RSS FeedBy M. Isi Eromosele
Private equity is not a new phenomenon in Africa but it is drawing increasing attention as a nimble and innovative vehicle for private sector development on the continent. Improvement in African investment environments and a series of spectacular African business successes (such as the private equity backed African Telecommunications pioneer Celtel’s $3.4 billion buyout) have fueled an unprecedented boom in the size and breadth of African private equity funds. A huge increase in mergers and acquisitions (M & A), especially in African banking and telecoms, has brought high exposure to the dynamism of the continent’s private sector and boosted investment record figures.
Africa represents a huge investment opportunity. The continent has exceeded world economic growth for the past six years and is now the fastest growing region in the world. Africa’s GDP as a whole is the sixth in the world and should pass Germany’s in the next few years. Many African countries have taken bold steps to break the cycle of corruption and poverty by establishing political stability and liberal economic reforms that is transparent. This has brought economic and social advancement as well as unprecedented receptiveness to foreign direct investment (FDI).
Additionally, with increasing global demand for raw materials and commodities, many African countries are seeing renewed attention from the main industrial nations. China and India have been prominently active in Africa as they seek access to the resources vital for their own economic growth, even as they take advantage of the continent’s under penetrated markets and business opportunities. As well as growth in the mineral and energy sectors, economic expansion in the continent, particularly in the Sub-Saharan Africa, is being supported by a broad base of other sectors including agriculture, technology, telecommunications, media and financial services. These industries are attracting massive foreign direct investment (FDI), a large part of which is coming through equity investments.
Private equity investment in Africa has been active for many years, with solid track records emerging in the last decade. Looking at this history of returns, the most successful deployment of private equity has applied best practices that have been tested and proven in emerging and developed markets alike. In recent years, African governments have made serious progress in adopting market friendly policies, improving investment environments and taking serious steps to stimulate foreign investment. New measures promoting foreign investment have been introduced in 40 African countries since 2006. Foreign participation in the telecoms industry was allowed in many African countries. Important banking sector reforms were implemented in other major African countries. Several countries have eased registration and taxation constraints on new businesses and established special investment zones.
Africa has grown enormously in private equity investors’ investment strategies, moving from barely registering at 4 percent in 2006 to being an integral part of 36 percent of investors’ strategies in 2009. In terms of investment strategies, investors’ desire for increased diversification of investments is an advantage for Africa, with more than 50 percent of private equity investors including Africa in their medium term investment plans. Africa compares favorably with other emerging economy regions in terms of expected returns, reflecting the exuberant mood of the sector towards the continent.
Private equity, with its consumer-oriented investments supplying fast growing domestic African markets, is contributing to a major shift in perception of Africa from an investment backwater to a frontier of opportunity.
M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance
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