Sub-Saharan Africa continues to be a hotspot for investment banking deals, reports Bloomberg, highlighting the increasing presence of global investment banks on the continent.
With its growth prospects that, according to Barclays, has seen it emerge as the world’s second-fastest-growing region, after Asia and ahead of Latin America and Eastern Europe. The region is home to nine of the world’s 20 fastest-growing economies. “Being first will be a big advantage,” says Crispin Osborne, who oversees Barclays’s African investment banking operations from London and is planning to hire on-the-ground investment banking staff in East and West Africa this year.
Reflecting this, notes Bloomberg, was the fact that the number of private equity transactions in sub-Saharan Africa jumped 19%, to 43 deals, in the first nine months of 2012, according to the Emerging Markets Private Equity Association, EMPEA. In China during the period, there were 179 deals, a 17% decline, while India saw a 29% drop, to 154 deals.
In November, Carlyle Group made its first sub-Saharan Africa investment, joining other backers to put US$210m into agricultural supply-chain company Export Trading Group, in Tanzania. “We saw sub-Saharan Africa as being where China was 15 years ago, and we wanted to be one of the first there,” says Genevieve Sangudi, the Nigeria-based managing director for Carlyle’s regional fund.
Many takeovers and private equity investments in Africa have been in natural resources and telecommunications. Interest in the region’s consumer and retail sector has also increased as investors seek to benefit from a rising middle class. “Every corner of the globe wants a consumer play in Africa,” says Brian Smith, who oversees investment banking in sub-Saharan Africa for JPMorgan Chase.
Big banks are focusing on Africa as they retrench in Latin America, Asia, and the Middle East – areas seen as booming emerging markets only a few years ago. Citigroup announced plans last month to eliminate 11,000 positions in countries from Pakistan to Paraguay, but said its 1,300 employees based in African countries including Nigeria, Uganda, and Kenya wouldn’t be affected.
Still, banks chasing African deals are playing a long-term game. Investment banking fees in the region totalled about $305m in 2012, according to research firm Freeman & Co., doubling from a decade ago but still just a third of those paid out in the same period in Italy, which has less than one-tenth the population.
Banks also must contend with unstable politics and nascent capital markets – to say nothing of the lack of basics such as dependable roads or electric grids. Outside of South Africa, ports, internet access, and shipping are often unreliable. And although some governments are tackling corruption and boosting transparency, many investors still shy away.
“Africa has a lot to do in education, infrastructure, the judicial system,” says James Tidmarsh, a Geneva-based lawyer who raises funds for mining projects in East and Central Africa. “If someone owes you money, you need to be able to get that money back.” As Lazard banker Matthieu Pigasse says though, he won’t let that stop him. “Because of the growth prospects, we have to be there.”
Such sentiment can only bode well for the sustainability of investment flows into sub-Saharan Africa.
Imara is an investment banking and asset management group renowned for its knowledge of African markets.