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KR – 201109 - 1 - Research Paper –Francophone Africa: the untrue Private Equity investment black hole
About KusuntuKusuntu-le-Club is an Africa Diaspora executives and sympathizers partnership set upwith the ambition to act connecting worldwide capital to frontier market economies,especially Africa.Kusuntu-le-Club aims at providing leadership thought and act to promoting change anddevelopment in Africa through private equity investment. Kusuntu-le-Club behaves as aThink Tank and advocacy group to promote Private Equity investment in Africa. It actiontake various forms such as public position taking, research publication, social networkingor edition of an African Private Equity Directory.Contact : email@example.com 2
Francophone Africa: the untrue Private Equity investment black hole …The African private equity asset class gets to a light in recent years with series of deals, being exits asthe Celtel US$ 3.4 bn deal in 2005 or even breakingfund raisings such as the recent closing of thWashington based Emerging Capital Partners 7funds with US$ 618 million in 2010 or the morerecent London based Helios US$ 900 million. Nextto this, Africa has spotted into the worldwideinvestment radar screen. Arguments for this have SIERA LEONEbeen notably, the China and others emergingmarkets interests on the black continent and thesuccessful achievement of the 2010 world cup inSouth Africa, which has brought back Africa to the Private Equity Activityworldwide economic scene. However, from the High Mediumperspective shown within articles, surveys from LowInternational consulting firms or professionalcommentators, the investment activity has SWAZILANDconcentrated to the Anglophone Africa, leaving the LESOTHO SOUTH AFRICAperception that the francophone states were out ofthe nascent game. As many perception situations Source : Kusuntu-le-Club Research Jan. 2011when it comes to Africa, is this the reality or anotherface of the global African business misperception? Table 1 - The four Francophone Africa First, reviewing countries that make up the a) The North African French speaking countries (the Francophone Africa, it is of good study to Maghreb), b) The West African French speaking countries, all identify those specific ones that create sharing, but Guinea, the same currency and many economic traction and why, especially looking common points on their business code – the West Africa at how they compare to private equity well Economic and Monetary Union Countries or WAEMU, known countries like Egypt, Kenya, Nigeria and c) The Central African francophone countries, that also share same currency and business code while linked into South Africa. Secondly, the African private an economic union, the Central Africa Economic and equity deals story might be a good indicator to Monetary Community - CEMAC and, confirm or not such a perception. Finally, some d) The other francophone countries, that is very diverse perspectives will has to be drawn on and taking together states like The Democratic Republic of Congo, Rwanda1, Burundi, Djibouti, Madagascar, the expectations for more private equity activity Comoros, to some extend Mauritius and the Seychelles, within the Francophone Africa. as well as and the French territories of Mayotte and La Reunion. As many Africa exists as countries on thecontinent, the francophone Africa could be described as four diverse groups (see Table 1). Each ofthese four francophone Africa has common and specific business dynamics and none of thesecountries have been absent from the overall economic progress witnessed in the recent years, nor theprivate equity activity, but at a very different magnitude.Economic indices explain country attractiveness to private capitalElements for strong country attractiveness have been identified in a recent university research as acombined index of 1) Economic Activity, 2) Depth of Capital Market, 3) Taxation, 4) Investor protectionand corporate governance, 5) Human and Social Environment, and 6) Entrepreneurial culture and 2deal opportunities . Taking some proxies such as GDP, GDP growth, Doing Business Index,Diversification and Competitiveness indices, Basic Education and Demographic Indicators developedby the World Bank, the OECD and the African Development Bank, there are clear advantages forAnglophone countries on the others (see table 2).1 Rwanda has turned from French as official language to English. For the purpose of this article and given the number of people that speaksFrench, we have counted this state as FR-Africa2 Alexander Groh, Heinrich Liechenstein and Karsten Lieser in « The Global Venture Capital and Private Equity Country Attractiveness” –2011 edition 3
Regardless of recent political troubles or unrests, data shows on the north Morocco and Tunisia, onthe south of the desert, Cameroon, Côte d’Ivoire, Madagascar, Mali, Rwanda, Senegal as places formajor private equity potential, although at a lesser extend to what does already exist in neighbouringstates Ghana, and Kenya, not to mention giants Egypt, Nigeria and South Africa. And this reflects inwhere are seen the main private equity transactions within the Francophone Africa (see table 4).Table 2 – Comparing key leading countries – FR-Africa / EN-Africa / OtherRegion Country Population GDP Growth Rate Doing Business Mo Ibrahim4 (Inflation rate) Rank3 Rate (Rank)North Africa Morocco 31.285.174 145.60 4.9 (1.2) 114 56.57 (13) Tunisia 1.0486.339 86.35 3.0 (3.7) 55 62.12 (8)West Africa Cote d’Ivoire 20.617.068 35.86 3.8 (1.0) 169 36.83 (44) Mali 13.443.225 15.70 4.4 (2.5) 153 52.94 (19) Senegal 13.711.597 22.38 1.7 (-1.0) 152 56.32 (14)Central Africa Cameroon 18.879.301 42.85 0.9 (2.01) 168 44.23 (34)East Africa Madagascar 20.653.556 20.15 -1.0 (9.0) 140 48.74 (28) Rwanda 10.74.311 11 4.5 (10.4) 58 47.17 (31)Benchmark Egypt 78.866.635 470 4.7 (11.8) 94 60.46 (9)Countries Ethiopia 85.237.338 77.40 8.7 (8.5) 104 43.52 (35) Ghana 23.887.812 35.83 3.5 (19.3) 67 64.61 (7) Kenya 39.002.772 62.56 2.6 (9.3) 98 50.53 (26) Nigeria 149.229.090 339 6.1 (12.4) 137 43.25 (37) South Africa 49.052.489 505.30 -1.8 (7.1) 34 71.45 (5)Data Source: African Economic Outlook – OECD AfDB end 2010Deals pipeline and it potential are actually more robust than thought stData from the Emerging Market Private Equity association reveals from year 2008 up to 1 half of year2011, 30 private equity investments in the francophone Africa (FR-Africa), where the English speakingcountries (EN-Africa) report 147 deals, with67 deals allocated South Africa only, 31 toNigeria and 23 to Kenya. Detail review forEMPEA data on Francophone Africaindicates 4 deals each for Cote d’Ivoire,Madagascar, Morocco, Togo and Tunisia,with one Togo deal going into a bank holdingplatform to fund 3 new subsidiaries across 5Africa .There are some factors that explain thelimited strength of private equity activitywithin a region vis-à-vis the others. As do theEnglish speaking countries in Africa with theGreat-Britain, Francophone Africa shares alot with the former ruler France, notably business practices and, the delay in private equitydevelopment. More into the details, corporate development funding overreliance on bank loans thatequity capital as well as a business culture of secrecy where financial and management informationprovision is very conservative. For long time, business development has been the privilege of thegovernment with a so-called “state capitalism”, with commerce and distribution being handled by localbranches of non African multinational companies such as Unilever or CFAO. Former British colonies atthe contrary have historically been geared to more entrepreneurialism and use of equity financing,3 State ranking provided by World Bank review of ease of doing business across it 183 member states4 Mo Ibrahim index is an average rate on 100 which allows ranking of African 53 states on overall governance5 It has to be noted that number of transactions overall is greater as there are limited transactions data disclosed on African private equity –.For the consistency of the diagram and presentation, this statistics reflects data provided by EMPEA Research. For the same period of time,supplementary data collected from press articles and Private Equity Fund managers’ website, deal flow for the Francophone zone only is 70,as listed in Table 4. And this probably underestimates the real figure. 4
even with local entrepreneurs competing against multinational companies or being hired by them todevelop the activities. From these different inception or situation, naturally highest number of privateinitiatives in the Anglophone Africa has called for higher search for entrepreneurial and equityfinancing, which in return yields today to a higher number of private equity teams establishingthemselves to support the renewed economic vitality.However, this situation does not mean Private Equity business is neither weak in Francophone Africanor limited. Many changes since accession to free sovereignty have been a catalyst for more businessculture. In recent years, first have been the economic reforms that are taking place with a greaterrecognition of private business – but for many professionals, more need to be done. Second, - and thisis encouraging - generation of graduates are looking to create their businesses as mean to be part ofthe development game and create value, jobs and wealth. Third, easy access to informationworldwide, accelerates generation for ideas that are quickly been turned into action. In summary, theculture of entrepreneur that is propagating worldwide reaches as well Africa and especially the formercolonies of France.More Fund Managers in activity than thoughtThe English speaking countries business culture largely explains the highest number of locallydomiciled Private Equity firms, so do the size of markets such as Nigeria, Kenya, and more specificallySouth Africa. It is nevertheless interesting to compare both speaking zone activities in Africa. Situationcontrasts in Anglophone Africa from many locally based teams, executing many small to big size andcross regional deals, to few, not necessarily locally based teams, executing few much localized largedeals in Francophone Africa.Private Equity Funds Managers active in the region include both domestic firms, raising money toinvest locally (single country or region) and, international firms allocating funds to Africa. A goodnumber of the locally domiciled firms are similarly to the others region, first time fund managers. Theyare the Senegal based Advanced Finance Investment Group (AFIG), Malimbe Capital, recentlyestablished in Mali and in the UK, currently raising it first funds, and, SINERGI SA, based in Niger.Established local firms also exist across the region, with more than a decade impressive track recordfor some of them. The extent to which they are known is variable. Among them are the Morocco basedCapital Invest, the Tunisia based Tuninvest-AfricInvest Group, the Togo based Cauris Management,the Cameroon based CenaInvest and on the eastern side, Madagascar Development Partners thatrecently leads formation of a domestic private Equity Association. Equally, some initiatives have failedInternational names present on the continent do not overlook the Francophone Africa. If it is thoughtbe the case, probably this roots it cause with the prism used to read African stories, giving moreattention to either one region or the other, depending each other of it own origin. Transaction recordsindeed demonstrate quite a strong presence of the Washington based ECP, London based Actis orAureos (table 4).Finally, reviewing General Partners that are on the continent, it is worth to mention cross-zoneinitiatives whereby actors established in Egypt, South Africa or outside the continent enter theFrancophone zone. Among them, the US based Thousand Hill Fund which focuses on Rwanda, theFrance based companies such as I&P Management or Horus Development Finance, the Switzerlandbased Vital Capital, or firms based in Africa such as Fanisi Capital, Citadel Capital, etc.Table 3 – Firm raising fund to be invested in Francophone AfricaManager GP domicile Country Countries of Investment Fund Target Status Fund Size mn$Advans SA (Horus France/Luxembourg Advans Sicar II 60Development (45m€)Finance)AFIG Senegal WAEMU + CEMAC + Atlantic Coast 150 First closing Guinea Regional Fund at 72m$Cauris Management Togo WAEMU + Guinea Cauris Croissance II 90 First closing (60m€) at 45 m€I&P Management France WAEMU + CEMAC + GuineaMalimbe Capital UK / Mali Mali Mali SME Fund I 20 Raising FundSalt Capital Partners UK/France Raising 5
FundXSML/CenaInvest Netherlands Cameroon, Chad Central Africa SME 25 First closing FundData Source: Kusuntu ResearchTwo different business dynamics leading to two different private equity modelsDevelopment routes taken by Francophone Africa could be described as a “Capacity andInfrastructure building based”, led and organised at the level of the states, while the Anglophone Africaapproach is more private business driven, with private initiatives leading the state to adjust therequired infrastructures or capacities.As such, Private Equity firms in Francophone Africa are active in those sectors that could forminfrastructure platform for economic development such as mining, energy, financial services andtelecom. Other sectors that are looked at are: the food and agriculture transformation industries,healthcare, pharmaceutical and drugs distribution. Transaction history often shows that thoseinvestments to a large extent are acquisition deals from foreign direct investors (buy out or expansion)and to a very little part, companies taken back from the states (privatization). This situation generallyleads to transactions that size above US$ 1 million to often multiple of US$ 10 million. And, increasingnumber of actors have also started looking at Francophone Africa, not necessarily on the expansion orbuy-out segment but as SME venture capital provider, this is the case for example of I&P Managementwhich usually funds SME creation initiatives by Diaspora returning home.A future full of potential for Private EquityThe Francophone Africa has good prospects for more private equity. Attention is coming either frommore informed entrepreneurs no more shy to open their capital and welcome GP’s as strategic andtechnical partners, or from the very specific deal sourcing style where GP’s approach firms to revealthem their potential to grow into regional champion. To date, private equity transactions compared tothe size of country GDP or overall impact on jobs creation and GDP growth has left Anglophonecountries at the forefront of this industry in Africa. As private initiatives develop in Francophone Africa,one could expect that the delayed zone will converge quite rapidly. Catalysts to this process aregreater liberalization, ease of doing business reforms but also brain gain. Because of an increasingattractiveness, funding initiatives will certainly increase from the noticed economic vitality, and this isseen from those many diaspora financiers or former DFI’s executives visiting LP’s to market dedicatedfunds creation for the Francophone Africa. Money exist worldwide looking for great return, it is aquestion for the Francophone African market to attract it. 6
Table 4 – Sample list of key transactions in Francophone Africa between year 2008 and year 2011Country Fund Manager, Co-investors Company Name Sub-Sector Investment DateAlgeria Emerging Capital Partners (ECP) Shoresal Real Estate June 2009 Swicorp Petroser Oil & Gas October 2008 Tuninvest-Africinvest Group General Emballage Wood & Paper Products June 2009Benin Emerging Capital Partners (ECP) Financial Bank Banking January 2010 I&P Management France Bhelix Construction Year 2009 Carotech Benin Construction Year 2009 FINADEV Benin Financial Service- MicroFinance Year 2010 Nomad Distribution Year 2009Benin/Chad/Guinea Emerging Capital Partners (ECP) Finadev Banking - MicroFinance January 2010Burkina I&P Management France ACEP Burkina Financial Service- MicroFinance Year 2009Cameroon Horus Development Finance France Advans Bank Cameroon Financial Service- MicroFinance Year 2009 I&P Management France GENEMARK Pharmaceuticals Year 2008 LOOP SA Optical Year 2008 Sagex Agroindustry Year 2009 Tuninvest-Africinvest Group Reef Hout Timber August 2009Chad I&P Management France FINANDEV Tchad Financial Service- MicroFinance Year 2010Congo Horus Development Finance France Advans Bank Congo Financial Service- MicroFinance Year 2008Congo Dem.Rep. Actis Copperbelt Minerals Extractive Industries (Mining) July 2008 Trans-Century Limited Cableries du Congo SPRL Industrials & Manufacturing March 2010Cote d’Ivoire / Guinea Cauris Management SwindevCo Telecom Year 2009Cote dIvoire Cauris Management Planor Capital – MTN Telecom Year 2009 Emerging Capital Partners (ECP) Finagestion Infrastructure July 2008 La Nouvelle Societe Interafricaine dAssurance Insurance December 2008 Participations SA (NSIA) Thunnus Overseas Group Food & Beverage October 2008 I&P Management France Afrique Emergence Initiative Financial Service- MicroFinance Year 2008 Cofipeche Food Year 2009 7
Country Fund Manager, Co-investors Company Name Sub-Sector Investment Date Vue et Vision Optical Year 2009 Horus Development Finance France Advans Bank Cote d’Ivoire Financial Service- MicroFinance July 2011 Kingdom Zephyr Africa Management Thunnus Overseas Group Food & Beverage December 2008 Tuninvest-Africinvest Group Alios Finance Financial Services TBC CDCI Distribution & Retailing TBC Petro Ivoire Energy TBC Planor Capital – MTN Telecom TBCDjibouti Emerging Capital Partners (ECP) Salt Investment Mining July 2008 Madagascar Wisco Guangxin Kam Wah Resources SAMadagascar Hony Capital Extractive Industries (Mining) July 2011 (MWG) I&P Management France Phileol Agroindustry Year 2009 Madagascar Development Partners BICM (Banque Industrielle et Commerciale de Banking November 2009 LLC Madagascar) CAM Aviation / Sky Services Services January 2010 Madarail Development SA Infrastructure July 2008 Tuninvest-Africinvest Group Microcreed Madagascar Financial Service - MicroCredit TBCMali I&P Management France Trainis Eductation Year 2010Mauritania Emerging Capital Partners (ECP) Bacim Bank Banking April 2008 ALMAMED (Almal MeditterrannéeMorocco Alma Bat (ex Car & Automotive furnitures March 2010 Invest) Alma Pack (ex Nordenia Morocco) Packaging March 2010 Alma Plast Packaging October 2010 Amundi Alkantara Emteyco SA Telecom furniture March 2009 Oksa Maroc Metrology TBC Atlamed SA Intex Compagnie Industrial construction February 2010 M2T Electronic banking November 2009 Emerging Capital Partners (ECP) Almes Engineering & Construction July 2009 Compagnie Miniere de Touissit Extractive Industries (Mining) January 2008 Finaccess Group Information Technology April 2009 8
Country Fund Manager, Co-investors Company Name Sub-Sector Investment Date Kingdom Zephyr Africa Management Mixta Africa Engineering & Construction March 2009 Niger I&P Management France CAT Logistics Logistics Year 2010 Rwanda Altira Group Banque Rwandaise de Developpement S.A. Banking & Financial Services July 2008 Societe Monetique at de Tele-Compensation au Rwanda Technology July 2008 (SIMTEL) Senegal Aureos Capital Les Ciments du Sahel Industrials & Manufacturing February 2009 Emerging Capital Partners (ECP) Teranga Gold Mining April 2011 I&P Management France Duo Pharm Pharmaceutical Year 2010 Equip Plus Construction Year 2009 AFIG – Advanced Finance Investment Togo 6 Ecobank Transnational Incorporated Banking July 2010 Group Cauris Management Banque Populaire pour l’Epargne et le Crédit Banking Year 2010 Socopharm Pharmaceutic distribution Year 2010 Sodigaz Energy Year 2009 Emerging Capital Partners (ECP) Financial Bank Group (now Oragroup) Banking August 2008 IFC Asset Management Company Contour Global Energy June 2010 (AMC) Ecobank Transnational Incorporated Banking July 2010 Tunisia Actis Poulina Group Chemicals & Industrial Materials August 2008 Amundi Alkantara Opalia Pharma Pharmaceuticals October 2009 Emerging Capital Partners (ECP) Societe des Articles Hygieniques (SAH) Industrials & Manufacturing May 2008 Islamic Investment Bank Artes Automotive May 2008Data Source : Kusuntu Research & EMPEA data6 Transaction into ETI the holding structure of Ecobank for funding subsidiaries in Chad, Liberia and Rwanda, therefore could be allocated back to those countries 9