U.S. private equity investment in Africa is growing, changing and there’s more to come, according to a CNBC report.
As of 2011, only about 1 percent of all U.S. foreign direct investment went to sub-Saharan Africa. Most of that is concentrated in mining and extractive industries – about $33 billion of the $57 billion total, according to a November 2012 government report.
Private equity firms invested $850 million through 36 deals in sub-Saharan Africa in the first half of 2013, according to a review by the Emerging Markets Private Equity Association. That’s growth of 6 percent in the number of deals and 45 percent in capital over the same period in 2012, CNBC reported. The largest was by London-based private equity company Warburg Pincus, which invested $600 million in Kenyan oil and gas firm Delonex Energy.
“We’re not even in Chapter One of private equity in Africa. It’s more like the prelude,” said David Marchick, global head of external affairs at the Carlyle Group, during a panel discussion Monday in New York. “We hope all the major firms will be there in five to 10 years.”
Private equity firms investing in Africa in recent years include Carlyle, Blackstone, KKR and PineBridge Investments, the report said.
Others at the panel discussion, titled “Game On: Private Equity Investment in Africa,” were similarly bullish. That optimism was not diminished by the recent terror attacks in Nairobi that killed dozens; Marchick and others at the Africa-focused event did not bring up the shootings, the report said.
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When it comes to private equity investment in Africa, there’s a sense that “Something is happening—a significant structural shift,” said Kola Olofinboba of private equity funds Fairview Capital Partners. Olofinboba leads the African practice at the $3.4 billion company, which has done private equity investment in Africa since the mid-1990s.
“We think the opportunity is still very early,” Olofinboba said. “For those who get in now, the windscreen is a lot brighter than what you see in the rearview mirror.”
Hurley Doddy, founding partner and co-CEO of $2-billion Africa-focused private equity company Emerging Capital Partners, said his seven funds average 2.4 times returns on their exits. The Washington-based company has made about 50 investments in 40 countries in Africa since 2000.
Carlyle launched a sub-Saharan Africa fund in 2012 based out of Johannesburg and Lagos, Nigeria. The fund, which focuses on buyouts and minority investments, partnered with The Pembani Remgro Infrastructure Fund and Standard Chartered Private Equity in November 2012 to invest $210 million in Export Trading Group, a Benin-based agricultural supply chain business.
African countries have average economic growth that Americans and others would love, the report said. The International Monetary Fund projects gross domestic product growth of 5.1 percent in 2013 and 5.9 percent in 2014. That compares to global averages of 3.1 percent and 3.8 percent, respectively.
Blackstone has been in Africa for nine years, focusing on large energy project developments with more planned.
“Being there early in many of these countries with transformative projects … will then position us well to try and understand the economies on a go-forward basis,” said Sean Klimczak, senior managing director in Blackstone’s private equity unit, during the panel hosted by PricewaterhouseCoopers and the Foreign Policy Association.
Klimczak said energy investment was obvious. Africa’s electricity grid is the size of Spain’s, but it serves 20 times more people, he said, and debt-to-gross-domestic-product ratios were low compared to the U.S. and others. In other words, there’s tremendous demand and the money to pay for it.
Blackstone was the lead investor in the Bujagali Hydroelectric Power Station in Uganda, completed in 2012. Blackstone, through its Sithe Global unit, put up $116 million to build the $900-million dam, which dramatically increased electricity in the country.
Blackstone also invested in Kosmos Energy to fund oil and gas exploration off the coast of Ghana. Kosmos went public in 2011. Blackstone plans to invest in hydroelectric plants in Tanzania and Rwanda, according to a Bloomberg report.
Klimczak offered other proof of the continent’s growing wealth: About 10 percent of Blackstone’s investors are African.