Why private funds enjoy Africa

Mining and confidence help boost investment on continent

PRIVATE equity companies are doing a resounding trade throughout Africa, not just in South Africa.

According to a study by auditing firm EY this week, of the 118 “exits” recorded by private equity firms in Africa — essentially, private equity investors selling their shares — the country accounted for fewer than half. This punctures the myth that South Africa is the only country on the continent in which private equity trading is booming.

The study showed that South Africa accounted for 42% of exits, West Africa was responsible for 25% and East, North and Southern Africa (excluding South Africa) each added 11% to the total.

According to the report, this demonstrated that private equity houses across the continent were not only able to source good investment prospects, but they also had an eye on the exit.

The most active sector was financial services, which accounted for 23% of investment, but the new focus on consumer spending was reflected in ventures into food and beverages — 9% of exits — and telecommunications (8%).

Duncan Bonnett of research and consulting company Whitehouse & Associates said this week that much of the growth and development in black Africa would happen along two axes.

One axis would be from the relatively developed but slow-growing economy in South Africa to the north, including the copper belt, Mozambique, Tanzania and the area around the Great Lakes, which would include Uganda, Rwanda, the eastern Democratic Republic of Congo, South Sudan and Kenya.

The second axis would be from Nigeria westwards and include the Ivory Coast, Ghana, Liberia, Sierra Leone, Senegal, Guinea and some parts of the hinterland such as Mali and Burkina Faso.

Bonnett said the GDP of subSaharan Africa could reach $1.9-trillion by 2017 — up from about $1.4trillion (R14.4-trillion) at the moment.

GDP has grown an average of 5% annually in the past decade, or more than 6% if South Africa is excluded.

The share of global GDP has grown from 1.1% in 2000 to 1.8% in 2010 and is expected to top 2% in 2017.

Much of the growth has come on the back of increased mining, growing urbanisation, more infrastructure development and higher levels of domestic and foreign confidence

Exploration and development are gathering momentum

in the economies of African nations.

Countries such as Nigeria and Angola are dominant as a result of large oil and related industries.

The other “old oil” producers in Central Africa— Gabon, Cameroon, the Congo Republic and, to a lesser extent, Equatorial Guinea — have not been able to translate this wealth into sustained levels of development.

They have been overtaken by Ghana and Uganda — and are threatened by emerging oil and mining players such as Mozambique, Tanzania and Zambia.

Many new resources on the east coast of Africa are isolated and so there is an additional push to build new infrastructure — from roads, rail and power to social infrastructure such as clinics.

Bonnett said Uganda, Mozambique and Tanzania were already on the cusp of these developments.

At the same time, exploration and development are gathering momentum in Kenya, Ethiopia and South Sudan and, to a lesser extent, in Rwanda and Burundi.