Africa continues to offer significant opportunities for private equity investors, despite the negative impact of the global economic crisis. This was the key message Michael Cohen, executive managing director at global alternative investment specialist Och-Ziff Capital Management, gave delegates at the PEI Africa Forum in London.
The continent's “vast and still underexploited” natural resources, as well as strategies benefitting from
many countries' black economic empowerment (BEE) legislation are particularly interesting at the moment, Cohen said.
But he also pointed to challenges, including the high cost of doing business in Africa due to poor infrastructure, public health problems, underdeveloped capital markets, lacking transparency and corporate governance. He also spoke of corruption as a particularly significant and wholly “unacceptable” aspect of African business life.
Och-Ziff, which manages $21.5 billion of assets, invests in Africa through a joint venture with Mvela Holdings, an investment vehicle co-founded by South African entrepreneur Mosima Gabriel “Tokyo” Sexwale, and Palladino Holdings.
Tom Gibian, CEO of pan-African private equity provider Emerging Capital Partners, told the conference that parts of the international investment community still had a “fundamental misconception about the nature of risk in Africa”. Gibian, whose firm manages $1.6 billion of capital earmarked for Africa, said private equity firms with local networks were well positioned to invest in African companies, many of which remain “fundamentally undercapitalised”.
Graham Thomas, managing director of South Africa-based Standard Bank Private Equity, highlighted “positive secular trends”, such as strong growth of consumer spending now and in the future, as an important reason why private equity investors should focus on Africa.
Thomas said: “The global economic crisis doesn’t change our strategy at all. Yes, resource prices are critically important to many African economies, but they also bring cyclicality. What we think is significant are projections saying that Nigeria for example will be among the world’s 15 largest economies by 2050. That requires consistent, non-cyclical GDP growth. “