ADDIS ABABA May 11 (Reuters) - Flush with cash from oil and stuck with few
options for growth in developed markets, Middle East investors are
increasingly looking to nearby Africa.
While the fast-growing continent offers plenty of opportunities, bankers say
there are also a raft of challenges for Middle East investors, particularly
due to the relatively small size of potential deals.
"We're seeing more interest. I think it's fair to say that we haven't seen a
lot of that crystallise into deals so far," said Diana Layfield, Africa
chief executive at Britain's Standard Chartered Plc.
"The Middle Eastern sovereign wealth funds are very interested in Africa,
the challenge that they face is the increment at which they need to invest
is way too large for the continent at the moment," Layfield told Reuters in
an interview on the sidelines of the World Economic Forum on Africa.
Held this week in the Ethiopian capital of Addis Ababa, the forum
highlighted Africa's attractions: it is home to some of the world's fastest
growing economies and rapidly rising disposable incomes.
A decade of relative political stability has also helped the case for
African investment.
"Definitely there will be more (investment) coming to Africa," Saudi Arabian
Minister for Agriculture Farad Balghunaim told Reuters.
"With the clear vision that is building up in African leadership now, there
will more and more investors from Saudi Arabia," he said in Addis Ababa.
But tapping that growth is not so easy, given the lack of liquidity in
public capital markets. For private equity bankers, there is often a
shortage of deals that can meet their mandate on size.
For instance, emerging markets private equity firm Actins told Reuters last
month it is aiming for individual deals of $50 million or more in Africa,
meaning it has to focus on the continent's biggest economies - South Africa,
Egypt and Nigeria - to find deals.
SMALLER DEALS
Some Middle East investors, therefore, are focusing on smaller deals to gain
exposure to Africa.
Dhabi's Abraham Capital is in the process of acquiring UK-based private
equity firm Aurous Capital, which invests in small and medium-sized
businesses in Africa, Latin America and Asia.
"We tend to have a sweet spot at around $10 million, but we have investments
as low as $2 million and going up to about $35 million," David Sian, Aurous'
regional managing partner for Africa told Reuters.
"Our focus has been to build regional champions. So we'll take positions in
businesses that can demonstrate management vision and build (them) out,
recognising that each of our markets other than Nigeria and South Africa are
fairly small markets, and you need to build that scale."
Due to the constraints in their home markets, Middle East investors are
familiar with Africa's challenges, such as the shoddy infrastructure, the
scarcity of a highly trained workforce and the lack of liquidity in capital
markets.
"The Middle East, part of which is rich in capital, is starting to look at
Africa as an investment destination," said Frederic Sucre, a partner at
Abraham Capital.
Sucre said he was "definitely" seeing more interest in African private
equity from Middle East investors.
"Behind us are 200 of the wealthiest merchant families, royal families from
the Middle East, sovereign wealth funds from the Middle East. We can pull
them in to looking at the infrastructure development space, or the big
utility development space, into looking at the opportunities here." (Editing
by David Clarke and David Cowell)
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Received on Sat May 12 2012 - 18:25:53 EDT
