Inside Africa's first infrastructure fund

Convergence Partners is the first company to secure an infrastructure fund to spur the growth of infrastructure across Africa

To have cheaper and easier access to technology, players in the industry need to invest heavily in the infrastructure. This includes putting up fibre optic cables, investing in satellite technology and ensuring the deployment of state of the art expertise.

Today Convergence Partners, founded in 2006, is an investment management firm aimed at investing in infrastructure companies across the continent and it is at the forefront of supporting infrastructure-centric companies.

The firm recently announced a funding round under Convergence Partners Communication Infrastructure Fund (CPCIF) that will be used to stimulate the development of Africa’s telecommunication infrastructure.

With a backing of US$200 million from a second round, the fund aims to partner with other companies that are in the process of developing Africa’s backbone. The company will make investments ranging from US$10 million to US$30 million in the next four years. The first round raised US$145 million back in 2013.

“CPCIF is the only infrastructure fund dedicated solely to the information and communications technology (ICT) sector in Africa. Its aim is to invest in communications infrastructure and related services and technologies across sub-Saharan Africa,” the company said.

The fund has been set up with the help of Convergence Partners [as sponsors], the International Finance Corporation (IFC), the European Investment Bank (EIB), the Dutch Development Bank (FMO), the Development Bank of Southern Africa (DBSA) and the CDC Group (CDC).

Public Investment Corporation (PIC) [acting on behalf of the Government Employees Pension Fund (GEPF)] also participated in the second round.

Already the fund has contributed to Synergy Communications (SynCom) an investment platform for enterprise and wholesale communication services providers amalgamating fixed and wireless technologies across sub-Saharan Africa. SynCom has, to-date, donated funds to two ISPs in, Malawi: Skyband and Mozambique: IS Mozambique.

Africa has stood out to access these funds due to what the company says is a significant market that has seen positive economic growth and the increase in the GDP of the continent.

“The African economy also continues to diversify with sectors such as ICT, agriculture and financial services increasingly driving the economic growth in the region, exceeding the resources sector as the primary levers for growth on the continent,” Brandon Doyle, CEO Convergence Partners said.

“However, Africa’s inventory of terrestrial fibre optic networks has more than doubled in the last five years and passed the one million kilometre mark during Q1 2015, it still remains massively under-developed,” Doyle explained.

But the demand would continue to grow as Africa’s economies continue to strengthen the use of technology as businesses mature.

This can be seen by the growth of international bandwidth demand in Kenya. According to the Communication Authority in Kenya, during January and March this year, internet bandwidth available in the country grew by 117.9% to reach 1.6Gbps up from 0.7Gbps recorded during the last quarter.

The authority said that this increase could be attributed to one of the fibre optic cables, TEAMS which added additional capacity to meet the growing demand. SEACOM, one of the companies Convergence Partners has funded also saw an increase of 36% in international bandwidth. SEACOM recorded 770,000Mbps compared to last quarter of 565,440Mpbs.

The Communication Authority in Kenya said that the demand for this bandwidth is due to the increase of online activity in the country.

“This growth could be attributed to the continuous formulation of e-applications such as for e-commerce that have witnessed popularity in online shopping thereby increasing demand for bandwidth,” the report read.

But even so, this also shows the amount of data hosted off the country due to lack of good structures inland.

Most companies have foreign host companies in Europe and America. This is still putting a strain on the resources.

Angani, one of the local cloud companies in Kenya aims to convince individuals and companies to adopt local hosting as it is faster and does not cost international exchange charges for internet service providers.

The cost of local hosting can be as low as US$0.4 per megabit compared to upwards of US$100 per megabit for traffic that needs international exchange, Angani CEO Phares Kariuki told PCAdvisor.

Convergence Partners have successfully funded projects around Africa including SEACOM, Dimension Data, New Dawn Satellite Co., AccessKenya, Internet Solutions, Plessey, Inala Technologies and Comsol Wireless Solutions.

The company is looking to invest more in companies dealing with Fibre, satellite, wireless/spectrum, services and even technology related to smart energy grids or renewable energy projects on the continent.

According to Doyle, the company does great research regarding geographies, specific countries, specific opportunities within those countries and high growth areas.

“As a result of our market positioning, track record and strong relationships we are also presented with deal referrals from our networks on the ground,” Doyle said.

“The Fund aims to invest in companies with skilled, experienced and complete management teams, possessing a full spread of capabilities, proven ability to grow businesses, appropriate incentivisation and strong alignment of interests with shareholders,” he added.

The company also looks at sustainable competitive advantages, appropriate and sustainable technology and environmental, social and governance benefits and finally strong governance frameworks.