China Investment Corporation (CIC) is eyeing infrastructure investments in emerging economies in an effort to bypass strong demand for core assets in developed countries, delegates at Infrastructure Investor‘s Berlin Summit heard last week.
As part of a panel dedicated to sovereign wealth funds, Mi Tao, infrastructure director at the $653 billion institution, explained that CIC was “feeling the inflated pricing” of assets in the Organisation for Economic Co-operation and Development. This was prompting it to seek better risk-adjusted returns in less established markets.
He said that infrastructure could have a crucial role in integrating resources from various sectors, allowing CIC and other investors to be able to offer “package deals” to emerging markets – involving, for instance, energy, agriculture and infrastructure components – as those markets strive to create jobs and unlock economic growth.
“Infrastructure can play a very interesting role which is to integrate resources from across sectors, especially in emerging countries. When you try to tap the natural resources, you often find a lack of infrastructure, that’s the key obstacle that prevents you from achieving that,” he told delegates.
As part of its revamped strategy, Mi added that the fund was increasingly keen to invest in greenfield projects. “Sovereign wealth funds tend to have a much bigger balance sheet than other institutional investors; their capital is evergreen. So they have much more flexibility to structure deals and be patient. The J-curve effects incurred during the construction period can be absorbed by our large portfolio.”
He said CIC was particularly attracted to East Africa, where “strong population growth, natural resources, and improving governance lay out the foundations for us to be confident we can deploy large amounts of money”.
And he cited several greenfield container port projects in Tanzania and Kenya as examples of investments CIC is currently pursuing. “Logistics is really the bottleneck in those countries. So today we’re investing in the port terminal but we might also consider funding the surrounding facilities and even some railway.”
Founded in 2007, CIC is responsible for managing part of China’s foreign exchange reserves. It started its infrastructure programme in 2009.
“Moving into emerging markets doesn’t mean we won’t do anything in developed countries anymore. These are still important – but emerging markets are a natural expansion of our current infrastructure programme.”
Reporting by Matthieu Favas