Though the allure of private equity might have faded in developed markets, we at Blackhawk believe that Africa is providing golden opportunities for funds that are willing to swallow a bit more risk.
It was a geographer, George Kimble, who best summed up Western perceptions two centuries after Swift when he said: “The darkest thing about Africa has always been our ignorance of it.” This is just as true among our financial community today. Risk-averse Western investors have traditionally avoided Africa, citing the high political and economic risk that goes with investing there. Just mention Rwanda in the US and people will probably think of genocide and murder rather than the current political stability or the leaps and bounds taken by Rwandan banks.
The attitude to Africa is indeed evolving. Changed perceptions have been driven in part by a series of funds that have been investing in Africa for many years but are only now attracting the world’s attention. The credit crunch in global markets has left investors with little choice but to search for returns in emerging markets, and in particular in Africa. The impact of the credit crisis on Africa has been limited. Countries such as Nigeria do not have developed credit markets or over-leveraged homeowners. What they do have though is enormous potential at a time when the rest of the world is still hurtling in recession.
There is no doubt that Africa is today ready for business: With better democratization and good growth, people are realizing that the rule of law prevails and business can be done.
It is easy to focus on more sophisticated markets, such as South Africa, when it comes to talking about private equity in Africa, but the real beating heart of us private equity capitalists on the continent today lies in sub-Saharan Africa and its small and medium-sized enterprises (SMEs).
The figures speak for themselves. Africa’s gross domestic product, which was increasing at double-digit rates in some countries before the crisis, is likely to grow by between 5.5% and 6% this year, according to the African Development Bank.
Although South Africa has always been on our priority list, we at Blackhawk are particularly focusing nowadays on post-conflict countries, such as Sierra Leone, Liberia and Rwanda; along with English speaking, smart, educated and accomplished entrepreneurs wishing to partner with foreign investors, both inside and outside Africa, with the aim of connecting to global markets.
West Africa is another region where we see tremendous growth. Nigeria’s economy is a prime example of such country with a forecast to grow by up to 9% this year. It has paid off its external debt and now holds more than $55bn in foreign reserves. Its banking industry has benefited enormously from a Central Bank of Nigeria inspired consolidation that reduced the number of banks from 89 in 2005 to just 24 today. These 24 have greatly enlarged capital bases and have, during the course of consolidation, attracted huge investments from foreign funds.
Although Nigeria is still a largely cash-based economy, it is a fact that local banks are looking today towards servicing a new generation of wealthier individuals who want credit cards and lease facilities for cars and household items. Tapping into that huge potential source of wealth is a prime attraction for us at Blackhawk.
Other key factors that make Africa at large an ever increasing reason for us to allocate funds there:
1. Governments, have made significant improvements in economic and political freedoms and have learned to become much more conservative fiscal managers.
2. African nations have benefited from debt-reduction programs initiated by Western lenders. As a result, their governments have today much more flexibility to invest in pro-growth policies and projects.
3. Higher commodity prices buoyed exports, and the continent was able to attract substantial foreign direct investment, particularly from China.
4. Economic reforms that have been adopted across the continent, encouraging investors to finance new projects.
5. African businesses have become dramatically more productive due in large part to new communications technology, including mobile phones that are commonplace even in remote villages.
Overall, we though believe that despite these signs of progress, it is necessary more than ever for governments to remove some of the constraints that make life more difficult for us businesspeople at large and this has not happened yet.
By the same token, we also believe African nations need to much more aggressively develop their own financial networks without relying on international financial centers overseas. At some point in time, we frankly believe it is a must they take control of their own market. The whole mindset has truly got to change. London and Paris should no longer be the center of African affairs. Africans need to control their own destiny like everyone else.
Despite the raft of opportunities appearing across African countries and sectors, we are fully cognizant that the risks involved in investing in the continent remain high. The ongoing troubles in a number of African countries provide a sobering reminder of how easily even the most stable countries can descend into anarchy and violence.
Inflation is another dark cloud threatening to dampen the economic growth of the continent. Although many nations have benefited from commodity prices, it is the escalating cost of food that could undermine growth and absorb a lot of that disposable income..
We are equally aware of other challenges we face; not least the high cost of doing business in multiple African countries with underdeveloped legal systems and unreliable infrastructures though we believe that the benefits at large in backing the right horses in there far outweigh the risks.
We believe African growth will be driven to a large extent in the near future by private equity and venture capital funds investing in SMEs. At the moment, it is an unfortunate fact that Africa remains a continent that consumes what it does not produce, and produces what it does not consume.
Private equity has indeed a very big role to play in changing this, and we at Blackhawk have yet to make a true impact on Africa’s internal economy. More importantly, though private equity funds (particularly those that have come into the stock markets in Africa or are buying companies) have limited themselves to certain sectors such as telecoms, electricity or banks; they haven’t made their impact as well in the SME area, and this has got to happen.
Looking ahead, we believe Africa faces huge challenges, not least when it comes to fixing the continent’s woeful infrastructure, but it is indeed a land that screams potential; and we as a growing band of global capitalists need to effectively tap into that. We should stop being concerned with Jonathan Swift’s “savage pictures” but instead focus on the bright opportunities in those “uninhabitable downs”. There will be troubles along the way but, as one African proverb puts it: “Smooth seas do not skilful sailors make.”
Looking forward to doing business with you and to continue being your resource for deals, capital, relationships and advice.
Your feedback as always is greatly appreciated.
Thanks much for your consideration.
By :� Ziad K Abdelnour
Ziad is also the author of the best selling book� Economic Warfare: Secrets of Wealth Creation in the Age of Welfare Politics (Wiley, 2011),
Mr. Ziad Abdelnour continues to be featured in hundreds of media channels and publications every year and is widely seen as one of the top business leaders by millions around the world.
He was also featured as one of the� 500 Most Influential CEOs in the World.