Profit-making idea: Financing local service providers in Africa’s extractive industries

Debt and equity investors seeking opportunities in Africa should consider backing domestic companies that provide services to international mining, and oil and gas operators. This was one of the takeaways from a panel discussion on private equity at the recent Africa Financial Industry Summit, which took place in Lomé, Togo.

In countries such as Zambia and the Democratic Republic of Congo – nations rich in copper and cobalt reserves – there are many small and medium enterprises (SMEs) operating in the value chains of international mining houses. Similarly, several local players in Nigeria’s large hydrocarbon industry provide products and services to oil producers such as Chevron and Exxon Mobil. The northwest African country of Mauritania, where BP is set to start producing gas next year, was also highlighted as a country where opportunities are opening up for domestic players.

These SMEs provide anything from engineering services and spare parts to security and food catering but are often underserved from a financing perspective. This is despite the fact that they have contracts with large multinational organisations, which offers a degree of stability to their operations. Investors should seek out those SMEs with the most resilient business models.