Investing in African private equity (PE) requires too much time and effort to generate returns, said Sheikh Maktoum Hasher al-Maktoum, executive chairman of Shuaa Capital at the Africa Global Business Forum on 2 May.
It takes an average of 10 years before big-ticket investors see returns, compared with three years in Dubai, according to Sheikh Maktoum.
“It is not so much about the money, but about the time and effort it requires. You need to ask questions like ‘how long will current system last?’, ‘what is your succession plan?’, ‘when the opposition comes to power, will they get angry with me because I did business with their predecessor?’
“From my experience in Africa, if you invest in 10 things, five will disappear, three will do OK, and two will be home runs. You can do the most due diligence possible, invest in the best classes through London, but then [you will have to] cross your fingers in case tax [has] gone up. In retrospect, things do happen that affect the project.”
Corruption is one of the main reasons investors avoid Africa, coupled with the region’s lack of transparency.
PE has yet to achieve significant levels in Africa. PE investment represents just 0.11 per cent of gross domestic product (GDP) in sub-Saharan Africa, and 0.14 per cent in South Africa. In developed markets the figures are significantly higher – 0.74 per cent in the UK and 0.67 per cent in the US, according to Ernst & Young.
PE investments in sub-Saharan Africa dropped to $1.2bn last year, less than half the amount ($2.7bn) invested in 2011.
Sheikh Maktoum suggested Africa should nationalise its natural resources in order to combat corruption, allowing the governments to ensure the funds are not funnelled elsewhere.
“Hold the government responsible for transactions, have them audited,” he said. “Corruption can be tolerated to a certain degree – call it 5 per cent tax for management. Give them an amount to incentivise them. Africa needs to make sure their resources aren’t plundered. Most multinationals will take the money and export the dividends.”
Although Africa may not seem attractive to big-ticket investors, Charles Omanga, managing principal at Horizon Africa Capital in Kenya, said PE is gaining popularity among investors looking to shell out $5m-10m.
“Debt for goods is availability for quite competitive interest rates and sometimes private equity has a critical role in a company’s growth,” he said.
Moez Daya, managing partner at UK-based Satya Capital, added that “private equity should not just be about making money”. By sharing expertise, governance and being part of a brand, companies can “grow in a way that is much bigger than just taking bank loans”.
He added that while investing in Africa’s natural resources comes with complications, there are opportunities in areas related to health, consumer and financial services.