The potential of private equity investments continues in Africa, despite the continent’s lower GDP growth rates, and the effects of falling commodity prices on commodity-rich countries.
While fundraising activity in Africa dipped slightly last year (mirroring a trend common to most emerging markets), private equity continues to play an important role in the region, as investors look to diversify into some of the world’s most remote—but also most promising--economies. This is a trend that has played out steadily over the past several years, with the African Venture Capital Association (AVCA) reporting a robust 823 PE deals between 2010 and 2015, representing more than $21bn in value.
Traditional financial institutions are struggling in emerging economies: annual loan growth has slowed from 18% to 12%; local currencies are in decline against the dollar, and long-term problems of accessibility remain unsolved. Only a few months ago, a high-profile merger between Standard Chartered and DBS was scrapped because of the former’s exposure to these volatile markets.
“What improves the circumstances of the greater part can never be regarded as an inconvenience to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable,”- Adam Smith, The Wealth of Nations.
The Financial Services Board (FSB) has finally reached the implementation phase of the Solvency Assessment and Management (SAM) framework and insurers are expected to be ready to comply with their SAM obligations. So far, discussions around the implications of SAM have centered largely around insurers, with little focus on other significant industry players, such as private investment funds in which insurers may invest their capital.
We are ‘bottom-up’ investors who pay more attention to valuations than to macroeconomic forecasts. We do extensive research to calculate what we believe is intrinsic value (the underlying worth or price you would pay for the business), and buy assets when the discount between this intrinsic value and the market price is sufficiently large to limit downside risk.
Historically, international investors investing in Africa through Mauritius had structured their funds using Global Business Companies. However, since the implementation of the Limited Partnerships Act 2011 in Mauritius, increasing numbers of funds have been structured as Limited Liability Partnerships. More than 25 funds structured as Mauritius partnerships are now registered in the jurisdiction.
Low gross domestic product growth, an unpredictable currency and rising political tensions have all contributed to a particularly uncertain economic outlook for South Africa, exacerbating an already tough investment landscape.
While the weather phenomenon appears to have passed, El Niño will continue to impact food security, food prices and humanitarian needs well into 2017, according to a new Bright Africa special report from African investment specialists RisCura.
Fintech in Africa, as elsewhere in the world, is big business. Investment is flooding into startups providing innovative ways of offering financial services. Startups in the fintech space took on almost 30% of the total funding raised by African tech businesses in 2015. Globally, growth in the sector is huge, with $19.1bn invested globally last year, a 106% jump from 2014.
Infrastructure models require a return on investment that is secure and a political environment that is stable. The quality of governance and the legal enforcement of contracts vary widely across African jurisdictions and like all emerging markets, a high level of due diligence has to be carried out. However, with a population of 1.2 billion and increasing levels of education and aspiration, there is a huge demand for improved living standards across Africa. This brings with it the need for reliable power supply, clean water and effective waste water treatment, new roads, railways and ports, as well as telecommunication facilities (to name but a few).
The International Monetary Fund (IMF) suggests that Egypt has overtaken South Africa as the second largest economy in Africa.
By Keith Woodhouse (top), Partner, London; John Nielsen (middle), Associate, London; & Jeff Buckland (bottom), Partner, Johannesburg, Hogan Lovells
Robert Hamill (left), Partner & Sam Webster (right), Senior Associate, Mayer Brown, say that this 2016 will be critical for M&A; activity in the energy sector following the turbulence of 2015