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PUTTING YOUR MONEY to work in Sub-Saharan Africa has never been easier – or more complex. The region is awash with profit-making opportunities -- and ways to lose your shirt. Like China in the 1990s, Africa is on the cusp of an economic revolution. Risk is everywhere; understand it, learn its parameters and boundaries, and the rewards will come.
A good partner is everything. South African and Nigerian listed stocks may be in the portfolios of emerging market-focused funds, but investors remain judicious about what to buy in a region where most bourses lack depth and liquidity. Key advice for newcomers, as well as long-standing investors seeking to break into a new market, includes ensuring you invest for the long term, develop local talent, choose markets carefully and expect more than you bargained for.
Albert Essien, group CEO of pan-African lender Ecobank, notes that a knowledgeable and reliable banking partner “can certainly help provide a smoother landing when one is venturing into new territory. Companies looking to expand into the region would do well to avail themselves of the services of financial service providers like Ecobank. With a team of more than 60 experienced professionals, each with in-depth knowledge of local markets.”
Right asset, right price
Private equity groups are keen on investing in a region set to grow by a compound rate of 7% by 2020, yet equally determined to target the right asset in the right markets at the right price. None of that is easy in a region still struggling with intermittent infrastructure and communication, and often patchy levels of central and local governance. “Never forget,” notes one global emerging market-focused investor, “that Sub-Saharan Africa is still a bit of a cowboy saloon. It’s pot-luck. You might wind up sheriff. Then again you could end up being run out of town.”
Essien says global investors “must be prepared to engage with African countries on a long-term basis and avoid abrupt changes in investment focus because of perceived instability in certain markets”. He points to six key considerations that global investors must be prepared to contend with: understanding the local business culture, assessing which markets offer the best balance of risk and reward, finding and vetting appropriate local partners, understanding local market regulations, local environmental factors, and local levels of technological development. Investors, Ecobank economists say, can do no better than speak to Ecobank’s client advisory, LocalKnowledgeAfrica (LKA), which draws on the bank’s research analysts based in Lagos, Accra, Abidjan and Nairobi, as well as the bank’s pan-African footprint.
Advisory outfits offer excellent regional data and investment advice, from emerging market investment bank Renaissance Capital to South African consultancy NKC. Buyout groups have access to data and quarterly reports co-authored by investment adviser Cambridge Associates and the Africa Private Equity & Venture Capital Association.
Building a network
Jacob Kholi, partner and chief investment officer for Sub-Saharan Africa at The Abraaj Group, a global buyout group with offices across the region, points to the importance of “the right partners on the ground in the right markets”. Kholi, whose firm in April 2015 closed its third dedicated Sub-Saharan Africa buyout fund at $990 million, believes its success stems from having “on-the-ground access to clients and markets and opportunities. Our advantage is the network we’ve built up across the region.”
His message is: invest with partners who know the region inside out, not ‘suitcase bankers’ who drop in every few months. Get to know the corporate you’re investing in, or the team you’re putting your money to work with. In Sub Saharan Africa, like anywhere, notes Kholi, “teams can be filled with great individuals, but they can also flop when they are slot together, so make sure you see them in action beforehand”.
Jacques Nel, an economist at NKC, notes the increasing prevalence of joint ventures between regional and foreign corporates, pointing to the creation of Hareonsolar, a maker of solar cells co-owned by Chinese manufacturer Hareon Solar and Johannesburg-based Amed Energy.
Rob Hersov founded and chairs London-based private members club Invest Africa, whose 350-strong membership is packed with business leaders, private investors and family offices. “New members looking to learn can extract expertise and advice from members who have been operating in Africa, in some cases for more than 50 years,” he says. “We equip our members with the right tools to make an informed investment decision.”