Trial, error, then triumph
A clear vision, commitment and taking risks has led to huge success stories for Harith
Looking back over a decade of what was largely trial and error, Sipho Makhubela, head of Harith’s Pan-african Infrastructure Development Fund 1 (PAIDF 1), marvels at the success of some of the underlying investments in the fund.
For example, PAIDF 1 decided to invest US$30M in Main One, an undersea fibre cable linking West Africa to Europe at a time when the only fibre link to the rest of the world was the SAT-3 cable, which had limited capacity and a poor reputation for reliability. No-one could foresee at the time that West Africa was about to be drowned in fibre-optic capacity. Main One was soon followed by two other cables.
“Suddenly, we were faced with a glut of fibre capacity which materially affected our business case,” says Makhubela. “This affected our revenue projections, and bear in mind we launched this project just as the financial crisis of 2008 was unfolding, and interest rates started rising dramatically.
“A large component of the funding mix came from development finance institutes (DFIS) at high interest rates. DFIS have much lower costs of funding than commercial banks, yet took advantage of the high interest rate environment to maximise their returns. We had to retire this DFI debt with lower interest rate commercial bank money — which is ironic, but it’s what we had to do.”
Main One had to adjust its business model to accommodate the glut in fibre capacity. The decision was taken to bolt on data centres in Nigeria to the cable business, now used by the likes of the Nigerian Central Bank and several mobile phone operators. The reliability of the Main One cable, which this year experienced its first break in a decade (an excellent record for an undersea cable), has built a solid and loyal customer base. The business subsequently diversified into cloud-based and terrestrial data services, which has strengthened revenues.
Key to the success of the business is the quality of local management. Another great PAIDF 1 investment is Dark Fibre Africa (DFA), a nearly 10,000 km fibre “core ring” servicing the main urban areas of SA and linking with undersea cables at Mtunzini, south of Richards Bay on the Kwazulu Natal coast. This forms the backbone of the mass roll-out of fibre cable by companies such as Vumatel and Telkom now creeping into the suburbs of Johannesburg and elsewhere.
DFA was launched a decade ago, when fibre-optic cable was a futuristic concept mired in uncertainty. The DFA fibre system has huge room for growth, with less than a third of the cable capacity currently in use. The fibre business follows the typical utility model, with high up-front infrastructure costs amortised over 20 or 30 years as more customers sign on for high-speed broadband. Competition for fibre customers is already driving prices down at the retail level, though DFA – as owner of the backbone – benefits regardless.
Another prescient investment by PAIDF 1 was its purchase of a 98% share in power engineering company Aldwych International, which is driving the fund’s power expansion. The power generation portfolio now includes the 90 MW Rabai heavy fuels plant in Kenya, the 310 MW Lake Turkana wind turbine project in northern Kenya, the 450 MW Azura-edo open cycle gas turbine project in Nigeria, the 190 MW Amandi combined cycle gas turbine power plant in Ghana, and the Kelvin Power Station in Johannesburg, which in its heyday had a capacity of 600 MW.
The Amandi and Azura-edo plants in West Africa fall primarily under the PAIDF 2 fund, though