Buyout firms explore Africa’s frontier markets


20 November 2014

When Kohlberg Kravis Roberts invested roughly $200 million in a rose farm in Ethiopia this summer, many in the market were surprised.


The investment itself made sense – Afriflora grows more than 700 million flowers to export to Europe each year, making it an important part of the east African nation’s cut flower industry – but large private equity deals outside of South Africa, Nigeria and Kenya remain rare in sub-Saharan Africa.

Kayode Akinola, a director at KKR, said: “Few people expected us to make our first African investment in Ethiopia. But when you look at Ethiopia, you realise its scale, its population and its potential, you can see some of the attractions.”

KKR is not the only big buyout firm to notice opportunities beyond Africa’s main economies. In January, Carlyle Group and Investec Asset Management teamed up to invest in J&J Transport, a logistics company in Mozambique, while in 2012 Blackstone Group commissioned a hydroelectric dam in Uganda.

But the major economies still dominate. The value of private equity deals in Nigeria, Kenya and South Africa in the year to date makes up 82% of the value of private equity deals across all of sub-Saharan Africa, according to Dealogic. Three quarters of sub-Saharan Africa private equity deals over the same period were done in those three countries.
Dushy Sivanithy, a principal at private equity investor Pantheon, said: “The reason people spend so much time in Nigeria, South Africa and Kenya is because they are scalable and sizeable markets.

“Once you start going down to other markets, you’ve got to find businesses that can take the kind of capital we’re talking about. But some of the local firms have been investing successfully right across the continent for a long period of time. KKR’s recent investment in Ethiopia is evidence that [firms] are willing to invest in other markets. We know some [firms] are currently looking at opportunities in Mozambique, Ghana and even Zimbabwe now.”

Some emerging markets-focused private equity firms are now looking to open offices in some of these less-developed economies.

Helios Investment Partners and the Abraaj Group are both considering opening offices in Ivory Coast, which will act as platforms to capture deals in French-speaking Africa, according to the firms.

Abraaj is also considering opening offices in Ethiopia and Angola and setting up teams there in the next three years.

But big businesses can be hard to find in the wider region. Speaking at a recent conference and referring to data from S&P Capital IQ, Diana Noble, chief executive of emerging markets-focused investor CDC Group, said that there are 3,186 companies on the continent that have revenue above $50 million, 1,326 of which are in South Africa, 99 of which are in Nigeria and 58 of which are in Kenya. In sub-Saharan Africa, outside of North Africa and South Africa, there are 1,014 such companies across 46 countries, or 22 per country. She said: “That’s an incredibly shallow pool.”

Financial News spoke with some of the top firms to see which relatively unexplored countries hold the most appeal for private equity.


Rich in resources but suffering from years of underinvestment, Angola is set to overtake Nigeria as Africa’s biggest oil producer by 2016. After South Africa, Angola holds the highest number of companies with revenues of more than $50 million of any sub-Saharan nation, according to S&P Capital IQ. Years of economic and political instability following a 27-year civil war have deterred many investors from venturing into the country. One investor said: “A lot of people have looked at it because it has interesting growth prospects but how you play it from a private equity perspective is more difficult.” However, Sev Vettivetpillai, a partner at Abraaj, added: “Angola has historically been a very difficult market in terms of getting approval to do deals, but there’s a sense that the government is trying to make it easier for investors to invest.”

Democratic Republic of Congo

Years of ongoing conflict and other humanitarian crises including several outbreaks of the Ebola virus have not deterred some private equity firms from investing in the DRC, one of Africa’s poorest countries. Henry Obi, a partner at private equity firm Helios Investment Partners, said: “We are seeing a number of opportunities in DRC. We own a telecom towers company there and we’re looking at some other businesses. It’s an interesting space, but the political situation doesn’t lend itself to everybody coming in at the same time. It’s not everyone’s cup of tea.”


Africa’s second most populous country behind Nigeria has received a huge amount of foreign direct investment in recent years, including from China and Turkey. While there is still phenomenal poverty, Ethiopia is enjoying a period of political stability and investing heavily in infrastructure. It also has some of the lowest power costs in the world due to its hydroelectric dam, while a lack of a stock market means that private equity is one of the only routes to investment in the country.


Oil-rich Ghana is a country that many a private equity firm has spent time prospecting in recent years, with deals such as the Abraaj Group and Danone’s roughly $350 million acquisition of frozen dairy product and juice maker Fan Milk International last year proving that large deals in the country are possible. Vettivetpillai at Abraaj, which has an office in Ghana, said: “It’s very easy to do business there, you have OK capital markets and there are good-quality businesses you can pick up at very good valuations.” The country also has its challenges. In August, Ghana said it would seek assistance from the International Monetary Fund as the country’s budget deficit and inflation rate soared into double digits and its currency fell sharply. Pantheon’s Sivanithy said: “Ghana, once it sorts out its near-term problems, could be interesting, and I think it’s one of the key markets that we’ll focus on.”

Ivory Coast

Regional lender African Development Bank’s recent return to its Abidjan headquarters after 11 years in exile due to civil war was a sign to many investors that the Ivory Coast was once again open for business. Seen as one of Africa’s major markets pre-conflict, the world’s top cocoa exporter has kick-started its economy and is once again establishing itself as a prosperous gateway to the rest of French-speaking Africa, attracting firms such as Helios and Abraaj in search of deals. Abraaj’s Vettivetpillai said: “It’s challenging but it has opportunity.”


After years of post-independence suffering, Mozambique is hoping to become one of the world’s biggest energy producers following the discovery of large natural gas fields off its coast. The country also benefits from its position on the Beira corridor, a road and rail network that links Zambia, Malawi, Zimbabwe and Mozambique to the port of Beira on the Indian Ocean. One investor said: “People are excited about what’s going to happen in Mozambique. There’s a lot of money going in to support that build-up of an oil and gas industry and people are building things like temporary housing for local expats and hotels.” But investors still face hurdles in the country. “If you look at the Mozambique bond issuance, there have been some question marks over what they’ve been raising capital for,” said the investor.


Two decades on from the 1994 genocide that killed nearly one million people and ravaged the country’s economy, Rwanda has gone through an impressive turnaround. The country is trying to position itself as one of the easiest places to do business on the continent, particularly for foreign investors, and is seen as a respectable base for east African consolidation. Obi at Helios said: “Rwanda seems to be everyone’s darling. It’s stable, it’s got good governance and it takes like two days or less to set up a business there.”


Home to pan-African agribusiness Export Trading Group, Carlyle Group’s first deal on the continent, Tanzania is seen as a business-friendly market with large deposits of natural gas. While there may still be a dearth of sizeable deals in the country, finding one can provide a platform for investments in east Africa outside of Kenya, which industry figures describe as frothy due to increasing competition for deals. Agri-processing, fast-moving consumer goods and financial services are sectors to watch, according to Maty Ndiaye, a director at alternative asset manager Duet Group. Ndiaye said: “We believe there is a huge opportunity in the banking sector in Tanzania. Banking penetration is only 17% in Tanzania. In Kenya, it’s 42%, yet if you compare the GDP per capita, Tanzania is two thirds of what Kenya is.”

This article first appeared in the print edition of Financial News dated November 17, 2014

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