BY CHARLES ABUEDE
International investors picking up and studying a new report by the Boston Consulting Group (BCG) and EDHECinfra will be peering hard at its findings that suggest that along with some other countries Nigeria offers huge potentials to attract digital infrastructure projects as it remains untapped for fibre optics investments.
The study by BCG and the EDHEC Business School backed venture, EDHECinfra, revealed that large markets such as Nigeria, Ghana, South Africa, Brazil and parts of Asia have huge potential to attract digital infrastructure projects but are untapped markets for fibre optics investments.
According to the report, the huge potential to attract digital infrastructure projects can be linked to uncertain economic growth that has made fibre-penetration levels uneven despite a clear demand for fibre infrastructure projects. However, the report provides a new perspective on the investment strategies and risk-adjusted performance of different groups of infrastructure investors.
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“Although demand for fibre optic projects is most pronounced in less-wealthy economies—large and diverse regions with significant potential, such as Nigeria, Ghana, South Africa, Brazil, and parts of Asia are untapped markets—fibre penetration is also uneven in places where economic growth is less uncertain,” the report states.
Stefano Niavas, managing director and partner, BCG Nigeria, jumping on the findings and its Nigerian specifics, said, “Fibre optic investment is required to expand the capacity of the undersea cable infrastructure on the shores of Nigeria beyond the cities to other regions of the country in order to make connectivity truly ubiquitous.
“With the growing demand for fast and reliable Internet connectivity, investing in digital infrastructure is profitable and it is expected that investment in fibre installations all over the country will accelerate in a few years from now,” said Niavas.
The study points out that the increasing desire for higher speeds and reliable online access will inevitably lead to a huge expansion of fibre optic installations in new networks in low- and middle-income nations as well as in existing networks in higher-income countries. Ultimately, fibre, which has already begun to make inroads in networks everywhere, will replace legacy (primarily copper) infrastructure completely, particularly as 5G rolls out.
The report highlights some key findings including a pivot to the digital frontier which indicates that all investors are planning to overinvest in digital infrastructure going forward, noting that while this also entails data centres, towers, satellites, and subsea connections, the appetite for broadband connectivity remains high.
Roman Friedrich, a BCG managing director and partner and a co-author of the report, explained thus: “The increasing desire for higher speeds and reliable online access will inevitably lead to a huge expansion of fibre optic installations in new networks in developing nations as well as in existing networks in more developed countries. Ultimately, fibre will replace legacy (primarily copper) infrastructure completely, particularly as 5G rolls out.”
As Frederic Blanc-Brude, director of EDHECinfra and a co-author of the report, explains, “certain investors have gained exposure to different segments of the infrastructure universe over time and each segment has performed differently.”
But the report also delves into the oil and gas sector where it highlighted that the sector still pays.
It noted that though one-third of the surveyed investors have expressed that they want to decrease their exposure to conventional power generation, the main beneficiary of the 2021 recovery, after transport, was gas and conventional power generation—especially since wind levels were lower than usual.
Those peer groups that stayed more exposed to these sectors benefited, while peer groups that have already mostly divested conventional power generation from their portfolios did not.
The BCG and EDHECinfra report also noted that operational value is paramount and while its value creation has always been a paradigm for value-add infrastructure investors, 90 percent of Core and Core+ investors agree that the focus will shift toward more hands-on value-creation work with their portfolio firms.
Wilhelm Schmundt, BCG’s global head of the infrastructure investors’ sector and a co-author of the report, said: “The steep increase in asset prices, dealing with inflation and the rise of factor prices, as well as secular trends like energy transition and digitalization, have made operational value creation a must-have capability for asset managers across all industry sectors. Limited partners are putting increasing scrutiny on understanding how general partners are building their respective muscles.”