Investing at the sharp end of the African frontier

Sub-Saharan Africa offers investors attractive demographics and fast growth, but private equity is often the only way of gaining exposure.

As investors look to add risk to their portfolios, attention is again turning to sub-Saharan Africa. But with the Nigerian Stock Exchange showing no signs of significant recovery from its disastrous 2009 slump, attractive investments outside South Africa are still thin on the ground.

For investors tempted by the continent’s alluring demographics and fast growth, private equity is often the only way of gaining exposure. For private equity firms operating in the region, the growth prospects combined with the scarcity of capital markets represent a clear opportunity.

“You know that Africa is going to offer good growth, because of where it’s starting from,” says Murray Grant (pictured), partner (Africa) at Actis, a private equity firm.

Africa for all

Charlie Tyron, manager of Maris ­Capital, says: “Africa is growing at least five times the speed of Europe, and our target markets are forecast to grow at eight times that of the ­eurozone in 2012.”

Maris is a venture capital group that specialises in African frontier markets. Its portfolio includes companies in such little known markets as South Sudan and Mozambique. Tyron adds: “There are different definitions of frontier markets. To us, it means post-conflict markets. We are looking at the frontier end of frontier.”

Tyron believes it is these post-conflict markets that offer the strongest growth. He says: “The markets we invest in were largely insulated from the effects of the financial crisis. There was still exposure of course, in terms of access to capital and ­exposure to commodity prices, but growth remained pretty robust.”

For investors interested in the sharp end of frontier markets, a private equity fund with local knowledge can be the only way to gain exposure. Tyron says: “For many of the countries we invest in, there is no alternative to private equity.”

Away from larger, more liquid ­markets such as Nigeria, Egypt and South Africa, private equity offers investors access to demographic shifts that are rapidly changing the nature of African society. 

Of particular interest is the e­mergence of a middle class, and the consumer spending that entails. Grant says: “We are particularly interested in the emergence of middle class, even if that class remains very small by ­European standards.”

This view is echoed by Dan Smaller, head of global distribution at Duet, a global alternative asset manager whose Africa private equity fund invests across the continent. “We tend to focus on sectors that service the incredibly fast-growing middle class.”

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