Top US private equity players share their thoughts on investment in Africa

Two of the biggest names in the US private equity industry, David Rubenstein and David Bonderman, recently shared their thoughts on investment in Africa at The New York Times DealBook conference, held last week in New York City.

 David Rubenstein, co-founder of the Carlyle Group

David Rubenstein, co-founder of the Carlyle Group

Answering a question from the audience on where in the world he sees the best returns coming from in 10 years time, Rubenstein, co-founder of the Carlyle Group, identified sub-Saharan Africa as one such geography.

“An area that hasn’t gotten as much attention is sub-Saharan Africa. There are 45 countries in sub-Saharan Africa, 80m people. By their definition of middle class, now 300m people. Seven of the 10 fastest growing countries in the world are in sub-Saharan Africa,” said Rubenstein.

He said the region could present investment opportunities due to growth in the extractive industries, as well as a rising middle class.

However, Rubenstein highlighted corruption, the relatively small size of many African economies and management quality as challenges.

“It is not for the faint of heart, and it is not easy to do deals there. It is not one country like China, where pretty much the same language and pretty much the same techniques can be used, but it is an opportunity where I think over the next 10 years you are going to see a lot of private equity firms going there,” said Rubenstein.

According to Bonderman, a founding partner at TPG, investment in emerging markets is influenced by the outlook for the global economy. “In bad times there will be a flight to quality [investments], which always means US. In good times, people move up the risk scale, looking for higher returns, and that means emerging markets. Where the best places will be depends a lot on your view as to what is going to happen in the world.”

He said sub-Saharan Africa is “beginning to be interesting”, but that the continent’s rapid economic growth is still off a low base.

“Having 45 countries is a disadvantage, not an advantage, because it means with the exception of South Africa, and probably Nigeria, these markets are small. It is one thing if you’ve got a few dollars to invest, it is very nice. But if you are running a Carlyle and you are trying to invest $500m at a crack, it is not so easy,” Bonderman said.