The African continent is enjoying a period of unprecedented and sustainable economic growth. An interview with J Mawuli Ababio, the Managing Director of the African Venture Capital Association (AVCA).

Interview by Bas Vlugt



In what way is venture capital and private equity shaping the African economy?

‘There has always been a recognition of the lack of long term funding in Africa. There is no question about that. A lot of the African private businesses have traditionally been run by short term loans from banks. Today venture capital and private equity is becoming increasingly accepted as a financing tool in many emerging market economies, including those in Africa, to finance private and public sector requirements on the continent in a responsible way. Despite the recent developments in the US - sub-prime crisis - the trend is expected to continue. In terms of the industry’s contribution to GDP in many African countries, the figures are woefully low and this means that there are major opportunities for the industry.

Credit has to go to DFI‘s like the FMO and the CDC who recognizing that gap in the early 1990s began the process of setting up venture capital companies, investing long term money. Several of the first round funds were not particularly successful because the concept was new. However these institutions persevered and in doing so, were able to influence government thinking into creating a friendlier environment for private equity.

Fortunately, over the last two decades increased democratization and stability across Africa has encouraged good governance and better macro economic management. Then again fortunately for Africa, emerging markets have undergone a period of unprecedented economic growth rates, due to several countries taking advantage of the HIPC initiative to reduce their debt stock, sounder policies to encourage higher yields and also high commodity prizes. For the first time several African governments and African central banks have been able to build up reserves, which they had never done before. On the back of this members of the African Diaspora have been sending in more money to their home countries than they had done before.

During the same period returns from several developed financial markets have been steadily declining and investors have taken a more optimistic view of investing in Africa. Since 1994 Venture Capital and Private Equity players have been flooding post-apartheid South Africa for the exciting opportunities in that market. At the same time, the South African Private Equity players - like Ethos and Brait – are also looking for investment opportunities throughout the African continent.

Emerging Market fund managers realize that there is something happening in Africa and they want a piece of the action. Returns on investment from African stock markets, venture capital and private equity investments have been healthy with some fund managers returning six times money and more to limited partners.

In the last four to five years, we have seen an unprecedented level of Limited Partner interest in investing on the African continent, and African focused funds have raised record levels of resources. In 2006 African focused funds raised some USD 2.35 billion and the same figure was registered for 2007. These funds are finding solid investment opportunities in banking, insurance, telecommunications, logistics and infrastructure.’

What African countries and which sectors will prosper most and offer best opportunities for investors?

In terms of opportunities we have to distinguish between SME venture capital - seed capital and early stage investments - and big ticket private equity activity -
late stage expansion capital, buy outs.

In the Venture Capital space, opportunities exist in post conflict markets - coming out of a war situation. These are countries in need of a lot of help: Liberia, Sierra Leone, DRC, Rwanda, Burundi, Sudan and Somalia. Then there are a number of countries that are more developed and have a fairly sizable SME industry: Senegal, Cote d’Ivoire, Ghana and Cameroon - eventually when the government there gets its house in order. Further in East-Africa Uganda, Rwanda and Tanzania and hopefully Zambia and even Zimbabwe, when they get their act together, that would be a very interesting region to invest in.

In terms of Private Equity activity - big ticket transactions - we can look at Ghana, once the oil sector takes off, Nigeria, DRC, Angola, Mozambique, South Africa, Kenya and Tanzania. These are the key countries. Sectors to look out for include banking, insurance, mobile telephony, real estate housing, utilities and energy infrastructure.’

Recently there was the annual AVCA Conference, this time in Gaborone, Botswana. What are the main experiences and learning’s from this conference?

‘The AVCA Conference is the highlight of the AVCA’s calendar year and has so far successfully brought together essentially two parties. The first group are the Limited Partners - lenders and passive investors. They come to the Conference to identify investment opportunities. The second group are the Fund Managers who are looking for investors to fund their companies and projects. Now it is important to bring in a third group, which are the service providers: the law firms, accountants, bankers, regulators, the stock exchanges – in brief, all the parties that play a professional role in enhancing the industry. Among the lessons learnt are need for early planning, recruitment of an events manager, need for a solid local partner as employees.’

In recent years the AVCA and the AVCA Conference has grown considerably in terms of members and delegates and involvement of African players. What is the ambition of AVCA and the AVCA Conference for the next few years?

‘AVCA’s ambition is to become a knowledge centre, to be an industry catalyst and a promoter of investment in Africa, and to service our members with capacity building. In terms of the AVCA Conference the objective is to make it the premium event of the calendar in regard with investing in Africa. We want to increase the number of players and stakeholders who are attending to 700. Next to that we are looking for a maximum impact of the AVCA Conference on the industry.’

www.avcanet.com
www.fmo.nl
www.cdcgroup.com



AVCA Conference 2008, Gaborone, Botswana