Macquarie Bank Investment Banking Group

1
Africa Investor Projects Summit Establishing a
Conductive Infrastructure Investment Environment
7th November 2007 Andrew Johnstone
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Africa - Infrastructure Background

• Africas socio economic condition demands a
  sustained high growth rate
• Estimates of gt6 required to address high
  unemployment and poverty
• Governments are spearheading new initiatives to
  stimulate growth
• Development Funding Institutions continue to play
  a vital role in catalysing development
• Direct linkage between GDP growth and Fixed
  Capital Formation

Per Capita GDP Growth 1994-2003
China
South Korea
Malaysia
Thailand
Poland
Brazil
South Africa
Source World Bank
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Africa Infrastructure Background
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The Results of Getting it Right, or Not

• Source WEF Global Competitive Report 2006-2007,
  Sept 2007

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Why is a Conductive Environment necessary ?
Until the 1990s most developing countries relied
on the public sector to finance and operate
infrastructure
Globally this has resulted in a significant
back-log in the provision of infrastructure

Estimated power supply shortfall is R 93 bn over
next 5 years
Commission for Africa Estimate US10 billion /
year to 2010 US20 billion / year to 2020
World Bank Estimate US26 billion between 2005
2010
Private sector involvement to improve efficiency
and performance of existing infrastructure and
finance new infrastructure
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What is a Conductive Environment ?

• Why Invest in Infrastructure ?
• Stable and defensive
• Privileged long term cashflows
• Regulation
• Natural monopoly
• Risk defined
• Right thing to do

• Investment Criteria
• Sustainability
• Cash Yield
• Predictability
• Fixed investment
• Long term
• Social investment

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Are all Environments the same ?
Macquarie Global Infrastructure Index vs
Global Equities and Global Bonds (Total
Return USD)
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Conductive has a global reference

• Subject to financing and customary closing
  arrangements
• As at March 2007 the assets listed are managed
  on behalf of investors with various direct
  stakes held in each

111 assets, 22 funds, 24 countries US 60bn
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Realising the Benefits

• Investment Deliverables
• Long term yields
• Improvements in project performance
• Dissipation of risk over the project
• Development of financial market, and
• Optimisation of capital structure

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Appetite Requirements
Energy Resource Supply
Country Risk
Ops
Equity

• Good Development
• Development based on risk approach
• focus on low risk not high returns
• predictably
• Recognise the long term nature
• Systemic support
• Develop for investment sake
• Clearly define different funding risks profiles
• Both sides need best advice

Enviro, Regulator, Legal, Tax
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Appetite Requirements
Minimizing the unknown

• Project Finance
• Funding is secured on the revenue generative
  ability of the asset
• Project Structure seeks to allocate specific
  project risk to the party best able to manage
  that risk
• Definition and quantification of risk is the
  process of building the jigsaw of confidence.

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Infrastructure Equity

• Where do they fit in ?
• Last in cash flow cascade
• Highest in the risk profile
• Part of a overall funding package
• Owners of the project
• Triple line objectives

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Conclusion Who can do what ?

• Government
• Adopt a PPP policy and stick to it
• Take competent advice
• Support thorough project development
• Dont re-invent the wheel
• Institutionalise learning and remember the
  motivating reasons for the deal.
• Time of the essence. Cost of delays in delivery
  far outweigh negotiated gains
• Partnership philosophy recognise and reward
  contributions

• Private Sector
• Co-ordinating project development
• Innovative structuring
• Focus on definition and pricing of risks
• Back the region long term
• Establish quality partnerships
• Focus on Sustainability
• Partnership philosophy more than lip service