Signs of life seen in Africa private equity funds

The six-month upturn in global markets has re-ignited interest in one of the final frontiers of emerging markets — private equity investment in Africa — and underlines a substantial bounceback in investors’ risk appetite.

The global financial crisis of the past two years hit African markets hard. Credit lines dried up and sovereigns and corporates were unable to issue international debt.

But global emerging equity markets have nearly doubled since March and many African stock markets are also recovering, albeit with a lag.

Investors say that as conditions ease, there is scope to expand the $5 billion African private equity market.

“I am seeing more and more opportunities right now,” said Chris Derksen, who manages a $135 million Africa private equity fund for Investec Asset Management.

RAISING FUNDS

Private equity investment in Africa equated to around 0.4 percent of total African GDP, or $5 billion, in 2008, according to the Washington-based Emerging Markets Private Equity Association (EMPEA).

This compares with private equity investment in the United States of $204 billion, or around 1.5 percent of U.S. GDP.

However, investors in the African private equity space are starting to seek more money for investment.

Ahmed Heikal, chairman of Egyptian-based Citadel Capital, says the firm has made no new investments since Aug 2007, instead concentrating on managing existing businesses.

But Citadel plans to invest $200 million to $400 million in 2010 and is looking at opportunities in Africa.

“There are a variety of risks that have changed as a result of this crisis,” Heikal said. “Some governments have had their resources stretched, they have become more open to foreign investors and more encouraging of foreign investment.”

Zain Latif, a former Goldman Sachs banker and founder of new London-based special situations fund TLG Capital, hopes to double his $25 million fund in the next few months.

“We do not invest in Africa for anything less than a margin of 40 percent,” he said.

The fund has already invested in a joint venture between Indian drug maker Cipla and Quality Chemicals Uganda, who are forming the first pharmaceutical company manufacturing antiretroviral and anti-malarial drugs in Africa.

Africa private equity investors point to many of the same investment opportunities as those in listed equity markets.

“We are getting a growing urban class, a population benefiting from telecoms, greater access to credit,” said Kofi Bucknor, Ghana-based managing partner of Kingdom Zephyr, which has over $400 million under management in African private equity funds. “A lot of countries are emphasising infrastructure — power, energy, cement.”

Beyond the larger countries like Kenya, Nigeria and Egypt, post-conflict countries like Rwanda may be ripe for investment, said Jennifer Choi, director of research at EMPEA.

But Choi said there was a limit to how much money was likely to go into the region while global markets remain fragile.

“If you have never invested in Africa before, how likely is it that you will, with what little fresh capital you have?”

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Signs of life seen in Africa private equity funds

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