“We are pan-African investors, so I think of a pan-Africa story has been the growth in Africa. [In] 2008 and 2009, Africa was the fastest-growing continent in the world. In fact, the last 10 years, six out of the 10 top high-growth countries have been in Africa. That will continue,” Development Partners International CEO Runa Alam told CNBC Africa.
“With that comes growth in the economy, growth in companies, so private equity invests in those companies before they’re listed and they require capital. That’s been the main driver.”
Private equity firms in Africa have however come under considerable uncertainty due to political and economic instability in various African countries. Investment in the continent nonetheless continues, witch companies such as Development Partners International investing between 25 million dollars and 100 million dollars in companies.
“Our companies can be quite small when we begin, about 50 million dollars to 100 million dollars. The largest company today is roughly worth 750 million dollars. High growth is what drives such companies and it is expected to continue in future,” Alam explained.
A number of African countries are also moving towards the diversification of their economies.
Alam added that the diversification approach has also prompted the company to invest accordingly.
“Diversification is shown by the fact that the fund that we raised in 2004 was basically a financial institutions and a telecoms fund. Our last fund that we invested was diversified in all sorts of areas: middle income housing, pharmaceuticals, fast-moving consumer goods, insurance, banking. That’s where we see the diversification,” she said.
“Where we see the sectoral growth are really two areas. These are secular trends in Africa. The first is the rise of the emerging middle class. With that comes all the industries I described. This time in our new fund, we’re looking at an education deal, for instance, clinics, healthcare, and hospitals. So anything that benefits, from a higher income amongst more people who are the emerging middle class.”
The second secular trend, which was started by NEPAD in the late 90s, is of companies forming border interactions and encouraging regionalisation and Pan-African companies. Such companies attract investment from companies such as Alam’s.
“At the deal size we invest in, they tend to be larger companies that are profitable, but they are growing very fast. One of our companies grew 200 per cent in 2012, 120 per cent last year. With that, they need more capital. That’s another reason for private equity growing and thriving in Africa,” said Alam.
A crucial part is the availability or lack of debt in a number of African countries, and countries such as South Africa, a company can obtain acquisition finance and bank loans. In other African countries, such avenues are still in their developing stages and not as developed as South Africa.
“We have to be creative in raising debt. One of our countries in Botswana became the first Botswana company to tap the capital markets in South Africa. They did a 200 million dollar medium term note programme. The sophistication is growing and is growing across Africa.”