He who comes to private equity

I am honoured to have been invited to give this keynote address to this distinguished gathering of bankers, financiers and investors. It is always a delight to return to Paris, this city that gave birth to the Enlightenment.  I was a student here; and it was in France that I had my first encounter with universal minds: Pascal, Rousseau, Fermat, Galois, Camus and Sartre. 

According to one of the equitable maxims in jurisprudence, “He who comes to equity must come with clean hands”.  The obiter that I would like to depose this evening is that “He who comes to private equity must come with a thinking hat”.  I need not remind us that the investment industry requires not only people of unassailable integrity; it requires thinkers that know what they are doing. Being entrusted with other people’s fortunes is no small matter. You have not only to protect capital; you have to put it to work to yield maximum returns. 

The private equity industry in Africa continues to grow by leaps and bounds.  South Africa and Kenya are leading the pack. But Ghana and Nigeria are closing up rapidly. Across the continent, however, the entire industry is still very much in its infancy. There is room enough for everyone. 

As the African production possibility curve continues to expand outwards; as the population continues to grow; the emerging African middle class will need more consumer goods, more housing, infrastructures and social services. And they will have more disposable income to spend on such goods and services. Private equity firms can tap into this pool of savings and long-term capital for investments in key sectors such as mining and extractive industries, energy, infrastructures, consumer goods, housing and construction. 

Most of us here are old enough to remember that a few decades ago Africa was a basket case. The spirit of “Afro-pessimism” was everywhere on the continent and beyond. Images of famine, war and poverty were the defining character of the African political economy. Today, a New Africa is emerging. The region has registered growth statistics that are rather astonishing. Seven of the 11 countries with the fastest rate of growth are to be found in Africa. The so-called “African lions” are awakening from their millennial slumber: Nigeria, Ethiopia, Rwanda, Equatorial Guinea, Angola, Uganda, Kenya and several others.  

Africa comprises over a billion people, and is projected to reach 2 billion by 2040. Africa’s is the youngest continent on earth, with so many energetic young people that are also becoming increasingly better educated and better trained. The guns are falling silent. Good governance, democracy and the rule of law are taking slow but firm root. A more responsible generation of leaders is emerging; conscious of their place in history and keen to pursue the African Renaissance of our dreams and to ensure that our people fulfil their destiny upon the earth.

Several factors account for this remarkable growth. Globalisation is obviously a factor. The internationalisation of world markets and the removal of barriers to capital and trade have opened up vast opportunities for African countries. The ending the Cold War has been a boon. The super powers had used our continent as the theatre for the macabre dance of death. Our countries were the theatres where surrogate wars were fought between East and West. The collapse of the Soviet Empire and the ending the Cold War has given us a new breathe of life.  Another factor is demographics and urbanisation which are turning Africa into a vast market opportunity. There is also the emergence of the new economic powers — Brazil, India, China and South Africa (BRICS) — with their insatiable demand for African primary products. China is replacing America and Europe as Africa’s primary trading and investment partner. Whereas the West continue to view Africa as a “problem” to be solved, the Chinese view Africa as an opportunity to be harnessed. It is a win-win scenario.

The future is bright. Africa possesses 50% of the world’s proven strategic mineral reserves; 98% of platinum deposits, the bulk of uncultivated arable land, and vest reservoirs of untapped freshwater. Inward investments has continued to rise, with FDI having grown from $46 billion in 2011 to $70 billion in 2013. Remittances from the Diaspora have averaged an annual $22 billion over last 5 years.  

In April this year, Nigeria emerged as the dominant economy on the continent when its GDP figures were rebased. Nigeria’s GDP currently stands at $510 billion, for outstripping that of South Africa at $310 billion. Nigeria is a country of 176 million people, with vast natural resources. It stands at the cradle of some of the most ancient civilisations known to Humanity; some of them as old as Pharaonic Egypt, Meroe and Cush.  Nigerians are a talented people with a self-confidence that others mistake for arrogance. Sadly, they are also a divided people, with a structure of politics that is fractious and embedded in systemic gridlock. In the north east of the country, murderous monsters have taken over, killing people who do not share their faith; kidnapping school girls and torching down colleges. The government seems lost, while the internal and external enemies of the Nigerian people continue to play out a script whose final denouement is Armageddon.

What is extraordinary about Nigeria and Africa is the resilience and indomitable spirit of its people.  I believe the travails of the moment are nothing to be compared to the glory that is to come. Africa will be a light unto the nations and Nigeria will be city built on a hill. 

When you invest in Africa and in Nigeria you must go for the long haul. And you must do your due diligence and put in place mechanisms to mitigate geopolitical and other risks. Africa is open for business.

(Being Abridged Text of a Keynote Address Delivered to a Roundtable Organised by Emerging Capital Partners (ECP), at the Salons Hoche, Paris, France, on Tuesday 10 June 2014).

OBADIAH MAILAFIA