Is Africa the coming haven for private equity funds? Experts chart the potentials and hurdles, Sherine Nasr reports Africa is firmly on the scene these days. The land of challenges is also believed to be a goldmine of great opportunities. This week, the African Venture Capital Association (AVCA), a non-profit organisation founded to develop private equity and venture capital in Africa, held its eighth annual conference in Cairo. The aim was to highlight the investment potentials that abound across the black continent. According to Hisham El-Khazindar, co- founder and managing director of Citadel Capital, a leading private equity firm in the Middle East and North Africa, controlling investments of more than $8.3 billion in 12 countries, "The investments we are making in capital-intensive sectorsare a clear testaments to our belief in our continent's potential to generate strong returns." Statistics recently released by the International Monetary Fund (IMF) indicated that Africa would grow faster than any other continent in the coming year. "IMF statistics show that Africa will grow 4.1 per cent in 2010 while advanced economies will grow just 0.6 per cent," noted El-Khazindar. Despite political strife, a high rate of literacy and poverty, and sometimes a lack of basic infrastructure facilities, Africa seems to be doing well on many fronts. "If we take a closer look, we will discover that Africa's debts are declining, the trade balance shows a rapid growth of surplus, and private capital investment is growing," said Runa Alam, CEO of Development Partners International, LLC. But does Africa have the edge to attract more private equity funds? "A fund manager with the right skills can overcome the first time fraud challenges. These are not as risky as they are believed to be," said Alam. Touching on the emerging markets (EM) private equity landscape and African opportunity, Jennifer Choi, director of research at the Emerging Markets Private Equity Association (EMPEA) pointed out that EM private equity has recorded five years of explosive growth. "Over a $200 billion was raised in EM during the period from 2005 to the first half of 2009," said Choi, who added that EM's share of global fundraising has increased from four per cent in 2001 to 20 per cent by June 2009. Although emerging Asia led the growth in private equity, the Middle East had the lion's share with compound annual growth rates of 107.2 per cent between 2004-08, compared to 94.3 per cent in Asia and 23.6 per cent in Africa over the same period. Choi noted that private equity industry has begun to develop across Africa as fundraising and investment grew from $2.4 billion and $1.3 billion respectively in 2006 to $3.2 billion and $5.3 billion in 2008. "Investors' interest in Africa has grown significantly over the last four years," said Choi, who added that a recent survey has shown that 38 per cent of institutional investors plan to maintain, begin or expand operations in South Africa and the rest of the sub-Sahara while 33 per cent plan to do so in North Africa. Nevertheless, Africa still has a long way to go to convince investors across the globe of its comparative investment advantages. Choi pointed out two reasons why private equity investment in Africa may not be as attractive as in other emerging markets. "African-dedicated fund sizes tend to be smaller on average and absorptive capacity is a hurdle for large institutions. Moreover, Africa lacks the exit options other emerging markets have," she said. In Egypt, a number of regulations have been put in place to streamline a more investment friendly climate for small and medium-sized enterprises (SMEs), which represent almost 70 per cent of enterprises in Egypt and where 60 per cent of the country's workforce is employed. According to Osama Saleh, chairman of the General Authority for Investment and Free Zones (GAFI), the Nile Stock Exchange (NILEX) was established to provide medium and small cap companies with better access to finance through relaxed listing and disclosure requirements and lower listing and trading fees. "We have also devised sound exit options to encourage more investment into the sector," said Saleh.
