Africa style

Finweek English Edition - - MONEY -

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

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