Accra and Tunis. It has built up a substantial deal flow and network since 2006.
There is certainly more than enough demand for PAIDF's capital. Africa needs to invest $90bn/year into infrastructure, of which a third should be sourced for the private sector. "We need to start connecting the continent, it cannot continue to operate as 53 separate economies. We showed through the Maputo corridor what could be achieved when a good road was built to connect Maputo to Gauteng. At the time, Mozambique was the poorest country in the world and anyone can see how it has now improved. Africa is a very different place from five years ago and we are assuming it will change just as much over the next five years," says Mahloele.
Harith plans to invest 25% of the fund by 2011. It has already invested 35%. "Our model is to work with operating partners on the ground - we don't have the expertise to run these businesses."
The largest holding of PAIDF is a 21% interest in Essar Telecoms Kenya Holdings, one of four mobile telecom operators in Kenya, which operates under the brand Yu. It is looking at introducing a money transfer mechanism, Obopay. Cellphone operators are an ideal investment for private equity funds as they lend themselves so easily to a listing once they have grown to sufficient critical mass.
PAIDF is conducting its diligence on two other wireless telephony projects - Shenzho, a Wi-Fi project being rolled out in Soweto; and Smile Telecoms, an Internet-based Wi-Max, which would service the bottom end of the market in Tanzania.
WHAT IT MEANS
 Primarily invests in greenfields projects
An ideal investment for pension funds
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The next largest investment of the fund is New GX/Community Investment Ventures Holdings, the people who lay fibre-optic cables in SA and other parts of sub-Saharan Africa. Aldwych Holdings is best known for developing and operating power stations, including the Kelvin power station east of Johannesburg and the Rabai greenfields project in Kenya. The oldest holding of the fund is Seawolf Jackup, which provides drilling services to oil and gas businesses in West Africa.
Connectivity with the world is an important theme and PAIDF has a 25% interest in Main One Cable Company, which is laying a cable between West Africa and Portugal in its first phase.
There is no shortage of projects under consideration, including the fund's first possible investment in an airport in North Africa. Mahloele says this project would be important symbolically as it would make the PAIDF genuinely Pan African. Harith is also looking at a freight rail operation in sub-Saharan Africa, a toll bridge in West Africa and a property development in SA. Its other main property project is a mixed-use property development in West Africa.
Harith was awarded the Infrastructure Fund of the Year award in October 2009 by African Investor for its management of PAIDF. The fund has a country limit of 20% - it is in danger of hitting that limit for Kenya soon. It also has a limit of 30% per industry - telecommunications exceeds this. PAIDF was the first investment done directly by the GEPF rather than through the PIC.
The chairman of the GEPF, now Arthur Moloto, also serves on the board of trustees of the fund, together with GEPF principal officer Maemili Ramataboe. There are also some heavyweight private equity and infrastructure professionals on the board, including Sollie Nortje, Thando Mhlambiso, Emile du Toit, Christoph Kuhn and Ekue Mivedor.
Mahloele says that there are no plans for now to launch a new fund, and PAIDF is not open to new investors. "However, we believe that African institutions are getting more comfortable with private equity. " There should be no shortage of opportunities as Africa seizes control of its economic fate.
