In this edition of Ask An Investor, TechCabal spoke to Andile Ngcaba, chairman of Convergence Partners, about the state of digital infrastructure in Africa.
In January, Convergence Partners, a pan-African ICT investment firm, announced that it closed its Convergence Partners Digital Infrastructure Fund (CPDIF) at $296 million, surpassing its initial target by over 18%.
The fund was backed by a combination of existing and new investors, which include global and regional development finance institutions (DFIs), pension funds, and financial institutions based in Europe and Africa. The Convergence Partners Digital Infrastructure Fund is the firm’s biggest fund to date and brings its total funds under management to over $600 million.
The fund is focused on investing in digital infrastructure opportunities across sub-Saharan Africa, including fibre networks, data centres, wireless networks, towers, cloud, Internet of Things (IoT), and artificial intelligence (AI). Additionally, the fund aims to develop and support initiatives that promote access to education, financial services, healthcare, and other essential services through digital technologies.
The fund has invested in numerous companies including Yellow, 42Market, inq, SEACOM, and most recently, CSquared. In this week’s edition of Ask An Investor, Andile Ngcaba, chairman of Convergence Partners, talks to TechCabal about the importance of infrastructure investment, the company’s investment philosophy, and more.
TechCabal: Please share more information on the CPDIF
Andile Ngcaba: According to the ITU Partner2Connect Digital Coalition study, the world currently has a $428 billion digital infrastructure gap, the majority of that being in developing regions like Africa. Africa’s youthful population, the majority of whom are digital natives who require the internet to study and work, makes addressing this need more pressing.
With that in mind, the CPDIF is designed to invest capital in digital infrastructure such as optic fibres and data centres. Having closed the fund, we have started deploying capital in several companies including Yellow, 42Markets, and CSquared. It takes a lot of time to build digital infrastructure so we as Africans need to start now if we want our continent to partake in the Fourth Industrial Revolution. It is only after building the infrastructure that we can be successful in adding applications like fintech, e-commerce, and healthtech solutions on top and driving digital adoption.
How important is it that Africa builds its own digital infrastructure?
AN: It is important to understand the macroeconomics of Africa including the demographics. The fact that we have so many people moving into the cities means they have to be connected. They need the internet and they need to be online to access education, healthcare, and agriculture services.
We today talk about generative AI and large language models which need data centres to process huge volumes of data. But to be able to do that, we need to build our own data centres, so that African data can be in the African continent. But these data centres cannot live in isolation because they need optic fibre from the data centre to another data centre, a 5g tower or base station needs optic fibre to your home, etc. So there is a need to fund all these various infrastructure components because we understand what the future is going to look like.
The fund has invested in numerous companies so far. Please share the rationale for how you decide to invest in companies.
AN: We are an impact investor. That means we want to invest in companies that are cognizant of their environmental, social and good governance requirements. We are not only about how successful the company is but also its level of impact on society. I mean, there must be profits and generate returns to shareholders but their impact beyond that must also be clear.
They must treat staff well, look after the environment and adjacent communities, and operate within the right governance frameworks. If you take a company like Yellow, they are helping finance home solar panels in Malawi which changes the lives of people there. If you take CSQuared, they are building fibre in some of the remotest areas in countries like the DRC, Togo, and Liberia which connects those people to the rest of the world. This is what we want to see as an impact investor.
At the moment, do you think that Africa’s infrastructure is on pace to meet the continent’s innovation needs?
AN: I wouldn’t even start to say that this is enough. We need more capital in Africa because as I stated beforehand, the world has a $428 billion infrastructure gap with Africa being one of the areas with one of the leading deficits. The way technology is evolving means that we will always be playing catch up. An example is the transformer models needed to train large language models. Even developed nations are struggling with chipset shortages to go into the servers which train these models. And these countries have been building infrastructure way before us.
There have been supply chain problems in the world so in Africa, we need to secure our supply chain. Basically, we need to build data centres and put servers for AI and machine learning in those data centres and much more. Unfortunately, because of global macroeconomic issues affecting supply chain and chipset shortages, the world is also slowly getting behind that curve of innovation today because it takes six or seven months to access some of the servers required to run these complex processes. So what I’m saying is that Africa is not the only one impacted by such challenges. We need to rethink about supply chain and resources.
With these challenges in mind, Africa must think about producing its own chipsets. Africa must think about how to use the rare earth elements around and be able to produce electronics and chipsets. Africa will have two and a half billion people by 2050 and we cannot be a net importer of servers, phones, computers, and the like. To be able to do that, we need to have stronger research and development efforts. We need to understand that we have all the rare elements needed to produce such and have to figure out how to process them.
The journey for Africa’s development into building that future digital ecosystem lies in our hands. We must think about producing ourselves. We need servers produced in Africa, we need chipsets produced in Africa, we need semiconductors produced in Africa, we need all these devices for the future of communications to come from Africa.
The fund’s investment partners include development finance institutions. How important are these in your mission?
AN: Extremely important and their role will remain crucial into the future. Pension funds too. The capital requirements for building out digital infrastructure are extensive so it always helps to have as many partners as possible.
As an investor, how do you help your portfolio companies traverse through the various regulatory environments as they seek out a pan-Africa presence?
AN: I think what regulators are realising across the continent is that digital connectivity is key to advancing the continent’s development ambitions. So the collaborative effort to have friendly regulatory frameworks is perhaps improving. There’s also a paper published by the Africa Free Trade Agreement which I’m confident will be applied to our industry and harmonise regulations and policies across the continent. There is no need for Africans to roam between each other and pay roaming fees. The movement of data in Africa must be free between one part of Africa and the other
The internet is also one so we should all assist in making people have access to that. And that the Internet belongs to all of us. No one has a claim over this part or that part of the internet because it belongs to all of us. There must be a multi-stakeholder model and that is why you will also see that there is what is called a global internet governance model. These come out of the internet community to make sure that this resource must be protected and preserved because it belongs to all of us. So each country anywhere in the world needs to understand this context. It’s an important issue that we as practitioners must communicate all the time to regulators and policymakers.
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