Carlyle Group Co-CEO David Rubenstein said that the private-equity industry “will take off” in Africa as his company and Blackstone Group backed energy partnerships with the continent’s richest person.
“Opportunities there are far greater than people thought years ago and the great explosion in private equity, if it’s going to occur anywhere around the world in the next couple of years, is probably going to be in Africa,” Rubenstein said in a panel discussion at the US-Africa Business Forum in Washington.
Private Equity consists of investors and funds that make investments directly into private companies.
Capital for private equity is often raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet.
Private Equity firms and opportunities are mushrooming in Nigeria as the African growth story meets investors who have suddenly realized they are under-invested in one of the last frontiers of growth, alpha and outsized returns in a world of increasingly correlated financial assets.
“PE plays a critical role in a deregulated economy as they help to mobilise capital to various sectors where capital is needed,” said Okey Enelamah, CEO, Africa Capital Alliance, a PE firm, at the annual Africa Private Equity and Venture Capital Association (AVCA) conference held in Lagos, in April.
Africa focused PE firms raised $3.3 billion in capital in 2013, a 130 percent increase from the levels seen in 2007, according to a recent report by Ernst & Young.
African nations need an extra $50bn a year to ease energy shortages and transportation bottlenecks, said the World Bank.
In sub-Saharan Africa 70 percent of the population lack electricity, and those with power experience regular blackouts and high prices, said the International Energy Agency.
PE as a financing tool is desirable for Nigeria with its large informal sector especially as the traditional means of financing is often not available to companies in the early growth phase.
“When you look at the dearth of capital, size of the informal sector in Nigeria and Africa, PE is essential,” said Dapo Okubadejo, partner and Africa head of M&A, PE and transaction advisory, KPMG. “PE has put in place risk appetite to back entrepreneurs.”
Dangote committed to invest a combined $5bn by 2019 with New York-based Blackstone in power projects in sub-Saharan Africa and formed a joint venture with Carlyle to invest an unspecified amount in Nigerian oil and gas ventures and other sub-Saharan projects.
PE firms have had some success stories in other emerging growth sectors in Nigeria in the past.
Paga, Nigeria’s largest mobile payments network, has received venture capital funding which has enabled it to grow its business to the one-million user mark.
Interswitch, Nigeria’s leading payments provider, received funding to the tune of $110 million from PE firm, Helios Investment Partners, giving firepower to Interswitch in its quest to develop itself into an African-wide payments processor using its signature ‘Verve’ card.
The Nigerian government is also poised to assist the growth of the PE industry in the country, according to Olusegun Aganga, minister of industry, trade and investment, in a video conference address at the AVCA conference.
“In September 2013, a Nigerian venture capital/PE initiative was developed, which involves addressing the legal, regulatory, tax and policy impediments to the growth of the sector,” Aganga said.
The anecdote that PE exits are difficult in Nigeria and Africa, may also be a myth as exits are happening at an average of 30 per year.
“The PE exits are usually more towards the five-year timeframe in Africa, as opposed to three years in Asia,” said Sev Vettivetpillai, partner and head of global funding, The Abraaj Group.
A lot of the stakeholders would like to see Nigerian pension funds invest more in PE.
Nigerian Pension assets are growing at a rate of $250 million per month or 25 percent per annum, while Pension Fund Administrators (PFAs) are allowed to invest a maximum of 5 percent of their Assets under Management (AUM) into PE.
The current PFA investments in PE are put at 1 percent of total industry assets.
