Contributed by Jean-Claude Bastos de Morais, Founder & Chairman of Quantum Global
A new wave of African innovators is beginning to transform the economies of many countries across the continent. More than ever, young entrepreneurs are succeeding in business and clamouring for growth. Whilst global investors are shying away from investing in Africa at a time when commodity prices are low, African private investors and firms are actively investing in unique growth opportunities, as governments and regional bodies step up investment in non-oil industries.
The step change in economic focus over the past two years is a much-needed response to the crisis of sustained low oil and commodity prices. This new cheap oil economy does however have a very important and overdue silver lining – in fact it has several. One of the most important, in terms of sustainable and diverse economic growth, is the way in which so many stakeholders have begun to encourage enterprise and innovation. In simple terms that means more capital, more support, more training and more encouragement all of which is creating positive development opportunities for investors who take the time to understand that significant investment opportunities exist.
African money for African opportunities
As demonstrated by the IPA winners, we are already seeing this new African innovation ecosystem flourish but for them to fly we need to see more private investment. Those of us from Africa would quite naturally prefer to see those funds come from inside the region, rather than outside: African money for African opportunities. Sourcing capital from African investors not only ensures that it is African investors who reap rewards (keeping wealth inside Africa) but there is reason to believe that African investors may be more likely to see their investments succeed than those from outside.
It’s probably fair to suggest that African investors may have a slightly more nuanced understanding of their own markets and a stronger emotional connection to the issues that innovators are tackling. All of us want to see an end to poverty, greater social mobility and inclusion. African investors are also likely to have a deeper knowledge of local market sentiment than those from outside of the region.
Whilst foreign investors may see challenges in Africa, African investors are more likely to view them as opportunities. The evidence for this is in the way so many national governments and other bodies are investing in innovation – and it is money that is well overdue. A 2015 report from the World Bank states that more than 50% of SME’s in Africa lack access to finance, thus hindering growth. In a market where four out of five formal jobs are with SME’s, the funding gap represents a clear and present danger to Africa’s economic sustainability. Innovators create businesses that create jobs and generate wealth. They’re critical. However, for African investors, the current challenging environment is creating real investment opportunities.
African private equity investors and firms are also more suited to taking higher perceived risks than their foreign counterparts. They have a much better understanding of how things work, which buttons to press and what kinds of opportunities are likely to succeed. They are more likely to understand that investing in the region while commodities are at the bottom of the value cycle is a tremendous opportunity. They’re also more likely to understand the enormous scope of opportunity in areas such as agribusiness and agriculture that most global investors don’t see. Sub-Saharan Africa is teeming with small-scale farmers and innovators creating technologies and products that are helping farmers to scale up and significantly improve output.
On a larger scale, African investors have an opportunity to take advantage of significant government investment in priority target sectors, including hospitality, technology, infrastructure, timber and healthcare. These sectors are the direct recipients of government funding and as such are a clear priority – offering premium long-terms gains. These industries will transform the economic landscape of Africa and help to deliver great social change: more jobs, a more diverse economic model and more (evenly spread) wealth. This is where African private equity can add real value; by supporting home-grown solutions and services and keeping African wealth inside Arica.
.African PE firms, the partner for African Development
Whether looking at greenfield opportunities, leveraged buyouts, distressed investments or minority investments in mature companies, Africa offers potentially rich-pickings for African investors because their governments simply have little choice but to achieve economic diversification. Therefore, the role of PE is undoubtedly set to become an even more important partner for African development. Opportunities are there for the making. African Investors can do very well in what is increasingly seen as an attractive and well-governed environment – but most importantly the ordinary people of Africa will see their life chances improve and future generations will live in a richer, more prosperous and fairer society.
The Angolan perspective
Angola is a case in point. As part of a national plan to promote Angola as a place for PE firms to invest, the Angolan government has set in motion several important strategies. It has opened its doors to co-investment opportunities with multinationals, enabling it to push ahead with business-critical infrastructure. Major infrastructure projects, particularly in transport and logistics are a welcome sign of the government’s commitment to long-term investment in non-oil sectors and the Angolan government is also now embarking on large-scale public-private-partnerships (PPP’s). This is important – despite their caution, foreign investors should still be welcomed, not least because they often bring cutting-edge technologies and can deliver skills-transfer.
However, as well as courting big foreign investors, Angola has a serious strategy for attracting private equity investors from inside Africa. It’s state-backed venture capital fund, Fundo Activo de Capital de Risco Angolana (FACRA) acts as a conduit between potential African investors, entrepreneurs and innovators who have great ideas with commercial promise. Unlike traditional (and purely commercial) VCs, FACRA provides investors with an easy way of tapping in to the Angolan market; offering guidance on how to partner with local innovators and how to do business in the country. For Angolans with growing businesses it provides a route to capital, an opportunity to deal with African investors who share common values and the opportunity to realize their ambitions in collaboration with successful regional firms who are already have a strong connection with them culturally.