This is the view of Dapo Okubadejo, ?partner and Africa head of Deal Advisory & Private Equity at KPMG. "However, even once potential complexities related to these two issues have been discussed and overcome, there is a growing consensus that investors."
Numerous African investors are realising that the best way to exploit the significant growth potential in Africa would be to invest in sectors that talk to the fundamentals of Africa's growth story. These include the geographical size and sheer diversity in the markets on the continent, the young population, and the very high rate of urbanisation in Africa that is also creating increased disposable or discretionary income among the emerging middle class.
"These socio-demographic factors are not only a positive show of sustainable growth in certain economies, but also demonstrate that there will be rapid growth in needs and demands for consumables, which bodes an immense opportunity for investors in consumer facing sectors - including for instance, fast moving consumer goods, healthcare and financial services," says Okubadejo.
"Additionally, in most African countries these sectors have been reformed, where they are predominantly in private hands and there is a clamour for improved services and efficiencies, which will be best achieved through increasing competition and bringing new innovations, solutions and products to local markets.
"This is not to say that the old favourites such as mining activities and infrastructure development, including in transport, energy, utilities and households, for instance, won't still see a share of private equity (PE) investment. There is still a huge need and growing demand for all of these sectors in Africa and as such these segments are still very popular for investment, depending on the investor's risk appetite. Typically, however, as these sectors are largely government controlled and more often investments into these sectors are driven through government-to-government relations and deals, or public-private-partnerships with foreign investors," continues Okubadejo.
There are a number of concerns that the current economic slowdown experienced in China will negatively impact PE investments into Africa, however, Okubadejo's disagrees. "Although growth in China's economy has slowed, we must remember that it is still growing at around the seven percent mark and although this is a lot lower than the country's recent records - generally speaking - it's still a solid figure, even for a high growth market."
"With this, the level of interest that we are seeing in Africa from companies and/or institutions in China is still very high and, as China looks to diversify its own economy - with Africa being a source of invaluable inputs of raw materials for China's production, manufacturing or energy sectors - we don't expect to see the rate of investment into Africa from China to slow."
Conversely, although the economic slowdown experienced in Europe - and to an extent some devolution of the Euro currency - is driving PE houses to look for sources of diversification, often times they rather invest within the Euro Zone. "Europe is a very wide zone that cuts across Western Europe, Eastern Europe and event parts of EuroAsia and, some of the economies of certain countries within this region can also be classified as emerging or frontier markets. So in a way European PE houses are take advantage of opportunities of emerging market returns or emerging market investments within the Euro Zone itself," says Okubadejo.
"Based on that, and issues of complexity with investing in Africa, although European PE houses continue to actively track developments within the continent, they haven't yet developed a great appetite for having direct exposure in Africa. While we have recently seen deals by European PE houses being closed in South Africa - and looking to Dumas - the subdued appetite has led them to not be bullish, particularly compared to PE houses from other markets such as the US."
However, what is perhaps more exciting is the growing rate of intra-Africa PE investments. Okubadejo highlights that South Africa will continue to be relevant from an investment standpoint into Africa. "Firstly, South Africa still has the most developed economy on the continent, as well as the most sophisticated equity market - and the equity market is also ranked very high when compared to other emerging markets due to the very strict enforcement of governance principles, procedures and exit protection rules, etc.
"For this reason, a lot of investors outside of Africa still view South Africa as a springboard into the continent. And, even if they aren't necessarily investing for growth in Africa they are investing in South African corporates, who are looking at Africa for expansion - and I believe we are going to see this trend continue.
"Secondly, South Africa's PE community being the most developed and largest on the continent, and having gone through different cycles in the last decade or two, we are seeing a number of South African PE houses exempting or in the process of doing exists by the way of secondaries and this is a great source of degeneration in the South African market as well. So we are seeing a lot of secondary transactions, in which South African PE houses are selling off or their existing their portfolio has reached the limit of the holding period, where other PE houses may also use these as a launch pad into Africa," Okubadejo concludes.
