Private Equity Firms Turn to Africa

Private equity in Africa is growing.

Private equity is on the rise in Africa. According to the Emerging Markets Private Equity Association, the total private equity investments that entered the continent had risen from $151 million in 2002 to $1.5 billion in 2010.[1] Private equity funds in Africa are investing in deals in various fields ranging from telecommunications to technology to financial services.[2] With most investments coming into the continent from the public sphere, a major opportunity exists for private investors to tap into the bourgeoning African market.

Changes in Africa’s private equity sphere

Private investors have been holding back as a result of political and cultural risks like the Arab Spring and Somalia’s instability. Many countries, however, have established – or are in the process of establishing – a more investor-friendly environment. For example, South African, Nigerian and Kenyan governments have allowed pensions funds to invest in private equity funds.

Opportunities to invest

At the Inaugural Stern Africa Forum on redefining Africa, Alain Ebobisse, Chief Investment Officer of the Global Infrastructure Department at the International Finance Corporation, mentioned that the investment requirement for infrastructure in Africa over the next ten years will be $1 trillion. This poses a great opportunity for the private sector to invest in emerging projects, especially in the infrastructure and power sectors.

Founded in 2004 by Tope Lawani and Babatunde Soyoye, Helio Investments is a pioneer in the African private equity movement. In June 2011, Helio closed at $900 million, which, at the time, was the highest for an Africa-focused fund. [3]

How PE works in Africa

South Africa has been the center of private equity in Africa with Nigeria coming in at a distant second place.Elchi Nowrojee, Head of the Alternative Investments and Emerging Markets Products Advisory in the Legal and Compliance Department at Credit Suisse, claimed that South Africa held the resources while Nigeria held the opportunities. However, through growing interest in sub-Sahara Africa, in 2011 South Africa, in terms of fundraising, comprised only 10% of the of the amount of dollars made in the region.[4]

With the exception of South Africa – and to a lesser extent, Nigeria – private equity in Africa focuses more on growth and capital transactions than on leveraged buyouts.[5] Nowrojee stated that private equity in Africa focuses more on monetizing land and working on developing the informal market, which is a major producer of employment and revenue.

African nations have the demographics and the resources to thrive. With the help of the private sector and government reforms aimed at creating an attractive environment for investors, such countries can develop sustainable projects that will produce wealth and employment. This will allow Africa to mobilize itself without the aid of Western countries and organizations.