Africa to become the next private equity hotspot
Africa has the potential to become the next private equity hotspot. Looking at the energy infrastructure sector, 600 million Africans are not connected to the electricity supply and public investment alone will not be sufficient to fund this requirement.
Africa has only just begun to explore and develop its vast oil and gas potential. The investment required in the extraction, refining and distribution sectors - through pipeline and ports - and the regional and global sale of these resources is vast, even before the supplier and secondary industries required to support this build are considered. Then there is the telecommunications, consumer, services and urban infrastructure build attendant on the continent’s rapid urbanisation as millions of Africans move to town.
Underpinning all this potential is Africa’s traditional mainstay – agriculture. The sector already employs 80 percent of the continent’s population, while Africa’s agricultural sector holds the potential to feed the world as global population figures are set to reach eight billion in the coming decades.
Looking at Africa from the inside, from the individual perspectives of specific countries, the scale of the opportunity is often clouded by shorter term challenges. At a minimum, for example, investors considering Africa have to navigate under-developed or constraining legislation, political uncertainty, liquidity and exchange control challenges, or skills and infrastructure.
These challenges should not deter from the opportunity and growth that the continent presents. This view was part of the rationale behind Luxembourg headquartered SGG’s recent acquisition of Cim Global business, headquartered in Mauritius. The combination brings together Cim’s presence in Africa and South East Asia’s most dynamic economies with a world-leading Luxembourg-based provider of administrative and accounting solutions for investment funds and multinational corporations. The transaction links Europe, the United Kingdom, the USA, Caribbean, Mauritius, South Africa, Singapore and Hong Kong in a powerful combination set to transform the world’s access to African investment and growth.
Specifically, the acquisition provides global corporates with the ideal support vehicle through which to roll-out international strategies – especially in Africa’s rapidly developing private equity environment. From an African perspective, SGG’s acquisition of Cim Global Business means that world-leading business support services are now available locally in Africa, providing African corporates, for the first time, with a distinct competitive advantage – especially when it comes to accessing global investment, capital markets and opportunity.
Cim Global Business manages many of the largest UK private equity firms’ engagement with Africa from Mauritius. Cim’s acquisition by SGG, exponentially broadens the horizons of those in the private equity landscape who are able to consider Africa. from the United States, the Caribbean and Europe, including Luxembourg, France and the Netherlands, to Cim’s well-established African, Middle Eastern, Indian and Asian stable of private equity clients, significantly widens the pool of established global clients seeking African opportunities. This acquisition is particularly significant for Africa from a United States’ private equity perspective.
The United States has invested heavily in Asia over the last few decades whereas the United States–Africa investment corridor, especially for private equity investment, is extremely underdeveloped. SGG’s acquisition of Cim Global Business now provides the United States’ largest private equity firms with risk-managed, globally compliant access to African assets through Mauritius. This is set to transform the United States’ access to African investment – and Africa’s access to global capital for growth.
Currently, Africa offers exciting private equity opportunities, especially in renewable energy. To date South Africa, through its renewable energy programme based on public private partnership models, has attracted the bulk of this investment. Going forward, however, as more countries, like Morocco and Uganda, for example, use or adapt this model, the scope for global private equity activity supporting public-private partnerships in the renewable energy sector in Africa is set to increase.
Established long-term private equity investment is a particularly well-suited funding method for these types of energy investment opportunities, given the size and long tenor of the deals, the highly capital-intensive nature of the infrastructure builds, and the fact that properly structured off-take agreements guarantee investor returns.
Channelling SGG’s vast global client network through the system of bilateral investment protection agreements that Mauritius has with most of Africa’s high growth markets provides the surety required by global private equity investor mandates. Mauritius’ bilateral investment protection framework was one of the key reasons for SGG choosing to acquire a Mauritian-domiciled asset and investment management business.
At SGG Mauritius, we are often approached by South African asset and private equity managers about accessing African equity or other investment opportunities for their clients via Mauritius. This was, in fact, part of the motivation for Cim Global Business opening an office in Johannesburg in 2016, given that increasingly South African investment mandates consider African pension funds, local African treasury instruments and also, of course, African private equity. As such, being present in Africa’s largest domestic investment hub is a critical part of our strategy and - now that we have been acquired by a global investment services major like SGG - it only enhances our relevance as a serious asset and investor services partner within South Africa’s highly developed and innovative investment sector.
This is especially the case since beyond private equity, SGG’s mandates cover all types of illiquid asset strategies including infrastructure, real estate, including commercial, residential, office, student accommodation and social housing, debt, venture capital, early stage, mezzanine, buy-out (equity and debt instruments) as well as fund of funds. South African investors and investment managers will now have the opportunity to safely access these investment classes across the continent via the jurisdictional safety of Mauritius, without the burden of exchange control.
Despite the many challenges that define doing business in Africa, SGG’s acquisition of Cim Global Business points to a new pragmatism in the world’s most developed markets as they begin to recognise Africa’s undoubted long term potential. Central to this is an appreciation of the role that private capital will need to play in realising this potential – and the growth that this will generate. If one considers the huge influence of international private capital flows in Asia over the last six decades, channelling these flows to Africa presents a huge development opportunity for the continent. At the same time Africa also presents the next big growth opportunity for the world.
by Graham Sheward
Managing Director, SGG Mauritius