Hello Africa? Investors Are Calling

By Jonathan Shieber

Reuters

A soccer fan takes a photograph with his mobile phone before the start of the Africa Cup of Nations final match between Nigeria and Burkina Faso at Testlim Balogun stadium in Lagos, Feb. 10.

The $1 billion financing for African mobile telecommunications infrastructure developer IHS Towers is yet another sign that global investors are warming up to investing on the continent again.

The Lagos-based company manages cellular towers for mobile phone carriers in Africa, a business that sits at the intersection of Africa’s consumer revolution and infrastructure needs, according to Emerging Capital Partners managing director and founding partner, Bryce Fort.  “IHS is a consumer play through infrastructure,” he said.

One of the tenets of Emerging Capital Partners’ investment strategy is to back those infrastructure businesses that are growing because of expanding domestic demand. The firm also backs companies selling services to Africa’s consumer class across a number of different industries.

“Investors are becoming more comfortable with the African story,” Fort said. “The fundamental change has been happening for over a decade, but now funding is coming in with larger and larger checks.”

Large global private equity firms such as The Carlyle Group and KKRKKR -1.29% are raising funds and hiring new talent, respectively, to tackle the opportunities presented in the sub-Saharan market. Large Africa-focused firms such as Helios Investment Partners are also raising significant new funds to invest across the continent.

These funds are launching at a time when limited partners are looking longingly toward emerging markets that are not slowing down. As growth decelerates in China, Brazil, and India these investors are looking at the persistence of Africa’s high-growth economies as a potential source of relief.

Some private equity investors in the region, however, caution against too much enthusiasm over what’s happening in sub-Saharan Africa and the continent broadly. “Between 2004 and 2010 Nigeria grew at an average of 7.2% while at the same time absolute poverty went up by 6.4%,” said one investor active in the sub-Saharan region. If growth isn’t distributed more evenly among the population, then how sustainable is it? the investor said.

Even more troubling, BRIC countries that provided African nations with some of the capital fueling their growth are slowing down themselves. “With China slowing down, Brazil slowing down, India slowing down, emerging markets generally slowing down, what fundamentally is driving growth in Africa?” the investor said.

Still, the overall return from African funds for the 10 years ending Sept. 30, 2012, are on par with other emerging markets over the same period, according to a Cambridge Associates study. According to the study, internal rates of return for African funds have averaged an 11.2% annualized return for the 10 years ending Sept. 30, 2012. For earlier 10-year periods African private equity actually outperformed the 10-year emerging markets benchmark, according to the study.

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