adminA decade ago, African countries were among the beneficiaries of a broader boom in investment in emerging markets worldwide but the financial crisis of 2007-08 put paid to that. Now, reports The Economist, many private-equity funds are making Africa a primary target, and record amounts are being raised to invest in businesses there. The report says in some respects it is no surprise that Africa has become such a popular destination for business investment. Consumer demand is growing, and industries are being liberalised.
But, it notes, there are plenty of reasons to be sceptical about the current enthusiasm for Africa. Beside the ‘‘frontier market’’ risks private-equity investors will face — bullets, corruption, disease —the report says they often struggle to find deals big enough to interest them.
Large funds usually want to buy businesses worth more than $100 million, but last year there were only seven such deals, and about half the firms bought were worth less than $10m. And since banks still see Africa as full of risks, it is also difficult for private-equity firms to load a newly acquired business with debt, their usual technique for magnifying their returns.
The private-equity managers who have done well so far have had to put boots on the ground and exercise more care and patience than is typical in their industry. One thing successful managers agree on is that investors should not expect to fly in, do a deal and fly out again.
The report says those brave enough to run the risks will need to roll up their sleeves and look for opportunities beyond those firms listed on their Bloomberg terminals. Those who know their Mali from their Malawi, and Mauritania from Mauritius, will be better placed to succeed in the scramble for African businesses than those who do not.
The dominant themes for Africa in 2015 will be the issues of inclusive growth and youth unemployment, writes Lerato Mbele, presenter of Africa Business Report on BBC World News in the Business Times. Another focus is on growth. Mbele says many nations will continue to leverage their natural resources and if the oil price recovers in 2015, it may be a good strategy.
She points out, however, that the countries that invest in education, infrastructure and innovation — such as Ethiopia, Rwanda, Kenya and Mozambique — are the ones that seem to have fared better. Mbele notes that business executives she has interviewed say their biggest concerns are dealing with regulators, contract law, electricity supply and poor skills.
And, she says, the new year certainly promises to be eventful. China and the US will continue to use diplomacy to lobby for greater shares of the new African market. Development banks will go further than ordinary banks in financing infrastructure projects. Young Africans will be finding their own voices on social issues, and politicians will either lead with empathy or argue about issues that are often detached from what citizens really want.
Sub-Saharan Africa is expected to see more private-equity deals this year as a new era of cheap financing emanating from the EU finds its way into higher yielding emerging markets. Business Day Nigeria reports that according to Deloitte, more debt financing is expected to flow out of Europe into Africa in a renewed search for higher yields on the back of European Central Bank monetary stimulus. About €50bn in new money from Europe was raised for investing in the last two years.
This year, about €15bn has been made accessible. There’s also an increase in the scale of Chinese appetite for debt in the African market and more funding is arising from sovereign wealth funds, development banks, and pension funds in Europe.
And following the devaluation of Nigeria’s currency, and the plunge in the currencies of other emerging markets, hedge funds are becoming more sanguine about investment return prospects in such markets.
A major problem for Africa’s oil and gas boom, meanwhile, is the falling oil price.
Business Day reports that the dash for resources that saw explorers invest billions of dollars to tap promising oil fields from Ghana on the west coast to Tanzania on the east is stalling as the global drop in crude prices pushes drillers to reconsider the high costs of exploration on the continent.- The Economist.
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