Business
Private Equity investors placing bets on Africa growth opportunity
KKR last year invested US$200 million in Afriflora, a rose farm in Ethiopia, one of Africa’s fastest-growing economies.
Though interest in Africa is rising it comes off a very low base with even large funds raising only about US$1 billion, a meagre sum compared with developed markets. More money was raised in India last year than in all the 55 countries in Africa.
“While there has been more capital raised, it is low compared to other geographies,” said Marlon Chigwende, the managing director of Carlyle’s sub-Saharan African business.
High returns (like in any other market) are also far from guaranteed.
Food and drinks giant Nestlé offered a dose of reality last month, saying it was cutting 15 percent of its workforce in Africa because it had over-estimated the growth of the middle class. Still, middle-class households in 11 key sub-Saharan African countries, excluding South Africa, are set to triple to 22 million by 2030, according to Standard Bank.
Many fund managers believe African investments have longevity because money is increasingly flowing to markets outside South Africa. Nigeria and Ethiopia, Africa’s two most populous countries, are often cited as new opportunity areas.
Verod, a small Nigerian private equity firm, earned 15 times its investment this year when it sold its stake in GZI Industries.
While optimism is increasing, major obstacles remain, from huge infrastructure and skills deficits to lingering political instability.
“There is risk everywhere. There is risk on Wall Street,” said Muvirimi Kupara, the head of Spear Capital, a Zimbabwean fund with interests in dairy processing.
Source: Reuters
