Motsepe’s ARC to sail boldly into continent
Investment company plans to be trusted partner of foreign funds in rest of Africa
● African Rainbow Capital (ARC) Investments, which holds minority stakes in pension fund administrator Alexander Forbes, upstart telecommunications company Rain and controls banking newcomer TymeBank, is raising billions of rands to put into businesses in the rest of the continent.
The investment company, controlled by billionaire Patrice Motsepe, plans to be the trusted partner of foreign funds that would invest alongside it on the continent, ARC Investments CEO Johan van Zyl told Business Times.
The black-empowerment investment group already has a financial services arm and a host of diversified investments in other sectors. It has more than 40 investments and prefers backing businesses that offer low-cost alternatives to SA’s consumers.
The rest of Africa is the next frontier.
“We are providing a vehicle for those in developed markets to invest,” said Van Zyl. For this purpose it established ARCH Emerging Markets Partners (ARCH EM) to geographically expand its reach beyond SA. ARCH EM is a joint venture between London-based JCH & Partners and ARC.
And it hopes to attract investors on the basis of a good brand. This includes Motsepe’s international image as a man who keeps the company of Bill Gates and Warren Buffett — he undertook the same Giving Pledge to donate most of his fortune to charitable causes – and the clout of Sanlam.
ARC is ultimately controlled by Motsepe’s Ubuntu Botho Investments, which also has a 18.1% voting stake in Sanlam as its empowerment partner.
Sanlam in turn has, with the exception of banks, the largest financial services footprint in Africa. Investors who are jittery about committing funds to Africa at least know Sanlam.
“Africa is this frontier, you can double your money very quickly but you can also lose it all very quickly,” Van Zyl said, adding that serious investors are skittish and want to work with credible partners. “We want to provide that credibility.”
So Motsepe and Sanlam are the names to follow but investors are also chasing returns. They want to put their money where the growth is.
“We look at the pockets where we can add the most value. And that is infrastructure,” said Van Zyl.
ARC put up 20% of a $105m (R1.5bn) renewable energy fund. And after that first step, the other institutions started crowding in — the European Investment Bank, the African Development Bank and private investors.
It is also the torchbearer for a $100m fund that invests in East African cold storage, a tragically underdeveloped part of the continent’s logistics infrastructure. This will have benefits for fresh produce transport and links nicely to South African businesses in these regions, Van Zyl said. The profits are lucrative and there is a humanitarian aspect to it — the cold chain also aids the distribution of certain temperature-sensitive medicines.
Other punts include a credit fund and resources fund on the continent.
ARC joint venture partner in ARCH EM is veteran investor Johan Hattingh’s firm, JCH. Based in London, it is close to a deep pool of investors who want to put funds into African ventures, but without doing the greenfields work on the ground.
Hattingh’s network, Sanlam’s pull and Motsepe’s star factor – these are the building blocks of the African business.
Medium term, the five big investments in ARC’s portfolio would be Sanlam, Alexander Forbes, Rain, Tyme and phosphate miner Kropz, said Van Zyl. And over time, the African leg will also become an important pillar in the group.
Van Zyl sees ARC growing by about 20% a year as its investments in telecommunications,
It hopes to attract investors on the basis of Motsepe’s brand
Africa is this frontier, you can double your money very quickly Johan van Zyl
CEO of African Rainbow Capital Investments
mining and banking start blooming. But that was not the case this year.
“The period under review has been characterised by strained economic conditions which adversely impacted most of the companies in our portfolio,” ARC said.
The company reported a 1% rise in its net asset value per share, from R9.20 to R9.28 in the half-year to end-December.
Van Zyl shrugs it off as a decent performance compared to the market in general — the JSE was down 12%. And a host of ARC’s investments are early-stage businesses that are still building scale.
The poor performance of the economy is expected to remain for the remainder of the financial year, the company said. But some of ARC’s most daring investments are not dependent on economic growth, more on disrupting incumbents and snatching away clients that could be more open to changing banks or data providers in lean times.