An econmic slowdown in the Bric countries has led investors in Asia and globally to pay more attention to another emerging market: Africa.
“There’s no shortage of capital,” says Davinder Sikand, head of sub-Saharan Africa at private equity firm Abraaj Group. Its investors include high-net-worth families, foundations and PE firms who hail from Europe, the US and increasingly Asia – notably China and India.
Sikand, speaking on a PE panel at the Africa Investment Summit by AsianInvestor and FinanceAsia last week, predicts: “I suspect in a few years' time it will be like Indonesia.”
Fellow panellist Thelma Maclean, SAS Finance Group senior investment analyst, says there has been strategic partnerships formed with Asian firms – including Chinese entities – for investment in Ghana’s energy and real estate sectors. “I see that increasing,” she adds.
Alex Downs, deal manager at Bravia Capital, says his PE firm has made an investment in West Africa that combined local and Chinese partners. “It shows that Asian investments into Africa can work very well.”
The continent’s attractiveness is down to its economic growth and large population with a growing middle class. These generate investment opportunities in the consumer goods, infrastructure, property and energy sectors.
According to the Cambridge Associates LLC African Private Equity and Venture Capital Index, PE funds in Africa had an 11.2% annualised return for the 10 years ending September 30, 2012.
Combined with sub-Saharan Africa’s estimated 5% GDP growth rate, it offers an emerging market that is relatively underinvested, but PE firms have been making inroads.
There were 36 deals totalling $850 million made in sub-Saharan Africa in the first half of 2013, according to the Emerging Markets Private Equity Association.
Global buyout giant Carlyle Group has raised $600 million for its Sub-Saharan Africa Fund, according to US regulatory filings, while Abraaj will launch its Africa Fund III “in the next few weeks”, says Sikand.
He expects to see healthy interest from Asian investors for the vehicle, which reportedly has a target size of $800 million.
As a result of growing capital inflows, valuations have been steadily rising over the past five years, says John Seymour, co-founder of South African consumer goods company Lodestone Brands. “Sellers’ expectations are very high [and] it has become very competitive.”
Panellists also agree that it is not an easy market to navigate. “It is challenging in the sense that it takes a while to do things,” says Downs. “You likely do need the help of local partners so that you can understand the nuances, because there are so many jurisdictions. [But] at the end of the day, Africa is open for business ... you will be able to take these projects through and make them successful.”