Given that bad news sells it’s perhaps unsurprising that the headlines on Africa remain dominated by strife in Darfur and economic malaise in Zimbabwe. However from an investment angle both bad news and selling have slipped down the agenda and funds are out looking for more cash to plough into the continent.
Two of the biggest private equity firms targeting Africa, Actis and Zephyr Management, both told Emerging Markets that demand from investors has broadened and deepened. The former is just closing a $200 million Africa fund while Kingdom Zephyr Africa Management will “very soon” start begin a drive to collect “multiples” of the $125 million it currently manages in the region.
“The world has become much more willing to put up that kind of money,” said Nkosana Moyo, a managing partner of Actis Africa. Simultaneously more players are seeking to enter the market directly: “competition is coming,” he observes.
“I don’t know whether you can talk about a structural shift but you can certainly talk about heightened interest,” says Kofi Bucknor, responsible for helping manage the African investments of Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud, including the Zephyr private equity fund. “Some of the traditional barriers to investment are breaking down.”
Some of the most important changes affecting the continent have come from the seismic shift in global power politics. The cold war had fuelled conflicts in some areas of Africa and diverted attention from mismanagement but the post 9/11 world has brought a new focus on opening up even the darkest corners of the world. More transparency has brought better governance. It’s also created a climate where the G8 and multilaterals have been able to start lifting the burden of debt crushing so many developing countries.
Simultaneously, on the economic front, the rise of Asia and the resulting rally in commodities prices has placed key African nations into positions of trading strength. Oil producers, led by Nigeria (2.4 million barrels a day) and Angola (1.4 million bpd), are the obvious beneficiaries but metals and soft commodity prices have also gained. Net private capital flows to sub Saharan Africa almost trebled between 2000 and 2005 to $28.4 billion, according to the World Bank.
So where do the opportunities lie? The progress of MTN and Celtel have established the value of the telecoms sector. Investec Asset Management strategist Michael Power this month recommended investors also target banks, breweries and cement companies to tap gains made by less accessible commodities producers.
Actis’ Moyo says natural resources companies are becoming more feasible investment options as governments ease back restrictions on foreign ownership. He too backs buying into telecoms and the financial industry. Geographically, the oil boom has made west Africa, and particularly Nigeria and Angola his current investment hotspots while he keeps an eye on the progress of elections in the resource-rich DRC.
Bucknor of Zephyr singles out airlines and agro-businesses as attractive investment opportunities going forward. His boss, Prince Alwaleed, is piling money into African tourism, considering adding hotels in Liberia, Mali, Senegal or the Ivory Coast to his existing portfolio.
Rising opportunities on the African continent have also attracted companies associated with serving the front-line financial community. Tradition, the world’s No. 3 interdealer broker, announced this month it’s setting up an office in Johannesburg. While in the short term the firm expects to be focussed purely on South Africa, the move is designed to secure Tradition’s position as the market broadens, according to director of emerging markets derivatives and bonds, Mark Fennell.
“Increasingly we’re seeing opportunities to develop into middle Africa as well as South Africa,” Fennell said, noting that the broker is following its customers into the region.
“The lead has to come from South Africa,” which provides benchmarks essential for developing products in neighbouring countries, Fennell says. One day, Africa “will compete [for investment with other emerging economies in Asia and Latin America) but it will take time.”
The opening up of fragile African economies will make the continent sensitive to changes in the global trading environment and old hands say expectations must remain realistic: “I’m not in a rush to declare victory for Africa, it could be a false dawn because there have been false dawns in the past,” cautions Bucknor, a former treasurer of the African Development Bank.
Nevertheless, Africa’s economic position is looking stronger than it has for decades and brave investors are starting to see the kind of returns which will attract serious money to the continent.