Investing in Africa

- Finance - May 19, 2011


WRITTEN BY: Vanessa Clark - Mobiflock Marketing Director

From an economic growth point of view, things look pretty rosy in the continent. The World Bank projects a gross domestic product (GDP) growth rate for sub-Saharan Africa of 5.3 percent in 2011 and 5.5 percent in 2012, compared to the weak recovery of the US: 2.8 percent in 2011 and 2.9 percent in 2012.

According to Tshepidi Moremong, Chairperson of the African Venture Capital Association (AVCA) venture capital and private equity as an industry is growing across sub-Saharan Africa. “South Africa has a more developed private equity/venture capital market than the rest of the continent, with assets under management of approximately US$16 billion at the end of 2009. In sub-Saharan Africa, excluding South Africa we have over US$6 billion of assets under management,” she said.

“Most African private equity funds look at the continent opportunistically – investing in markets with good growth prospects, lower levels of political risk, good governance structures and solid macro-economic trends. Investment in the past few years has tended to go into markets such as Nigeria, Kenya and the East Africa region as a whole (Tanzania, Uganda and Rwanda); Ghana, Senegal, North Africa (before the uprisings) and South Africa.

“Many of these countries are exhibiting good economic growth, driven by strong demographics and economies diversifying away from natural resources.

“Overall many African economies are doing extremely well, surpassing growth in other developing markets.”

According to The Global Venture Capital and Private Equity Country Attractiveness Index 2011 produced by the IESE Business School, South Africa ranks 26th out of the 80 countries reviewed. Seven other African countries were included in the rankings: Morocco (54), Egypt (55), Tunisia (56), Kenya (63), Nigeria (64), Namibia (70) and Algeria (77).



The opportunity

The IESE report continues: African investment opportunities tend to have uniquely African features. One is the way that new technology can open up new possibilities by leapfrogging historic problems. Information technology and communication technology in particular have the scope to help other industries achieve dramatic leaps forward, typified by the rapid development of mobile phone-based banking in Kenya. A similar area of potential fusion receiving growing attention – again with obvious social benefits – is telemedicine and e-health.

Moremong said: “Consumer driven businesses are getting a lot of attention.  Given the rise in disposable incomes for many African consumers and growth in the middle class – there is interest in sectors such as financial services, infrastructure services and manufacturing. Food security issues and improved land ownership rights have also led to an increased interest in agri-business – both primary production as well as agri-processing.”

“We are seeing agriculture specific funds as well as more agri-business investment opportunities. Africa has 14 percent of the world’s arable land; however 60 percent of this land is not cultivated.  Significant obstacles around infrastructure exist, creating a challenging environment to get products to market and undertake large-scale farming – but the opportunity is clearly there,” continued Moremong.

Ben White, the founder of, an online platform that brings together entrepreneurs and investors, concurred. “Forget the BRICs (Brazil, Russia, India and China),” he said with a smile. “Add rapid urbanisation to a rising middle class and it is clear a growing number of African countries presents an increasing number of opportunities.

“What is really exciting is to see the new start-ups springing up every day and an increasing level of activity in the African investment space. The explosive growth in mobile, and continued innovations in the financial industry, have certainly helped to illustrate what is possible. Stories like M-PESA, the mobile phone-based money transfer service, successfully capture people’s imagination and neatly package the story. There is momentum now,” said White.

“We have seen an increased number of exits across the continent,” said Moremong. “Aureos Southern Africa Fund recently exited Orange Madagascar – realising a 44 percent internal rate of return (IRR) for its investors; whilst Aureos East Africa exited Shelys –an East African pharmaceutical company to Aspen Healthcare (a listed South African pharma company); Kingdom Zephyr also recently exited its investment in a Moroccan auto insurer CNIA SAADA Assurance through an initial public offering (IPO) on the Casablanca Stock Exchange.

“What this illustrates is that exits are possible – through both strategic and IPOs, although a significant number of exits across the industry have been either through strategic sales or financial investors.”



The challenge

“Investing anywhere in the world comes with its unique challenges,” said White. “The same can be said of any African country. I think it’s dangerous to approach the continent as a single subject, when nothing comes close to its diversity.

“Where one country has made gains in tax legislation they might have lost ground in the space for independent media. Where one just successfully elected a new president the other will have had a tumultuous election. Where one country has made progress in putting forward internet protocol (IP) legislation another will have just invested in the wrong fibre optic cables. Each country, each sector, each business needs to be approached on a case-by-case basis,” he said.

“That aside, we do see that generally the political climate is improving and we see more stability in more countries. This stability combined with continued liberalization is being translated in the rise of a viable private sector.”

According to Moremong, venture capital and private equity are key to Africa’s economic growth. “Through private equity, we are bringing additional sources of capital into the economy, innovation and operational expertise,” she concluded.

Like what you see! Signup for our weekly newsletter