Africa private equity debate: Realising Africa’s potential

By:
Kanika Saigal
Published on:

The investment potential in Africa has long been discussed but finally the hype is turning into reality. Regional private equity firms are beginning to convert their local knowledge of Africa’s subcontinent into cash. But there are still many obstacles to establishing a thriving business in sub-Saharan Africa.


 Executive summary
• Private equity firms are focusing on countries with newly-discovered natural resources
• Competition is increasing, particularly for deals of over $50 million
• Buyout funds provide an exit opportunity for the middle market
• Firms should look to collaborate more
• Regulators, rather than regulations, can be unpredictable
• Africa is still a risky place to invest
• There is a long list of failed private equity ventures in Africa

Euromoney Which countries and sectors in sub-Saharan Africa are the main targets when it comes to private equity?  

Joshua-Siaw_35x48

JS, White & Case Around five years ago most private equity investments we saw from foreign investors were predominantly focused on South Africa and Nigeria but more recently we have observed an increased interest from private equity investors in countries that have recently discovered natural resources. 

Let’s take oil and gas as an example. In the last few years, countries such as Ghana, Uganda, the Ivory Coast, Mozambique, Tanzania and Kenya have discovered large quantities of oil and gas. And there seems to be an increase in the interest from private equity investors in these countries – not only in the oil and gas assets themselves, but also in the surrounding services sectors. It is a trend we find quite interesting. 

Yaw-Keteku_35x48
Sponsored by 
Barclays_logo-300

YK, Vantage Capital We are currently investing our third mezzanine fund, which is primarily focused on South Africa and about 50% focused on the rest of the continent, by which we are really targeting about 10 markets – Ghana, Nigeria, Kenya, Uganda, Tanzania, Botswana, Namibia and Zambia and we have started looking at opportunities in Ethiopia and Mozambique. 

Industry wise, and in line with our mezzanine structure, we believe it is important to invest in companies that can pay regular coupons in the reasonably near future so we like infrastructure and commercial real estate investment. We are not keen on residential real estate because of the difficulty in the offtake visibility and we avoid primary agriculture, where there is no irrigation. Otherwise, we are open to investment opportunities in all sectors. 

Richard-Akwei_35x48
RA, Musa Capital I actually try to avoid talking about specific sectors, because it is somewhat prescriptive. Through private equity, we look at solving portfolio company barriers to growth or better operating performance, and this leads us to cover a number of sectors for one company. 

For instance in housing: one of our portfolio companies builds social housing, but the next problem in developing this is end-user financing. How are people we are providing housing for going to pay for a mortgage? That has led us into the issue of credit, risk and credit management which private equity firms may choose to get involved with. And if you are able to provide that, residential real estate at the lower income segment becomes an interesting project. But it is like many of the deals in Africa – it doesn’t come prepackaged.

There is a strong, development opportunity with private equity and we pride ourselves in making a difference on this continent. 

Dominic-Liber_35x48

DL, Leapfrog Investments One of the backbones that cuts across many of the sectors we are pointing to is financial services, which acts as an enabler for so many other things to grow and develop. This is even more significant ​when we start talking about the emerging consumer in Africa, and other emerging markets, and about tapping into that consumer base. 

Ngalaah-Chuphi_35x48

NC, Ethos Private Equity One interesting way for private equity to be put to work across Africa is for it to support local portfolio companies to adapt their proven business models and take the model from one country to another. 

For example, we have a company called Waco, which provides scaffolding, modular building and sanitation products – crucial to all countries that are engaging in significant infrastructure rollout, which is the case across the African continent. So for us, one of the best ways to provide private equity capital is through Waco: for it to partner either with a business in specific geographies or actually set up an organic operation.

Euromoney So how is competition evolving in the private equity space in Africa amongst yourselves and others, especially as we see more and more Africa-focused funds coming on the scene?  

Philip-Lindop_35x48

PL, Barclays When we think about competition in private equity it is really at that end of the spectrum where you genuinely are competing with everybody who has some kind of capital allocation to Africa. 

Ngalaah-Chuphi_35x48

NC, Ethos Private Equity I think there is more competition at the higher end of the deal spectrum – at the level where a fund is looking to deploy equity cheques of above $50 million. At this level there are fewer deals and those deals are normally disintermediated, hence pricing is sharper.