INVESTING IN AFRICAN POWER plants can boost returns, provide a
hedge against global market shocks, and help lift people out of
poverty, says Jerome Booth. The chairman of London-based New
Sparta Asset Management Ltd. takes it a step further: For investors,
not having such assets in a portfolio is “irresponsible,” he says.
Booth has strong opinions about emerging markets. An econ-
omist, he was part of the management group that in 1999 established
Ashmore Group Plc, an emerging-markets-focused investment
manager in London that now oversees $92 billion. After retiring from
Ashmore in 2013, Booth started New Sparta, wrote Emerging
Markets in an Upside Down World: Challenging Perceptions in Asset
Allocation and Investment (Wiley, 2014), and was appointed chairman
of Anglia Ruskin University’s board of governors.
He personally invested about $10 million in developing a power
plant in Northern Ghana, alongside Erling Lorentzen, founder of
Brazilian forest products producer Aracruz Celulose SA. That project
has spent $70 million on a forest of eucalyptus trees to provide
biomass fuel and now awaits a so-called put and call option agreement,
which is economically equivalent to a government guarantee, accord-
ing to Booth. Once that’s in hand, the plant’s owners plan to raise
up to $350 million in financing, mostly debt, to get to production.
JAMES CROMBIE: Why are you investing in African power?
JEROME BOOTH: Energy is the biggest bottleneck to economic devel-
opment in Africa. Investing in emerging markets—including in illiquid
things like power stations—is a way to not just increase returns and
diversify your portfolio, it’s a way fundamentally to reduce risk. If
you don’t do it, you’re actually concentrating your portfolio in a highly
risky way, which is imprudent and irresponsible.
I’ve got a significant investment in Ghana, and I wouldn’t be
doing it if I didn’t think it was suitably important. I’m not investing
just for the return. I’m also trying to send a message that this is
the sort of thing that people should consider investing in.
The point of investing in emerging `markets is that you get
your cake and eat it. You get to exploit the fact that there’s a mis-
pricing of risk. If the world blows up, Africa will still want power.
Long term, it is immune to changes in consumer fads, the terms
of trade, and other factors.
JC: What’s the project?
JB: The African Plantation for Sustainable Development. It’s a
standard thermal-power plant with 67 megawatts of generating
capacity, and the total investment is $420 million. Once the forest
is there and you’ve built all the roads and the infrastructure, mar-
ginal costs in the future are very low. If you scale up and build a
second power station next to it, they go even lower. There’s huge
economies of scale if this were to expand across West Africa.
JC: What do you expect to make on it?
JB: Returns could be 20%-ish, depending on whether you want
to go through the build phase and sell, or just use it as an income
stream for 20 years when it’s producing power.
JC: Isn’t there still a lot of risk in Ghana?
JB: There’s political risk everywhere. The difference between an
emerging market and a so-called developed country is that in the
emerging markets, the risk is perceived and priced in—sometimes
overpriced.
JC: How does African power fit into a portfolio?
JB: You just can’t think of one type of risk. Obsessive concen-
tration on past volatility of liquid prices is a distraction from a lotEmerging Markets
For Really Uncorrelated Returns,
Try Investing in a Ghana Power Station
By JAMES CROMBIE
PHOTOGRAPH BY FINN TAYLOR
36