PE & Fundraising

Africa’s energy M&A to jump 2% in 2018- Kieran Whyte


March 6, 2018 | 1:10 pm
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The value of Mergers and Acquisitions within Africa’s energy sector is tipped to rise some 2.27 percent to $4.5 billion this year, according to Kieran White.

Whyte is the head of energy, mining and infrastructure sector group at Johannesburg-based, Baker McKenzie, which advises on cross-border transactions such as Mergers and Acquisitions (M&A).

His expectations are anchored on the trend in Greenfield investment, particularly in renewables, which is forecast to grow in coming years.

For several excitable years, Africa was considered the next major frontier in deal making, an untapped giant offering vast opportunities in mergers and acquisitions (M&A), joint ventures and private equity transactions.

Investment bankers, lawyers and angel investors flocked to the continent, scouting out promising targets, setting up local offices and planning their exposure to Africa’s rising consumer and commodities markets.

Yet in 2018, many are beginning to ask whether Africa’s deal bonanza will continue or come to a halt; as the continent struggles through the aftermath of a commodities slump amid an on-going series of political challenges, deal flow has taken a major hit.

“We forecast M&A in Africa’s energy sector to hit $4.5 billion in 2018 which could rise further to $5.2 billion in 2019 before dropping to $3.3 billion in 2020,” Whyte said.


“There is clearly a lot of opportunity for the energy sector in Africa, which is reflected in forecast increases in M&A activity in the next two years,” he added.

The extent of the power deficit across Africa is well known and increasing electricity generation, whether on-grid or off-grid, across the continent is the focus of a number of initiatives.

The African Development Bank’s (AFDB) New Deal on Energy for Africa has set a target of universal access to electricity across Africa by 2025.

According to AfDB, to achieve this, 160 gigawatts of new on-grid generation and some 75 million new off-grid connections will be needed, through a mix of conventional and renewable energy sources.

Complementary initiatives by Power Africa, the European Union (EU) and other multilateral and development finance institutions will also play a greater role.

However, Whyte noted that investment in the energy sector had in some instances stalled due to regulatory and political uncertainty, as well as economic conditions in Africa.

“In South Africa, uncertainty surrounding the country’s future energy policy, the delay in the publication of the Integrated Resource Plan, anticipated additional political changes, as well as financial and governance concerns at the State-owned electricity supply company, Eskom, have all resulted in an uncertain energy landscape and a loss of potential direct foreign investment in the electricity sector,” he noted.


Whyte said that it was hoped that under the leadership of new South African President Cyril Ramaphosa investors in the sector would receive the clarity they were looking for, which would act as a catalyst for renewed investor confidence.


“The recent appointment of a new Energy Minister, Jeff Radebe is considered to be a positive move in that he is the country’s longest serving continuous cabinet minister, with experience across numerous portfolios. In addition, changes in leadership at Eskom, and President Ramaphosa’s commitment to finalising mining regulation, closing the fiscal gap, stabilising debt, addressing unemployment and restoring state-owned enterprises to health are all moves that will encourage investment in the sector,” he noted.


“What the South African energy sector now needs is more certainty and consistent implementation of energy legislation and policies. Certainty is also needed across other sectors that rely on the energy sector including the mining, industrial and commercial sectors. This will restore confidence in Africa as an investment destination and facilitate direct foreign investment, which will in turn assist in much needed job creation and skills development. It will also be necessary to ensure transparency and integrity in the procurement of all goods and services as well as robust and independent energy regulation,” he said.


“In addition, government must support and breathe new life into the stalled renewable energy programme, which will be the catalyst for the implementation of other energy programmes. This will ensure South Africa an energy mix that is progressive, capable of meeting customer demands, and that will assist in South Africa discharging its sustainability obligations,” noted Whyte.


Whyte said clarity was also needed on whether, how and when the South African nuclear programme would go ahead. President Ramaphosa said at the World Economic Forum in early 2018 that the country’s economic situation meant that South Africa could not afford to build a major nuclear plant and this sentiment has been echoed in recent announcements by the Minister of Finance.


“Going forward, bearing in mind the World Economic Forum’s theme of Creating a Shared Future in a Fractured World, and the evolution of the Fourth Industrial Revolution, we need to ensure that energy sector infrastructure investment in Africa is fit for purpose, and based on sustainable development principles,” Whyte noted.


“This means taking cognisance of technological innovation, decarbonisation and climate change, connectivity and digitization, regionalisation and integration, urbanisation and industrialisation and inclusive economic growth models. We also must ensure that we adhere to the UN Sustainability Development Goals and principles for responsible investment,” Whyte explained.


“Further, civic participation in the entire process is essential to ensure that there are no trust deficits across all the supply chains. This will help to ensure procurement integrity and further bolster South African energy sector investment,” noted Whyte.


Baker McKenzie’s Global Transaction Forecast noted that the global energy sector was expected to undergo greater diversification in years to come as companies prepared for advances in technology and renewables.

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March 6, 2018 | 1:10 pm
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