FEATURE | Q&A
gail Mwamba speaks to a panel of five senior investors on key topics in the African private equity industry
1 Kofi Bucknor Managing partner, Kingdom Zephyr
Zain Latif Principal, TLG Capital
Idris Mohammed Partner, Development Partners International
Susan Payne Chief executive officer, Emergent Asset Management
Sajjad Sabur Head, Principal Investments – Africa HSBC
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What features of the African private equity market distinguish it from other emerging markets?
African private equity is not fundamentally different from other markets. it is at an earlier stage in its development than many other markets but not far off. one distinguishing feature is that there are 53 countries in Africa with a very low level of regional integration. therefore Africa is really made up of many smaller markets, which tends to limit the size of potential transactions. looking at Africa as just one market can be misleading.
Private equity in Africa has largely been limited to large-cap deals, with capital deployed to large multinationals, which distinguishes it from other emerging market regions. Misapprehensions over risk mean that many potentially lucrative opportunities in Africa are overlooked in favour of deals in more established markets such as china or india. those regions also often offer a wider range of exit options, while in Africa you are somewhat limited by exit restrictions. this is particularly evident for larger funds, which invest millions of dollars but find that African stock exchanges are not yet mature enough to handle large listings.
the African private equity market is at a young age compared with other emerging regions. its characterising features include a dearth of well-established and experienced investing teams; small and illiquid capital markets; and an entrepreneurial sector that is unfamiliar with private equity as a source of capital. however, those features also make it a more interesting and less competitive market. Africa is also the fastest-growing private equity region. there is therefore a significant upside potential for the African market, making it more attractive.
the African private equity market is extremely target-rich and yet not as crowded as other continents. the returns are also the highest in the world, according to a study conducted by McKinsey. the risk versus reward ratio is squarely in favour of investors, although this window of opportunity will inevitably close before long.
the diversity across Africa cannot be overstated. the general view of investors who have not experienced Africa is that the continent is a single investment opportunity with a generally uniform business risk and reward profile. the reality is of course different. in addition to the differing commercial opportunities, dissimilarities between neighbouring countries can be as fundamental as legal systems or as subtle as cultural norms and customs. We find this diversity exciting and potentially highly rewarding but are mindful to tread carefully.
PRIVATE EQUITY | AFRICA
July 2011
31/5/11 01:18:44