ECP sees quickening Africa investment pace

Diversification is the best way to address investor concerns about oil prices and currency depreciation in certain African markets, ECP co-CEO Vincent Le Guennou tells PEI.

The pace of investment in Africa is expected to pick up across the industry this year as managers put to work the capital amassed in 2015, said Vincent Le Guennou, founding partner, managing director and co-CEO of Emerging Capital Partners (ECP).

“I would assume that the investment pace is going to increase and come back to previous levels in 2016 and 2017, even though some investors and fund managers might be cautious about some destinations, including Nigeria,” Le Gennou told Private Equity International.

2015 was a strong year for fundraising in sub-Saharan Africa, with managers targeting the region amassing a combined $3.6 billion, according to data from the Emerging Markets Private Equity Association.

ECP, which has a strong track record of investing in Francophone West Africa, is currently in market with its fourth pan-African vehicle, a 2013-vintage fund with a $750 million target.

Funds focused on West Africa attracted 14 percent of the capital raised, their largest share in the last five years and the largest regional group behind pan-African vehicles, which attracted 78 percent of the capital raised.

“This is good news because it shows the increased interest in the Africa destination,” Le Guennou said of last year’s buoyant fundraising environment. “I think all fund managers will benefit from such appetite.”

While 2015’s fundraising figures were robust, dealflow was more subdued. Just $1 billion was invested in sub-Saharan Africa last year, less than half the amount invested in 2014, according to EMPEA data. West Africa attracted 37 deals, more than any other sub-region.

Le Gennou conceded that plummeting oil prices and subsequent currency volatility is a concern among investors. For ECP, the best way to mitigate such macro risks is through diversification.

“We are a truly pan-African fund and therefore geographic diversification is the best answer to that risk,” he says. “[While] some oil countries are suffering at the moment, others will benefit from the drop in oil prices because they are net importers. So the more diversified you are, the less you should be impacted by these situations in the oil and gas crisis.”

Geographies where ECP is cautious at the moment include parts of north Africa. “We’re watching carefully what’s happening in Algeria, which is another oil-dependent economy [where] the local currency has strongly depreciated over the last few months. This is something we are monitoring quite closely.”

While Nigeria and Ghana have taken severe hits to their currencies in the last year, the CFA Franc, the shared currency of the West African Economic and Monetary Union (UEMOA, from its French name Union Economique et Monétaire Oust-Africaine), an organisation of eight West African states, has remained relatively stable against the euro.

“I think the good news in West Africa is Cote d’Ivoire,” Le Guennou said. “The elections went smoothly, President Ouattara, who had done a great job since he took over in 2011, had been re-elected providing more visibility on the stability of the country, which represent more or less 40 percent of the GDP of the UEMOA region.”

Le Guennou said ECP’s investment strategy is focused on the UEMOA region as a whole, rather than Cote d’Ivoire specifically, as with one currency, one central bank and one regional stock exchange, it simplifies the process of building out platform investments into fellow member states.

“It gives you access to a market of close to 80 million inhabitants,” he said.