No two days are the same in African private equity
For Stuart Bradley the best part of his job is the variety of people with whom he gets to interact. “One day I can be dealing with an investor in New York, the other day I can be talking to a smallholder farmer in Africa. No day is the same,” he says.
Bradley is one of the co-founders of Phatisa, a sub-Saharan Africa-focused private equity firm. The company was set up six years ago when Bradley joined forces with Duncan Owen. Both Bradley and Owen previously worked for the UK development finance institution CDC, and were involved with agriculture-related projects in Africa.
Phatisa, a Xhosa word for “assisting” or “working together”, currently manages two African-focused funds – one investing in food production and the other in housing, totalling more than US$285m in funds under management.
To date the African Agriculture Fund has made 13 investments across eight countries, including a palm oil mill in Sierra Leone, a farming equipment company in Malawi, and a table egg producer in Zambia.
Africa rising, but investors remain cautious
Africa’s image in the media has seen a dramatic change in recent years. While most of the reporting in the past focused on things like war and famine, it is now Africa’s business potential that is making headlines. The rapidly growing economies of many African countries have prompted commentators to label the continent as one of the world’s hottest new investment destinations.
Bradley says that while this more positive reporting is certainly a good thing for the industry, many foreign investors remain cautious. While Western institutional investors, such as pension funds, are slowly becoming more interested in Africa, it can still be hard work to persuade them to make an investment commitment. He notes the vast majority of investment into African private equity funds still come from development finance institutions such as the African Development Bank, not the private sector.
Because of Africa’s perceived risks, foreign investors are also demanding higher returns than they can achieve in their home markets. “What we hear from US investors is that they can double their money in America, so if they come to Africa they want two-and-a-half times or three times their money to justify investing here,” explains Bradley.
Bradley says he is seeing plenty of suitable companies that fit into Phatisa’s investment criteria. “There are more opportunities than we’ve got the capital and resources to do these deals.”
While there is a growing interest in Africa from private equity firms, Phatisa is not seeing significant competition for deals.
Bradley says that to successfully manage an African private equity fund it is important to have a physical presence on the continent. “It is very hard to find these deals and manage them from overseas.”
Development through capitalism
While Phatisa operates in a sustainable manner and acts in the interests of the communities affected by its investments, the firm is not a charity. Bradley says that by investing in the growth of African companies, the firm will automatically create development.
“If there is an opportunity to invest in something but we are not going to create significant new employment, we will still do the deal because there will be development in other ways. There will be development in the ancillary businesses around the company we are investing in. If we grow that company it is going to pay more taxes to the government. Just by showing that you can make money in Africa is going to attract more capital from overseas. If you look at how the US and Europe grew, people didn’t have a focus on ‘development’, it was just pure capitalism. Therefore we have coined our approach as development equity.”