How New Laws Are Expanding African Private Equity Opportunities

Written by Dana Sanchez

New laws are creating greater liquidity and capital in some African markets and giving African private equity investors more opportunities — especially in pension funds — says Carolyn Campbell, managing director at Emerging Capital Partners, according to a report in InternationalFinancialLawReview.

Emerging Capital Partners is a pan-African private equity firm focused on investing across Africa.

Changing regulations governing the investment of African pension funds have momentous potential for private equity in certain countries including Kenya, Nigeria, Namibia and South Africa, Campbell said.

All four countries recently made changes to asset allocation rules for state pension funds, allowing for investment of up to 15 percent in some
cases of pension assets into private companies.

“As a result, we are seeing African investors increasingly investing in
African private equity,” Campbell told the LawReview.

As pension fund regulators and administrators become more familiar with the benefits of private equity, this will present an opportunity to increase the level of capital available to the private sector, Campbell told the LawReview. “This local support should also build the confidence of international investors to invest further in African private equity.”

Outside South Africa, most African pension cash continues to shun private equity opportunities on the continent, FinancialTimes reported in October.

Insiders say African pension funds have missed out. It’s not because the continent is failing to save for its future – sub-Saharan pension funds total more than $350 billion US — but because of a nightmare combination of regulatory hurdles, poor incentives and hesitant trustees, FT reported.

Nigeria, for example, invests just about a quarter of 1 percent of the $26 billion in pension assets in private equity, according to the National Pension Commission, Nigeria’s pensions authority.

In the LawReview interview, Campbell identified several sectors her company is focused on that are attractive for private equity investors. These include consumer retail such as fast-moving consumer goods; financial services banking; insurance services where penetration is still low; and ICT and telecoms.

In ICT and telecoms, there is interest both from an infrastructure perspective such as investment in towers and from a retail perspective such as investment in pay­ TV and broadband.

In some areas, regulatory obstacles impede investing, for example in Ethiopia, foreign investors are banned from investing in telecoms and financial services.

Regional trade links are among the recent reforms or reform proposals affecting investment strategy most at Campbell’s company. “With regional communities such as the Economic Community Of West African States (ECOWAS), the Southern African Development Community (SADC) and the East African Community (EAC) ensuring an expanding marketplace, it is possible to seek out target companies with opportunities for regional
expansion, which allows for years of top­line growth,” she said.