Private equity investment from abroad has been on the rise in Africa. For dedicated investment forms, West Africa is becoming a favourate destination.
Nearly every African country is looking up to foreign investment to provide their respective private sectors with the finance to step up economic activity and generate direly needed wealth. Now the liberalization of most African economies, and the achievement of relative political stability, by opening up lots of new investment opportunities are attracting private equity from abroad in drawers. Nowhere outside of South Africa, is this being done more enthusiastically than in West Africa, a region that is seeing a dramatic increase in funds being raised for investment.
“We’re seeing quite a few new GPs emerge in the region and some long-standing ones raising new capital” says John Jawuli Ababio, chief executive of the African Venture Capital Association. “There are six or seven that have recently closed a fund or are seeking capital even now.”
Indeed, in Ghana, Fidelity Capital Partners, an affiliate of that country’s Fidelity Bank, has promoted US$35 million, the latest success in its efforts spreading over several years now. Togo – headquartered Cauris Management is promoting a US$15 million fund, and Phoenix Capital Management a US$100 million fund, which is to be invested in its Cote d’Ivoire office. Regionalism is on the cards too; the Advanced Finance and Investment Group is aiming to raise between US$100 million and US$200 million for its Atlantic Coast Regional Fund.
But the biggest new fund on the horizon is one being raised by Travant, a Nigerian firm that has reached a US$107 million first class, a landmark in its bid to raise a total of US$300 million which would make it the largest fund raised on the continent outside South Africa. All this does not even take into account the par-African and South African funds with allocations to West Africa.
Capital is flowing into the sub-region in unprecedented quantums and with good reason. “We re seeing sounder macro-economic fundamentals across many of the countries in the region” confirms Ababio. “With debt relief, governments have been able to build reserves, macro-economic policies have been more prudent and there has been a lot of regulatory reform.”
To be sure, investor confidence is on a high. This is evidenced by the government of Ghana’s US$750 million sovereign bond issue, a year ago, which was four times oversubscribed.
Last year’s elections in Nigeria, although flawed, resulted in the first ever peaceful change of democratically elected government in West Africa’s biggest economy too, and investors and encouraged by this too. Indeed Nigeria is the driving force behind West Africa’s attraction of international business, what with its 140 million people strong internal market. Although tainted by associations with corruption, fraud and continuing internal conflict over its oil revenues, relative political stability and widespread banking and insurance reforms have done much to improve its outlook as an investment destination.
The banking reforms in particular have had a dramatic effect. The recent consolidation reduced the country’s 87 banks to just 25 by setting a minimum capitalization of some US$191 million. Several of them have gone much further, raising more than US$1 billion in capital, and a past – consolidation merger between two banks that exceeded the current minimum capital requirements has further reduced the number to 24.
Well capitalized banks means much needed finance for growing businesses, an essential ingredient for a thriving equity market. But the reforms have also created a vista of opportunities for firms investing in the institutions themselves. Many of the deals done in banking are some of the largest in West Africa to date, where the usual average deal sizes vary from country to country but tend to range from US$5 million to around US$30 million. But Actis, last year invest ed US$134 million in Nigeria’s Diamond Bank and that bank then went on to list on the Professional Securities Market of the London Stock Exchange, earlier this year, raising US$500 million. Similarly, Nigeria’s Intercontinental Bank, get a US$161 million by a consortium comprising Vectis, Capital, Emerging Capital Partners, AIG, Rand Merchant Bank and RCO. Elsewhere, Emerging Capital Partners has a hugely rewarding investment in Ecobank Transnational Incorporated while Cauris has one in the Francophone Bank for Africa.
With other countries in the region in the throes of banking reforms, emulating Nigeia’s successful example, banks look set to remain a popular investment choice for some time to come. “What we have seen in Nigeria we will see in other West African nations” predicts Rotimi Oyekanmi of Rennaisance Partners. “In some countries, the banks are still fragmented and weak They cannot stay that way. There is still the need for well capitalized banks.” Indeed Ghana has already announced an increase in minimum capital requirements will force its banks to seek substantial new capital between and next year and 2012. Similarly, the francophone nations, which all share a common central bank, are currently reforming their banking regulations to create stronger institutions.
The next area of rapid growth which is consequently attracting lots of private equity investment into West Africa is the telecommunications sector where the lack of sufficient fixed line infrastructure has fuelled dramatic growth in mobile phone usage. Actually, Africa as a whole is enjoying spectacular mobile telephony growth. Emerging Capital Partners reckons that the continents mobile telecommunications sector grew by 45% in 2006 making Africa the fastest growing market in the world. But West Africa’s growth for outstrips ever this, at 75% in 2006.
Perhaps the most dramatic example is Nigeria which 10 years ago, had just 40,000 lines. Today, the country has over 40 million mobile phone subscriptions and the numbers are still growing rapidly.
West Africa still has lots of countries where mobile telephony infrastructure is grossly insufficient when compared against potential demand. Private equity investment is now flowing in to exploit the resultant opportunities. For instance Emerging Capital Partners itself, earlier this year made a US$20 million investment in the Liberian company, Cellcom, which is planning to expand into neighbouring Guinea and Sierra Leone. The equity investment firm been among the most successful, in the region’s telecom sector with investments in Starcomms Nigeria and MTN Cote d’Ivoire as well, as being an investor in Celtel International which recently was acquired by MTC, a Middle Eastern Country, for US$3.4 billion.
Another favourite area for private equity firms in West Africa is mining. “Natural resources have always been an attractive area for investments in Africa” says Kofi Bucknor, managing partner at Kingdom Zephyr Africa Management. “That interest has grown considerably in recent times because of high commodity prices and growing demand, particularly from Asia. We do not know how long the commodity price cycles will last, but many are betting that prices will remain high for some time to come.”
While they do, private equity investors are making hay. For instance, Actis, in 2004 led a US$23 million investment in Mineral Deposits to help it develop zircon mineral sands and gold mines in Senegal. Emerging Capital Partners is also an investor in the company. Many believe there will be many more mining deals done as global demand increases, making mining an even more economically sound proposition.
Another area for private equity to go into is privatisation, as several West African countries, goes through the process of selling off undercapitalized and inefficiently managed state assets. Ghana has led the way here, and Nigeria is now following suit along with Cote d’Ivoire as that country emerges from a debilitating period of civil strife.
“There’s a lot of private interest in some state assets that are likely to be sold” confirms Rennaissance Partners’ Rotimi Oyekanmi. “Telecoms in Nigeria have been opened up and power is set to be the next sector.” Yet in practice, many of these deals are likely to be fraught with political difficulties.
Nigeria’s telecoms privatisation has been dogged by accusations of improper practices for example. Following Transnational Corporation’s acquisition of former state owned telecom firm, Nitel, in 2006, the government cancelled the sale earlier this year claiming that not enough had been done to transform the company. In neighbouring Ghana, the very recent sale of a majority 70% stake in erstwhile state owned Ghana Telecom to Vodafon stirred up deep controversy and Parliament only approved it after several stormy debates. The main opposition party has threatened to reverse the sale if it wins power at this December’s general elections.
Back in Nigeria, attempts made last year to privatizing Nigeria’s frequently troubled oil refineries stalled when Bluestar Oil, a consortium put together to acquire two of them, pulled out after widespread criticism of the deal and the likelihood that the new government was going to reverse the transaction in any case.
Despite these hiccups though the divestiture programmes of countries such as Ghana and Nigeria have attracted substantial private equity investment and look set to continue to do so into the future. Indeed Ghana, which has West Africa’s most comprehensive privatisation programme has sold well over a hundred enterprises over the past decade and a half.
Strong opportunities also exist for firms looking to capitalize on the rise of disposable incomes and the growing middle class that comes from increased economic prosperity. Again Nigeria holds the biggest promise here, with its one million strong middle class which is expected to increase dramatically as company performance improve, increase salaries, and workers start to spend more.
Already, the region is starting to see transactions that take advantage of this trend. For instance in 2004 Actis invested in first food restaurant operator and food producer UAC of Nigeria. Another example is Aurcos’ investment in bottled mineral water company Voltic.
With relative political and economic stability having returned to most West African countries consumer finance, from both banks and specialised consumer credit firms is becoming easier to come by for the growing middle class and private equity as beginning to pour into enterprises that are catering for the on-going rise of consumerism in the sub-region.
But with the exception of mining, what writes many investment opportunities in West Africa is the ability to scale up and build regional players. With the francophone countries sharing not just a common language, but also a single currency, the same central bank and similar legal system, expansion across borders within the sub-region has historically been relatively straightforward and in some cases necessary as many of the countries have such small populations that domestic markets cannot sustain companies.
Now though, many businesses in the region have more ambitious plans. Says CDC investment manager, Jean-Marc Savi de Tore, a Togolese national: “People understand that its not worth just staying in their own country. Fund and company managers are now overcoming the barriers of investing across the Anglophone francophone regions. It started in telecoms and then in the financial sector. We will see it in other areas that are ripe for consideration too.”
He points to areas such as reinsurance, hotel management and even rubber. Emerging Capital Partners 11 million euros investment in Societe Internationale de Plantations d’ Heveas, a rubber plantations and processing business with operations in Cote d’Ivoire, Ghana and now Nigeria is an example of this.
Such changes are being driven by both the supply and demand sides. Private equity firms are able to raise more capital and limited partnerships are looking increasingly at Africa as a promising emerging market. But there is also a greater pool of good management teams in the region than ever before. There are also more African business success stories, the founders of which are starting to act as role models for younger generations.
Since private equity seeks enterprises with the potentials and prospects for such success, this can only make West Africa all the more attractive for firms laden with venture capital.
Nearly every African country is looking up to foreign investment to provide their respective private sectors with the finance to step up economic activity and generate direly needed wealth. Now the liberalization of most African economies, and the achievement of relative political stability, by opening up lots of new investment opportunities are attracting private equity from abroad in drawers. Nowhere outside of South Africa, is this being done more enthusiastically than in West Africa, a region that is seeing a dramatic increase in funds being raised for investment.
“We’re seeing quite a few new GPs emerge in the region and some long-standing ones raising new capital” says John Jawuli Ababio, chief executive of the African Venture Capital Association. “There are six or seven that have recently closed a fund or are seeking capital even now.”
Indeed, in Ghana, Fidelity Capital Partners, an affiliate of that country’s Fidelity Bank, has promoted US$35 million, the latest success in its efforts spreading over several years now. Togo – headquartered Cauris Management is promoting a US$15 million fund, and Phoenix Capital Management a US$100 million fund, which is to be invested in its Cote d’Ivoire office. Regionalism is on the cards too; the Advanced Finance and Investment Group is aiming to raise between US$100 million and US$200 million for its Atlantic Coast Regional Fund.
But the biggest new fund on the horizon is one being raised by Travant, a Nigerian firm that has reached a US$107 million first class, a landmark in its bid to raise a total of US$300 million which would make it the largest fund raised on the continent outside South Africa. All this does not even take into account the par-African and South African funds with allocations to West Africa.
Capital is flowing into the sub-region in unprecedented quantums and with good reason. “We re seeing sounder macro-economic fundamentals across many of the countries in the region” confirms Ababio. “With debt relief, governments have been able to build reserves, macro-economic policies have been more prudent and there has been a lot of regulatory reform.”
To be sure, investor confidence is on a high. This is evidenced by the government of Ghana’s US$750 million sovereign bond issue, a year ago, which was four times oversubscribed.
Last year’s elections in Nigeria, although flawed, resulted in the first ever peaceful change of democratically elected government in West Africa’s biggest economy too, and investors and encouraged by this too. Indeed Nigeria is the driving force behind West Africa’s attraction of international business, what with its 140 million people strong internal market. Although tainted by associations with corruption, fraud and continuing internal conflict over its oil revenues, relative political stability and widespread banking and insurance reforms have done much to improve its outlook as an investment destination.
The banking reforms in particular have had a dramatic effect. The recent consolidation reduced the country’s 87 banks to just 25 by setting a minimum capitalization of some US$191 million. Several of them have gone much further, raising more than US$1 billion in capital, and a past – consolidation merger between two banks that exceeded the current minimum capital requirements has further reduced the number to 24.
Well capitalized banks means much needed finance for growing businesses, an essential ingredient for a thriving equity market. But the reforms have also created a vista of opportunities for firms investing in the institutions themselves. Many of the deals done in banking are some of the largest in West Africa to date, where the usual average deal sizes vary from country to country but tend to range from US$5 million to around US$30 million. But Actis, last year invest ed US$134 million in Nigeria’s Diamond Bank and that bank then went on to list on the Professional Securities Market of the London Stock Exchange, earlier this year, raising US$500 million. Similarly, Nigeria’s Intercontinental Bank, get a US$161 million by a consortium comprising Vectis, Capital, Emerging Capital Partners, AIG, Rand Merchant Bank and RCO. Elsewhere, Emerging Capital Partners has a hugely rewarding investment in Ecobank Transnational Incorporated while Cauris has one in the Francophone Bank for Africa.
With other countries in the region in the throes of banking reforms, emulating Nigeia’s successful example, banks look set to remain a popular investment choice for some time to come. “What we have seen in Nigeria we will see in other West African nations” predicts Rotimi Oyekanmi of Rennaisance Partners. “In some countries, the banks are still fragmented and weak They cannot stay that way. There is still the need for well capitalized banks.” Indeed Ghana has already announced an increase in minimum capital requirements will force its banks to seek substantial new capital between and next year and 2012. Similarly, the francophone nations, which all share a common central bank, are currently reforming their banking regulations to create stronger institutions.
The next area of rapid growth which is consequently attracting lots of private equity investment into West Africa is the telecommunications sector where the lack of sufficient fixed line infrastructure has fuelled dramatic growth in mobile phone usage. Actually, Africa as a whole is enjoying spectacular mobile telephony growth. Emerging Capital Partners reckons that the continents mobile telecommunications sector grew by 45% in 2006 making Africa the fastest growing market in the world. But West Africa’s growth for outstrips ever this, at 75% in 2006.
Perhaps the most dramatic example is Nigeria which 10 years ago, had just 40,000 lines. Today, the country has over 40 million mobile phone subscriptions and the numbers are still growing rapidly.
West Africa still has lots of countries where mobile telephony infrastructure is grossly insufficient when compared against potential demand. Private equity investment is now flowing in to exploit the resultant opportunities. For instance Emerging Capital Partners itself, earlier this year made a US$20 million investment in the Liberian company, Cellcom, which is planning to expand into neighbouring Guinea and Sierra Leone. The equity investment firm been among the most successful, in the region’s telecom sector with investments in Starcomms Nigeria and MTN Cote d’Ivoire as well, as being an investor in Celtel International which recently was acquired by MTC, a Middle Eastern Country, for US$3.4 billion.
Another favourite area for private equity firms in West Africa is mining. “Natural resources have always been an attractive area for investments in Africa” says Kofi Bucknor, managing partner at Kingdom Zephyr Africa Management. “That interest has grown considerably in recent times because of high commodity prices and growing demand, particularly from Asia. We do not know how long the commodity price cycles will last, but many are betting that prices will remain high for some time to come.”
While they do, private equity investors are making hay. For instance, Actis, in 2004 led a US$23 million investment in Mineral Deposits to help it develop zircon mineral sands and gold mines in Senegal. Emerging Capital Partners is also an investor in the company. Many believe there will be many more mining deals done as global demand increases, making mining an even more economically sound proposition.
Another area for private equity to go into is privatisation, as several West African countries, goes through the process of selling off undercapitalized and inefficiently managed state assets. Ghana has led the way here, and Nigeria is now following suit along with Cote d’Ivoire as that country emerges from a debilitating period of civil strife.
“There’s a lot of private interest in some state assets that are likely to be sold” confirms Rennaissance Partners’ Rotimi Oyekanmi. “Telecoms in Nigeria have been opened up and power is set to be the next sector.” Yet in practice, many of these deals are likely to be fraught with political difficulties.
Nigeria’s telecoms privatisation has been dogged by accusations of improper practices for example. Following Transnational Corporation’s acquisition of former state owned telecom firm, Nitel, in 2006, the government cancelled the sale earlier this year claiming that not enough had been done to transform the company. In neighbouring Ghana, the very recent sale of a majority 70% stake in erstwhile state owned Ghana Telecom to Vodafon stirred up deep controversy and Parliament only approved it after several stormy debates. The main opposition party has threatened to reverse the sale if it wins power at this December’s general elections.
Back in Nigeria, attempts made last year to privatizing Nigeria’s frequently troubled oil refineries stalled when Bluestar Oil, a consortium put together to acquire two of them, pulled out after widespread criticism of the deal and the likelihood that the new government was going to reverse the transaction in any case.
Despite these hiccups though the divestiture programmes of countries such as Ghana and Nigeria have attracted substantial private equity investment and look set to continue to do so into the future. Indeed Ghana, which has West Africa’s most comprehensive privatisation programme has sold well over a hundred enterprises over the past decade and a half.
Strong opportunities also exist for firms looking to capitalize on the rise of disposable incomes and the growing middle class that comes from increased economic prosperity. Again Nigeria holds the biggest promise here, with its one million strong middle class which is expected to increase dramatically as company performance improve, increase salaries, and workers start to spend more.
Already, the region is starting to see transactions that take advantage of this trend. For instance in 2004 Actis invested in first food restaurant operator and food producer UAC of Nigeria. Another example is Aurcos’ investment in bottled mineral water company Voltic.
With relative political and economic stability having returned to most West African countries consumer finance, from both banks and specialised consumer credit firms is becoming easier to come by for the growing middle class and private equity as beginning to pour into enterprises that are catering for the on-going rise of consumerism in the sub-region.
But with the exception of mining, what writes many investment opportunities in West Africa is the ability to scale up and build regional players. With the francophone countries sharing not just a common language, but also a single currency, the same central bank and similar legal system, expansion across borders within the sub-region has historically been relatively straightforward and in some cases necessary as many of the countries have such small populations that domestic markets cannot sustain companies.
Now though, many businesses in the region have more ambitious plans. Says CDC investment manager, Jean-Marc Savi de Tore, a Togolese national: “People understand that its not worth just staying in their own country. Fund and company managers are now overcoming the barriers of investing across the Anglophone francophone regions. It started in telecoms and then in the financial sector. We will see it in other areas that are ripe for consideration too.”
He points to areas such as reinsurance, hotel management and even rubber. Emerging Capital Partners 11 million euros investment in Societe Internationale de Plantations d’ Heveas, a rubber plantations and processing business with operations in Cote d’Ivoire, Ghana and now Nigeria is an example of this.
Such changes are being driven by both the supply and demand sides. Private equity firms are able to raise more capital and limited partnerships are looking increasingly at Africa as a promising emerging market. But there is also a greater pool of good management teams in the region than ever before. There are also more African business success stories, the founders of which are starting to act as role models for younger generations.
Since private equity seeks enterprises with the potentials and prospects for such success, this can only make West Africa all the more attractive for firms laden with venture capital.
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