(Editor’s Note: This is the second in a two-part series. Previous posts: Part I)
For a growing number of private equity investors and asset managers, Africa is no longer a secret. The high-level discussions at the World Economic Forum’s 2011 Africa Summit, the signaling from the Carlyle Group’s newly established fund that targets deals in sub-Saharan Africa, and the interest that made Africa the most popular regional session at the recent EMPEA/IFC Global Private Equity Conference, all highlight the view that Africa will play an important role in the global economy.
According to the Emerging Market Private Equity Association (EMPEA), fundraising of private equity totaled nearly US$1.5 billion for sub-Saharan Africa in 2010. Leading insurance experts now indicate that political risk in the region is declining. With more investment capital focused on the continent and better management of risk, the outlook for private equity investing in Africa is more promising than ever.
Africa.com recently discussed the forecast for private equity investing in Africa with Hurley Doddy, co-chief executive officer and founding partner of Emerging Capital Partners (ECP). With seven funds and over $1.8 billion under management, ECP is a leading private equity manager focused exclusively on Africa. Headquartered in Washington D.C., ECP has six offices across Africa and over a decade of successful investing experience in companies operating in over 40 countries on the continent. ECP has over 50 investments (with 20 exits), targeting companies that operate in business environments characterized by limited competition, or in sectors where Africa has either a comparative advantage or an unmet need.
Africa.com: How does the return on investment in Africa compare to other regions, based on your experience?
Doddy: I think both the experience of private equity firms like ECP and also the experience with foreign direct investment has shown that African returns are comparable to returns anywhere in the world and we think that that is going to continue. Investors should look for growth and for that growth to translate into good, risk-adjusted returns. We think Africa has provided that and will continue to provide that, in part, because we feel that the supply and demand equation is still quite favorable for investors in Africa. Throughout our investment history, ECP has returned close to three times the money as our average return on investments. That’s something we look to continue in the future.
Africa.com: Have you seen any impact on the prospects for investing further given some of the political dynamics that we’ve observed in places such as North Africa, Cote d’Ivoire, and even Nigeria with the Niger Delta regions?
Doddy: Well, to start with Nigeria, we were pleased with the way the election went there last month. We think it was a step toward improving and cementing democracy in Nigeria with a generally free and fair election. This should, over time, help the situation in the Delta and foster a good outcome there.
In terms of the situation in North Africa (leaving aside Libya which is, by population, a relatively small country, and not much of a source of private equity opportunities), we think the jury is still out. In the long run, the move toward greater democracy and greater freedoms that was seen in both Tunisia and Egypt has the potential to make these better investment destinations. And after some period of adjustment, it could very well lead to increased rates of growth and increased return potential for those economies.
In terms of Cote d’Ivoire we see the inauguration of the duly elected president, as a very important step. We are glad that the crisis has been brought to a rapid conclusion and are hopeful that it could usher in a new era of reconciliation and greater growth in Cote d’Ivoire. The growth there has been slowed by the political situation in the recent years and hopefully this is the start of something good there. The road is bumpy but it is a road to a greater economic and political freedom in Africa and at ECP we think that goes hand in hand with good investment opportunities and good returns for our investors.
Africa.com: What is your response to people who believe there’s a shortage of viable investments in Africa, particularly sub-Saharan Africa?
Doddy: Well, I think the numbers speak for themselves. At ECP, we’ve invested over $1.2 billion in companies in Africa. We think the industry continues to show that the deals are there. People don’t always recognize the size of the African economy. It is very comparable to the Indian economy. It’s bigger than the Russian or the Brazilian economies, and significant and growing companies are there as well. The infrastructure being built in many places are expensive and take capital. A power plant or mine—these are multi-hundred-million dollar investments as they are in any place in the world. We think the track record shows that there are opportunities to invest significant capital in Africa and make a good return. And we think over time, that message is getting out through forums like the IFC/EMPEA Conference and this is leading to more interest. Hopefully, over the next few years, it leads to even more investment heading towards Africa.
Wilmot Allen is an advisor on impact investing in emerging markets and resides in Washington, D.C.