Thursday, September 11, 2008

Africa attracting new ‘private equity interest’

PRIVATE equity firm Actis says equity funds have embraced investing in Africa because many governments have instituted market reforms which are creating opportunities for brave investors willing to take a long-term view on Africa.

“There is increased private equity interest in the continent, illustrated by numerous new (private equity) funds being raised for Africa," Peter Schmid, head of Actis Africa, said yesterday.

His firm recently led a consortium to acquire Alstom South Africa, a big electrical engineering, manufacturing, distribution and contracting business, for R5,16 bn.

Analysts say the lure of emerging markets in countries such as Russia, China and India, and now Africa, has grown stronger after the bruising credit crunch in the US and Europe.

The credit crisis had forced private equity funds to diversify risk and take advantage of relatively cheap assets in such sectors as telecommunications, financial services and manufacturing.

According to the Financial Times, most emerging market private equity activity is concentrated in the Bric countries (Brazil, Russia, India and China) where investment by buyout groups was almost $17bn in the year to June.

This represented an increase of 80% over the previous year.

“African governments are in general moving away from socialist policies and embracing market-led economic policies, including privatisation and deregulation. This is mirrored by a change in attitude from the development finance institutions, which have all embraced the concept of private sector led development creating sustainable growth," Schmid said.

“Africa is resource rich, with a large, growing consumer market. The sectors that will continue to benefit are those that are exposed to the domestic infrastructural spend going into the economy of countries on the continent and those companies exposed to the consumer markets, including financial services," he said.

Actis, with 120 investment professionals in 13 offices around the world, was scanning for more investment opportunities in SA, where, in addition to the Alstom deal, Actis last year led a $1,2bn management buyout of financial services group Alexander Forbes.

“SA is a core market for us in Africa. We will continue to strengthen our position locally and we believe that, following the recent correction in the JSE, there are many attractive investment opportunities,” he said. But the company would be “highly selective” about which growth sectors to invest in.

Further afield, Schmid said, African economies were attracting investors because of the growing consumer market, including strong private sector growth, particularly in north and west African markets. But he warned that recent corrections in the markets could slow the rate of investment.