Talk about the ‘African growth story’ has become almost clichéd. Notions such as ‘the last frontier for growth’ can turn the debate into a series of catchphrases, often at the expense of serious analysis.
The need for such analysis remains huge because there is still a lot of uncertainty around doing business on the continent.
“We’ve been looking at Africa for the last 10 years, and increasingly what we’ve noticed is that Africa is getting more attention from the investment world,” says Daniel Schoneveld from global private markets investment management and advisory Hamilton Lane. “But many people still need to understand what the continent is about and what the opportunities are. We’ve even noticed that a lot of local investors do not understand the opportunity set in front of them.”
As the continent develops, it’s this lack of information as much as the historically-perceived risks that are inhibiting a lot of investment.
“Things are changing in Africa,” says Rory Ord, the head of private equity at RisCura. “Since the turn of the century we have seen a number of significant changes have led to a much more appealing investor climate.”
Factors such as rapid urbanisation, new wealth created through the boom in commodity prices and the widespread adoption of new technologies have driven economic development in many countries. Together with a more stable social and political environment, the role of Africa in the global economy is growing.
“Evidence of this change can be seen in the continent’s share of global GDP, which has grown from 4.2% in 2008 to 4.5% in 2013,” Ord says. “This may not seem like much, but increasing the global share of GDP requires countries to outperform global growth levels consistently over time. In Africa this has been achieved through sustained growth rates across the continent of more than 6% per annum for 10 years.” ACCESSING THE OPPORTUNITY It stands to reason that investors are attracted to this growth and are looking for ways to access it. And to some extent private equity players are at the forefront of doing this.
RisCura’s recently-released Bright Africa report provides some clarity on the state of the African private equity market and analyses 240 transactions that took place between 2006 and 2013. The majority of these were in South Africa, but the appeal of other regions is growing.
North African states like Algeria, Morocco and Egypt are reasonably well established, but recently West Africa and East Africa have also come into the picture.
“West Africa is mostly about Nigeria but what we are seeing in East Africa is more regional investment,” Ord says. “Private equity houses are investing in companies that might be based in Kenya, but can do business across borders in Tanzania, Uganda and even Ethiopia.”
What’s interesting is that the countries that are proving to be most attractive are not simply those that rate highly in terms of the ease of doing business. Investors are also looking for states that show good economic growth, depth in their capital markets, and provide investor protections.
A country like Rwanda, which is recognised for its business-friendly environment, has seen very little private equity activity while Nigeria, which is known to be a tricky geography, has attracted a lot of interest.
In terms of the sectors in which private equity deals have taken place, most have occurred in the industrial, consumer discretionary and materials sectors. The industrial sector attracted 23% of private equity deals in Africa between 2006 and 2013 by value. However, most of this