Ten years ago, just one African country held opportunities for private equity investors, according to a recent study by the International Finance Corporation. Today, the IFC believes the continent of more than 1 billion consumers – home to some of the world’s fastest-growing economies including Tanzania, Ghana and Ethiopia – holds at least 21 countries with opportunities for private equity investors seeking high returns.
So said Stephen Murphy, managing director of private equity firm Citadel Capital, at a recent conference in Nairobi, Kenya. Private equity consists of investors and funds that make investments directly into private companies.
“Africa is among the last great frontiers for private equity,” said Murphy. “This simple fact often leads to the assumption that African private equity investments are too risky, too commodity-focused and too difficult to exit – to say nothing of the view that it is too difficult to find an established general partner with whom to invest.”
“Do your homework, though, and a different picture emerges: Africa is about opportunity – the opportunity to do better because of brighter macroeconomic fundamentals, and on a micro level because of its natural resources; the opportunity to create and grow new businesses; and the opportunity to improve existing businesses,” Murphy added.
Moreover, Murphy said, “Consider that Africa has a population of more than 1 billion, 60% of whom are beginning the seismic shift from rural subsistence agriculture to urban employment. This makes not just a huge potential workforce – about 1.3 billion strong by 2040 vs. 582 million today – but a consumer market that has very little and yet which is hungry for goods and services that may previously have been out of their reach. Africa is about consumers, it is about high-impact infrastructure investing and it is certainly about value-added exports and not just commodity exports.”
“Private equity investors would do well to look at what has occurred in public equities,” Murphy concluded. “In the past decade, the S&P 500 has had negative returns, while the MSCI Emerging Markets Index has returned 163%. Africa offers private equity investors strong underlying economic growth, low competition for deals (and for the businesses in which they invest), low levels of financial risk, and the ability to have a real impact on the communities in which you invest – and all of this is broadly welcomed by regional governments.”