http://www.iol.co.za/business/international/investors-place-bets-on-africa-1.1894111?ref=yfp
Investors place bets on Africa
August 2 2015 at 04:58pm
By Reuters
>From milk churning in Zimbabwe to rose growing in Ethiopia, private
equity investments in Africa have returned to pre-crisis levels and
should keep rising as funds seek big returns in far-flung markets.
Private equity deals in Africa totalled $8.1 billion (R103.1bn) last
year, the second highest on record after the $8.3bn posted in 2007,
according to the African Private Equity and Venture Capital
Association (AVCA).
This year could be even bigger as investors tired of low returns in
developed markets look to cash in on the rapidly emerging middle-class
consumers in Africa.
Private equity deals in Africa between 2007 and 2013 earned 60 percent
more than the MSCI emerging market index, AVCA said.
Traditionally private equity buyouts in Africa have been supported by
development organisations but there are signs over the last year that
global funds are taking more aggressive steps to tap into a continent
of 1 billion people.
“The growth story in Africa is compelling,” said John van Wyk, the
head of Africa at Actis, an emerging-market focused fund.
“Global funds are realising they need to have some sort of Africa
strategy and that hasn’t always been the case,” he added.
Debut entries
Large US private equity firms, including TPG and Kohlberg Kravis
Roberts (KKR), have made their first investments in Africa in the last
year.
The New York State Common Retirement Fund, one of the largest US
pension funds and worth about $180bn, said in April it could invest up
to $5bn in Africa over the next five years to boost returns and
diversify its portfolio.
TPG said in June it would invest up to $1bn in African companies under
a tie-up with Sudanese billionaire Mo Ibrahim’s Satya Capital, which
has interests ranging from health care in Nigeria to manufacturing in
Tanzania.
Investments are focused on fast-moving consumer goods, financial
services, health care and telecommunications.
Bigger funds are looking at infrastructure projects, including filling
massive unmet electricity demand across Africa.
KKR last year invested $200 million in Afriflora, a rose farm in
Ethiopia, one of Africa’s fastest-growing economies.
Though interest in Africa is rising it comes off a very low base with
even large funds raising only about $1bn, a meagre sum compared with
developed markets.
More money was raised in India last year than in all the 55 countries in Africa.
Low base
“While there has been more capital raised, it’s low compared to other
geographies,” said Marlon Chigwende, the managing director of
Carlyle’s sub-Saharan African business.
High returns are also far from guaranteed.
Food and drinks giant Nestlé offered a dose of reality last month,
saying it was cutting 15 percent of its workforce in Africa because it
had over-estimated the growth of the middle class.
Still, middle-class households in 11 key sub-Saharan African
countries, excluding South Africa, are set to triple to 22 million by
2030, according to Standard Bank.
“Things can take a long time in Africa so people should not expect
instant results,” Chigwende added.
Many fund managers believe African investments have longevity because
money is increasingly flowing to markets outside South Africa.
Nigeria and Ethiopia, Africa’s two most populous countries, are often
cited as new opportunity areas.
Verod, a small Nigerian private equity firm, earned 15 times its
investment this year when it sold its stake in GZI Industries.
While optimism is increasing, major obstacles remain, from huge
infrastructure and skills deficits to lingering political instability.
“There is risk everywhere. There is risk on Wall Street,” said
Muvirimi Kupara, the head of Spear Capital, a Zimbabwean fund with
interests in dairy processing.
“He who dares wins.” – Joe Brock for Reuters
Received on Mon Aug 03 2015 - 17:53:10 EDT