Between the 19th and the 21st March I attended the Private Equity World Africa 2012 conference at One Whitehall Place in London. I was amazed at the turn out to the event. The room that the conference was held in was packed and only five years ago it would not have been viable to arrange such a conference as the interest simply didn’t exist back then. The interest in Africa by private equity funds, property developers, pension funds and the international development agencies has developed in leaps and bounds in the last few years.
Was particularly interested to hear how much the international development agencies and development finance institutions were committing to Africa, particularly in the areas of infrastructure finance, healthcare, water and sustainable energy projects. The amounts run into billions of Dollars and I believe these investments will underpin Africa’s growth in the coming years as the basic building blocks needed for an economy to function efficiently are put in place.
A number of property developers and property fund managers attended and spoke at the conference, including Samuel Ogbu, the Chief Executive Officer of South African Liberty Properties. The large British private equity fund, Actis, has already developed a number of high-profile and very successful shopping malls across the continent, including The Palms in Lagos, Accra Mall in Accra and a large mall in Lusaka. Liberty Properties are owned by the Standard Bank and Liberty Life financial services groups and will be using their balance sheets to act as an ‘Africa excluding South Africa’ private equity fund to finance retail, office, industrial and residential property developments.
I’ve always maintained that the largest inhibitor to growth in Africa has been its autocratic and inefficient governments, government agencies and its dictatorial leaders, as it is they who are responsible for creating business friendly environments with the requisite support structures, legislation and law enforcement structures. For example, financing property developments and obtaining mortgages has been incredibly hard and it has taken up to six months to register a bond over a property in Nigeria and cost up to 15% of the value of the property. This was inhibited the development of the property sector in most African jurisdictions and has retarded property ownership. Perhaps private equity is the answer, with a combination of equity, debt and mezzanine finance, as this, in many ways, bypasses government structures. For example, if a private equity fund registered in a jurisdiction such as Mauritius, which is in Africa but offers first world services, investor protection and an attractive tax regime, owns properties directly in jurisdictions such as Nigeria, investors, property buyers and tenants are spared much of the bureaucracy that normally comes with property development and ownership.
From the conference proceedings it could be said that Kenya holds great promise for the future as it has a highly entrepreneurial environment with a relatively well developed and efficient regulatory and support systems for business and is positioned as the hub for the East African region. Kenya also has an open economy and all, regardless of race, sex or creed are welcomed and treated equally and with respect. West Africa has great potential for other reasons; Ghana because of the discovery of vast oil and gas reserves and Nigeria because of its large population base, its burgeoning middle class and because it is coming off such a low base. Angola would be the other economy to watch but I believe its long-term growth will depend on the transformation of its economy to an open and fair one. South Africa, on the other hand, I believe will be the African laggard in the years to come. I say this because, although it has highly efficient capital markets, its economy is highly inefficient and the ANC government still pursues policies that are detrimental to the long term development of businesses. I refer here to cross-shareholding structures, monopolies, oligopolies, black economic empowerment, and the rampant increase in corruption, the disintegration of the Westminster system and pervasive political connections and interests in business.
In conclusion, I believe many African jurisdictions show great promise and will be the top performing frontier markets in the coming decades but I do not see Africa as one singular investment destination. Rather, I see Africa as a collection of 54 states that are politically and economically highly disparate and investors need to consider each country on its own merits. I do think Africa will be a very exciting continent be exposed in the coming decade.