For a continent that accounts for 10 per cent of the world’s oil, 90 per cent of platinum group metals, 60 per cent of uncultivated arable land and a growing middle class that shops for sports utility vehicles, smart phones and sneakers, it would hardly be surprising to see global marquee private equity (PE) investors making a beeline to park their funds here.
Now, joining the global scramble for Africa is an Indian PE fund.
Srei Infrastructure plans an Africa-centric fund to tap into “the resurgent opportunities in the region”— the first-of-its-kind initiative involving Indian sponsors. Here, they would compete with ‘buyout boys’ like Carlyle, pan-emerging market specialist investor Actis and rock-star-turned-humanitarian Bob Geldof, all chasing the African dream and galvanising investments, as rising consumerism and a need for infrastructure throws up new opportunities. This is over and above the continent’s traditional attraction as a continent of rich natural resources.
Srei’s Emerging Africa Fund would target investment in emerging entrepreneurial-led infrastructure, focusing on telecom, roads, power and ports. The focus areas are based on Srei’s current eco-system in India. The company plans to raise the initial corpus of $50-100 million to $300 million later, said officials in the know.
Sunil Kanoria, vice-chairman, Srei Infrastructure Finance Limited, said, “Srei would be making investments in Africa through this fund. We would look at opportunities in existing businesses, as well as new projects, and also eye acquisitions. But we would not like to go beyond infrastructure and allied areas, as that is where our expertise lies….We are still working out the modalities. This is an opportunity we would aggressively like to pursue.”
The geographical spread, too, has been mapped, with the sub-Saharan economies of Nigeria, Tanzania, Kenya, South Africa, Mozambique and Namibia, which account for gross domestic product growth of about seven per cent and a middle class hungry for infrastructural building blocks, as key markets. The company’s team would be spread across Lagos, Nairobi and Dubai to scout exciting investment opportunities.
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Work has already begun in Srei’s Dubai office under Sanjeev Gupta, who is spearheading the initiative. While Srei would be the principal sponsor and may even pump in 10 per cent of the corpus, efforts are on to rope in development agencies, banks and sovereign funds from continental Europe such as Germany’s DEG, the Netherlands’ FMO and Belgium’s BIO, with whom Srei already has business ties. “The fund may even look at mining and power sector. Srei’s own power plants in India would need resources like coal. So, if we get potential linkages, the fund may even explore those investment possibilities,” said an official on condition of anonymity.
But why approach Africa through the PE or venture capital route and not invest directly? An offshore domiciled in Dubai or Mauritius would offer an easier tax structure, feel experts. “India may not have tax treaties with many African countries. So, the fund offers greater flexibility,” explains another official privy to the developments.
For India Inc, Africa is increasingly becoming a strategic frontier. What started primarily as a commodity, resources and manufacturing exercise, has now included consumers, brands and services in its fold, with companies like Bharti, Dabur and Marico leading the charge.
Increasingly, investors or frontier funds like TLG Capital and Frontline Development Partners have been keen on setting up an India-Africa investment corridor that offers commercial capital to African operations of many Indian companies like Cipla as well.
PE funds with a dedicated focus on sub-Saharan Africa are still small in number and size, compared to those dedicated to other regions. In 2011, 10 funds raised an aggregate of $2.3 billion for the region, compared with 29 funds raising $14.2 billion for Latin America and 110 funds raising $26.9 billion for Asia, according to data from research firm Preqin.
However, interest in Africa has now skyrocketed, especially when compared to just $600 million raised two years earlier. Returns from investing in Africa can be lucrative, offering about 40 per cent or more. On an average, PE returns stood at about 19 per cent for the period since 2000, against just 11 per cent for the Morgan Stanley Composite Index.