Macro Forum: The Street View
Welcome to this edition of Street View. As usual our worldwide team looks at investment related issues drawing on local knowledge and global presence. The theme of this 2019 year end edition is tackling change.
The world needs to decarbonise rapidly or face appalling longer-term risk. Many of the best opportunities to adapt to energy transition lie outside the G7. More sunshine and more wind sounds like a holiday advert for sailing enthusiasts. In this case though it conveys why opportunities in renewable generation and distribution abound in emerging markets.
Capturing these opportunities is not always easy. Actis has a proud heritage of taking on and delivering, in an efficient and cost-conscious manner, projects which look difficult at first. James Mittell and Rowan Parkhouse share the story behind Lekela Power, now the largest wind farm company in Africa. Egypt in 2014 might seem an unusually risky place to begin this journey. Contract negotiations were an exhaustive process. Success demanded strong local links and deep industry knowledge. Fast forward to 2019 and Lekela is starting its seventh wind farm lifting capacity in operation or under construction to over 1000 MWs spread across Egypt, Senegal and South Africa.
Renewables are growing as asset owners seek to meld the pursuit of returns with responsible investing needs. Clearly the wind does not always blow or the sun shine. It’s therefore critical that storage systems can evolve to overcome intermittent supply risk. We see this as a key enabler if renewables are to reach the ’50 by 50 ‘target of supplying more than half of world generation needs by 2050.
Preyavart Gadhavi from our Energy Infrastructure team takes a look at progress in enhancing storage capacity. Students of disruption and change know that reliability and reduced prices are essential enablers of change. Preyavart finds this is the case with storage systems positing that producers can deliver a further 60% decline in prices over the next decade to follow up on an 85% drop since 2010. Add into this improved energy density, and adaption rates could be on the brink of rapid acceleration.
‘The most sophisticated biometric project in history’ is how Pratik Jain from our Mumbai office describes the introduction of Aadhaar, a project giving 1.1 billion Indians their own biometric identifiers. In parallel with this the introduction of Direct Benefit Transfer (‘DBT’) in 2013 has transformed the delivery of welfare payments. Since 2013 over 295 million new bank accounts have been opened and over $20 billion of payments which were previously lost through corruption have reached beneficiaries.
Whilst India is currently suffering from some excesses in the financial system, elimination of these losses go a long way towards supporting longer-term broad-based consumption growth. The best news is that DBT has yet to reach some of the largest parts of the welfare payments system so there is much more to come.
Politics plays a big role in assessing emerging markets investment risk. Stuart Jackson plots our annual look forward at key elections in 2020.
Looking back at 2019, The Street View, produced by the Actis Macro Forum, our worldwide knowledge sharing initiative, has roamed widely. We have introduced readers to countries from Colombia to Vietnam. Our enhanced real estate franchise has lifted the lid on value added investing in Korea and China. Technology change has featured widely including features on artificial intelligence, roof top solar and the Fourth Industrial Revolution. We have looked at political developments including the major changes in Brazil and Mexico and the view of Middle East risks as seen from the Iranian perspective.
We have examined deepening financial systems which can arise from growing pensions systems and speculated on the longer-term impacts of such developments on currency volatility- the bug bear of investors in emerging markets.
Our focus remains on changes, which offer value accretive opportunities. The Actis “Values Drive Value” mantra which combines investor priorities with a responsibility to the countries, cities, and communities where we operate. We look forward to building on these and other themes into 2020 always striving to give you the street view... Thank you as ever for your support.