Are you missing a trick by not exploring opportunities in Africa? Investment banks and private equity firms as well as international retail banks are flocking the continent in a bid to gain a slice of the lucrative investment opportunities and an expanding customer base.
Over the next decade, seven of the 10 fastest growing economies are likely to be African nations – particularly Ethiopia, Mozambique and Tanzania, according to the Loan Market Association. Standard Chartered is seeing its fastest revenue growth on the continent, while a number of investment banks – latterly Dubai-Based Arqaam Capital, which has been expanding in recent months – are talking up opportunities in Africa.
Working in Africa for expat financial services professionals doesn’t necessarily mean being based in frontier markets. Instead, there’s often something of a suitcase-banker model. Firms often base themselves in Middle Eastern financial services centres, while a number of international investment banks have head offices in South Africa and parachute their staff in where the deal demands it.
Until this year, Bradford Gibbs headed up Morgan Stanley’s South Africa operation in Johannesburg, getting exposure to a number of interesting deals and having to “fly the flag” for the bank in a “remote region”. In August, he moved to private equity firm Mara Group, which is based in Dubai but invests in Africa. It’s been looking to expand in recent months.
“There’s a pro-business policy orientation; numerous countries are clearly ‘open for business’ and are adopting mechanisms to reduce red tape and streamline the costs and time required to establish new businesses,” he said. “There’s also under-penetration of financial services – only 20% of the population of Sub-Saharan Africa (excluding South Africa) is estimated to be ‘banked’, for example – and as a result there is a huge opportunity and need for increased financial inclusion.”
Then there’s the infrastructure boom in Sub-Saharan Africa – African nations need to spend around $45bn annually upgrading their infrastructure, according to figures from the African Development Bank, and there’s a financing gap of around $50bn, which presents an opportunity for international lenders.
“There are huge untapped opportunities in Africa. The story is true about most of Africa. There is huge demand for funding. But there are big funding gaps related to structural issues,” Riad Meliti, CEO of Arqaam Capital, told Gulf News.
The security risks
Doing business in even the more politically stable African countries is not without its risks, though. For a start, there are issues related to personal security. Most financial services firms will utilise external security firms like Control Risks or Pilgrims to ensure the safety of their employees, and these firms are often staffed by ex-military personnel with expert know of the risks in various African countries.
“We will hire an external security provider from time to time to assist in transport to and from airports and site visits,” said Gibbs. “However, generally, we just aim to keep a low profile and not call attention to ourselves, while remaining vigilant regarding our surroundings.”
Sub-Saharan Africa saw the largest regional increase in private equity funding in the first half of 2013 – a rise of 45% in capital to $850m, according to the Emerging Markets Private Equity Association. In September, Abraaj Capital unveiled an $800m Africa-focused fund with a team in Ghana, Kenya, Mauritius, Nigeria and South Africa.
However, some firms are venturing into more risky territory, such as Somalia and Somaliland. DWK Capital is one such firm, as is Invicta Capital, run by Mo Yusef. Neither firm responded to request for comment for this article, but Yusef spoke to the BBC last year.
“There is a method to my madness and it isn’t inconsistent with the basic principles of business: Go find yourself a situation that nobody else has spotted and be prepared to hang on in there while everybody else catches up,” he said.
Succeeding in Africa is down to a combination of thinking global, but acting local, says Gibbs and any investment banking or private equity professional needs to “invest time and effort to build a network and create relationships of trust”.
“One must undertake comprehensive due diligence, ensure that one’s eyes remain wide-open to potential risks (and plan accordingly) and, when investing, always consider exit when considering entry,” he added.