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Increased Confidence in West Africa-Focused Private Equity – November 2014

by Victoria Pitman

  • 28 Nov 2014
  • PE

Although Africa still only makes up a small portion of the private equity market, interest is on the rise as a result of a burgeoning middle class and strong growth figures across the continent as a whole. Economic activity within West Africa tends to be dominated by oil-rich Nigeria, but other countries in the region are also showing promising figures. Preqin’s Funds in Market online service currently tracks 29 private equity vehicles that are seeking to raise an aggregate total of nearly $80bn in capital for investment within West Africa, or as part of a wider geographical focus.

One country that has stood out within the region over the last few years is Ivory Coast. Though the country was blighted by civil war and conflict for almost a decade, the peace established following the arrest of former President Laurent Gbagbo appears to be holding. The African Development Bank has been able to return to Abidjan after fleeing its headquarters there in 2003, a positive sign that has boosted optimism within the region. Both the Abraaj Group and Helios Investment Partners are considering opening offices in the country, with the hope of establishing a base of operations that will extend their reach into the rest of Francophone Africa. Preqin currently tracks eight private equity vehicles that have stated a focus for investments within Ivory Coast, targeting nearly $14.8bn. Five of these vehicles are growth orientated, with a further two targeting venture capital opportunities, and one infrastructure vehicle. 

Ivory Coast has benefitted from a heavy focus on establishing a robust economic infrastructure, greatly increasing its attractiveness to private equity funds. Neighbouring Liberia, however, still struggles with an underdeveloped economic infrastructure. Despite this, seven private equity vehicles currently in market intend to invest there as part of a wider geographic focus. These funds are targeting just over $1bn in capital, and are again made up of growth, venture capital and infrastructure vehicles. An example of one of these funds is The Services Development Fund, which has a $100mn target and focuses on growth and expansion stage businesses in West Africa that have the potential to scale their operations across multiple geographies. The effect of the ongoing Ebola crisis on private equity investment within Liberia, along with Guinea and Sierra Leone, will not be concretely known for months, though it is likely to be detrimental with regards to securing private equity capital for the region in the near future. 

The influx of capital by private equity vehicles can result in sustainable growth that develops aspects of the economy vitally needed for improvements in living standards. Vehicles such as Africa Catalyst Fund disseminate business knowledge and provide support for the firms they invest in, which, in their own way, develops human capital and long-term growth prospects. Indeed, growth, venture capital and infrastructure funds are of particular importance due to the specific issues faced by such countries. During times of stability, developing countries represent attractive opportunities for foreign investors, with the potential of oversized returns acting as a significant incentive for committing capital. Nevertheless, the risk of exogenous shocks and political instability still play a big role in the decision-making process of both LPs and GPs, and will likely remain a deciding factor for some time. A comprehensive and sustained programme of infrastructure and human capital development seems the surest way to improve the attractiveness of immature private equity markets, yet this is often reliant on risk-seeking private equity capital. 

Although the issues facing developing countries often seem multitudinous and cyclical, the recent increase in investor interest in the region could bring about positive changes and lead to a more developed economy.

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