More than war and famines, it’s Africa’s business potential that makes headlines these days, but many foreign investors remain cautious about what commentators label one of the world’s hottest new investment destinations, according to a report in HowWeMadeitInAfrica.
Stuart Bradley is co-founder of Phatisa, a sub-Saharan Africa-focused private equity
firm. Phatisa is a Xhosa word for “assisting” or “working together.” The firm manages two African-focused funds – one investing in food production and the other in housing, totaling more than $285m in funds under management.
The African Agriculture Fund has made 12 investments in eight countries including a palm oil mill in Sierra Leone, a farming equipment company in Malawi, and an egg producer in Zambia.
While Western institutional investors, such as pension funds, are slowly becoming more interested in Africa, it can still be hard work to persuade them to make an investment commitment, Bradley told HowWeMadeitInAfrica. The majority of investments into
African private equity funds still come from development finance institutions such as the
African Development Bank, not the private sector, he said.
Because of Africa’s perceived risks, foreign investors want higher returns than they can get at home. “What we hear from U.S. investors is that they can double their money in America, so if they come to Africa they want two-and-a-half times or three times their money to justify investing here,” Bradley said.
Fortunately there are opportunities. Bradley said he’s seeing plenty of suitable companies that fit into the investment criteria. “There are more opportunities than we’ve got the capital and resources to do these deals.”
While there is a growing interest in Africa from private equity firms, Phatisa is not seeing
significant competition for deals.
To successfully manage an African private equity fund it is important to
have a physical presence on the continent, Bradley said. “It is very hard to find these deals and manage them from overseas.”
Phatisa operates in a sustainable manner in the interests of the communities affected by its investments, but an equity investment firm is not a charity, he said. By investing in the growth of African companies, Phatisa will automatically create development, he told HowWeMadeitInAfrica.
“If there is an opportunity to invest in something but we are not going to create significant
new employment, we will still do the deal because there will be development in other ways,” he said. “There will be development in the ancillary businesses around the company we are investing in.
“If we grow that company it is going to pay more taxes to the government. Just by showing that you can make money in Africa is going to attract more capital from overseas. If you look at how the U.S. and Europe grew, people didn’t have a focus on ‘development’, it was just pure capitalism.
“Therefore we have coined our approach as ‘development equity.’”
Phatisa was formed six years ago when Bradley partnered with Duncan Owen. Both
worked for the U.K. development finance institution CDC, where they were involved with agriculture-related projects in Africa.
