Views on private equity funding in Africa
Last evening I had dinner with my childhood friends at Aso Rock, a Nigerian restaurant in Vienna’s third district. As usual, when we three get together, we have a great time discussing international business and affairs.
I particularly enjoy bouncing ideas off each other, in our respective fields of entertainment, automobile, and international development. To me, it is interesting to rub minds with people working in industries that rarely cross over. By default, our viewpoints conflict, but often we unanimously agree on the topics of finance and Africa.
Opportunities for shrewd private equity players
It appears that investors within and outside of Africa continue to invest in African enterprises with long-term growth potential. Private equity transactions in Africa require complex structures to fund transactions that mitigate risks and develop enterprises from the ground up. If you are looking to invest in Africa, consider experienced partners with market knowledge and the ability to manage risks on large-scale investments.
I learned about the Blackstone Group, a private equity funds company considered as the largest in Africa and perhaps the world. In 2016, the Blackstone Group invested over USD 2 billion in infrastructure building and development in Nigeria, Ethiopia, Togo, and Mozambique. The latest significant deals made are in the industries of agribusiness, e-commerce, energy, FinTech, transport and pharmaceutical. Erratic fluctuations in the commodity market have shifted the focus on non-commodity and domestic consumers in Africa.
Check out the Emerging Markets Private Equity Association (EMPEA) for more information on private equity funding in Africa.
Cost of sending money to and within emerging markets
Our conversation transitioned from the rise of US and UAE private equity funding in Africa to the topic of money transfers. My friend mentioned the shamefully expensive fees of transferring money to Africa. Money transfer fees vary between 10%-15% and equate to an additional tax on the diaspora.
Remittances – a fancy word for money transfer – account for more inflows than foreign aid or foreign direct investments. According to the World Bank, the three largest remittance recipients in 2016 were Nigeria (USD 20 billion), Egypt (USD 18.7 billion), and Morocco (USD 7.1 billion).
We debated on the possible reasons for high fees and concluded that antimonopoly regulations need to play a role for fair competition in the remittances market. We also considered the high costs as a possible deterrence to terrorist financing. But then again, it would not deter a big-time crook to invest in money laundering operations.
Alternative options of sending remittances are few – out of 54 African countries, the PayPal community is active only in South Africa. Mobile payments, such as MPesa remain to be sluggish in the Western African region. Sending money internationally with the bank is for many, not an option due to the hidden and high transaction fees.
Somehow, our conversation about Africa and Finance concluded by a quote that I read somewhere. I am not sure who cited it but it goes something like this: “If opportunity doesn’t know, build a door”.
Are you an impact investor? Or managing a private equity portfolio including African markets? Then drop us a line at email@example.com to facilitate a talk of your experiences.