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Investor Sees Africa Risks Easing, Plenty of Growth

Richard Valdmanis

Political risks to investment are easing gradually across Africa, making it easier to tap into the continent’s robust growth, Africa’s top private equity investor Emerging Capital Partners (ECP) has said.

The Washington-based group said this week it raised US$613 million for a new fund that will mostly target telecoms, financial services, resources and utilities deals in sub-Saharan Africa, bringing its total capital raised for African investments to US$1,8 billion since it started ten years ago.

“The trend has been pretty good, with gradual but consistent improvement in democracy, transparency and stability. It is a very important trend for us,” said Hurley Doddy, co-founder and chief executive of ECP. “It is much tougher to get away with a coup now.”

Africa is home to some of the world’s poorest and least developed countries, many of which have had tumultuous transitions from colonial rule in the mid-1900s that have included coups, wars and stolen elections.

The continent remains among the world’s most risky, but potentially lucrative investment destinations and fears of a prolonged slowdown in the United States and Europe have led some investors to seek more exotic opportunities.

ECP said it has made over 50 investments and 20 successful exits in Africa. Past investments include wireless network Starcomms Nigeria and pan-African mobile operator Celtel International, sold to Kuwait’s MTC for US$3,4 billion in 2005 before MTC was rebranded Zain .

The new fund, dubbed Fund III, will look for companies that can grow their businesses across borders into regional or pan-African markets and is likely to make average individual investments over US$50 million – more than double those made by previous funds, Doddy said.

Fund III has already invested about a third of its capital including with Kenyan TV and Internet service provider Wananchi Group, West African regional bank Financial Bank, Ivorian insurance company NSIA Participations SA and tuna producer Thunnus Overseas Group.

“Telecoms has been a big growth sector for us and we did well on the cellphone trend. The number of people with cellphones in Africa has gone up to 50 per cent from two per cent ten years ago and we’ve done well there,” Doddy said.

“Of course, the growth rates there are going to slow down, but there is still lots of opportunity in general across the continent, particularly in internet service, getting people broadband,” Doddy said.

He said the fund also expected growth in financial services to generally outpace economic growth across the continent.

“Insurance and banking are both good areas of growth for the next decade. There is a large unbanked population in Africa. About 80 per cent of the people don’t have bank accounts. Insurance penetration is also very low,” he said.

Food and utilities are also on the agenda, he said.

“We see that Africa has about a quarter of the world’s arable land and there is lots of room to increase agricultural production. So we see growth in fertilizer and fertilizer distribution,” he said.

“We’re also interested in power and water. Unlike many places in the world, in Africa we’re still hooking up lots of new customers. Demand grows about two to three per cent faster than GDP and there’s also a big role for efficiency gain.”

Source: The Namibian   Image:

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