Trial, er­ror, then tri­umph

A clear vi­sion, com­mit­ment and tak­ing risks has led to huge suc­cess sto­ries for Harith

Financial Mail - - CORPORATE REPORT -

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

Jo­han­nes­burg’s Lanse­ria Air­port: An out­stand­ing in­vest­ment by Harith

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