EMPEA’s Robert W. van Zwieten & Isabelle Diop Outline Why ‘Enticing opportunities’ Remain for Private Equity Firms Investing in Africa, Despite Obstacles

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By Robert W. van Zwieten and  Isabelle Diop


Investment in Africa has moved well beyond the realm of governments, aid donors and grant funding. The private sector has mobilized not only to support development goals, but also to tap into the continent’s vast array of investment opportunities. More specifically, over the last decade, private capital—inclusive of private equity, venture capital, private credit and private infrastructure funds—has played a growing role in addressing the financing gap facing business owners and project developers across the continent. Africa’s untapped opportunities represent the perfect challenge for private equity firms, who can bring in capital, operational expertise and international connections, while generating globally competitive returns for the institutions who back their funds.

Thanks in part to new interest in Africa from North America-based investors, such as the New York Common State Retirement Fund and the University of Texas Investment Management Company, fund managers raised a record US$11.6 billion for Africa-focused private capital vehicles in 2014 and 2015. But since then the path from raising capital to generating returns has not been as straightforward. If 2014 and 2015 represented an important inflection point in the development of the asset class in Africa, subsequent events have clouded the picture. The global commodity downturn and heightened currency volatility have meant private equity firms, unwilling to sacrifice returns, are delaying capital deployment and recalibrating their strategies to ultimately ensure successful exits.

Nigeria and South Africa serve as a case in point. The two countries, once the favorites of private equity firms, have both fallen into recession. The decrease in the price of oil, Nigeria’s main source of export revenue, and the political turbulence around President Jacob Zuma in South Africa have dampened investor sentiment. The resulting weakened currencies in these countries pose a threat to returns for private equity funds that are denominated in U.S. dollars. Beyond the economic troubles of the continent’s two largest markets, the African business landscape is relatively less mature than that in developed markets and presents fewer ready-made investment targets, especially beyond a certain scale. These macro and structural factors mean investment decisions have become harder and the margin for error reduced for African fund managers, who must generate distributions for their investors within a ten-year fund life.


How are the industry and policymakers responding? Governments across Africa are aiming to restore investor confidence by diversifying away from commodity dependence and creating opportunities in other sectors.


For example, Nigeria’s ministry of Agriculture and Rural Development launched the Green Alternative, which aims to increase agricultural production in collaboration with the private sector. While policy initiatives are encouraging, private equity firms, pressed by the ticking of the IRR clock, cannot afford to wait long for the African market to mature and deliver the investment opportunities they are yearning for. Fund managers are instead adopting creative approaches to combat scarce deal flow, namely building larger companies themselves from the ground up. Helios Investment Partners, for instance, has partnered with multinational GB foods to create a large pan-African food products company, aggregating assets from several different African companies in a roll-up strategy.

EMPEA’s conversations with industry professionals operating in Africa and around the world suggest that even where a supportive policy environment makes investment desirable and opportunities on the ground can still be found or created, capitalizing on them requires deep sector knowledge and operational expertise. Realizing that a “one size fits all” approach is unlikely to succeed in Africa, fund managers have emerged with targeted strategies: sector-specific funds attracted 39% of capital raised for Africa in 2017, according to EMPEA data, up from 31% in 2016.


Standalone sectoral expertise, however, is not good enough—knowing how to apply it to the African market is of paramount importance.


Some fund managers are hiring industry professionals to fulfill this need. The Carlyle Group named Dele Babade, former CEO at Ecobank Capital, as advisor to its’s Sub-Saharan African Fund. Phatisa recently appointed Martin Kromat as a portfolio management partner to help the firm’s portfolio companies build value. He brings 19 years of fast-moving consumer goods experience from working at South Africa-based alcoholic beverages company Diageo and Procter & Gamble’s Europe and Africa businesses. Other fund managers are choosing to supplement their expertise with multinationals’ wealth of experience. For example, The Abraaj Group is tapping into Danone’s insights on Africa, gained through years of experience and footprint expansion. Abraaj and Danone recently jointly invested in Fan Milk to expand its production capacity in Ghana.

Private investment activity in Africa may be hamstrung by macroeconomic challenges, but enticing opportunities remain for those who look beyond the headlines. With a deep understanding of the African market and sectoral expertise, private equity firms are poised to overcome those obstacles and achieve their financial goals, while in the process contribute to the sustainable and inclusive development of the continent.  When exits ensue and compelling returns materialize, more institutional capital will follow in the next big fundraising cycle.


Robert W. van Zwieten is President & CEO at Emerging Markets Private Equity Association (EMPEA) and  Isabelle Diop is EMPEA’s Senior Research Analyst


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