07/18/2008

News / Investors See Africa as Desirable Private-Equity Destination

Private sector fueling economic growth and development in Africa

By Charles W. Corey
Staff Writer

Washington -- Africa, like China and India before it, is gradually losing its reputation as a “frontier market” and is becoming a destination for private equity, a top investment banker told the seventh annual African Growth and Opportunity Act (AGOA) Forum July 15.

Tom Gibian, chief executive officer of Emerging Capital Partners (ECP), told the AGOA ministerial session in Washington that Africa’s frontier market reputation has already begun to recede like those of Brazil, Thailand and Hungary, which were once viewed by institutional investors as “exotic and forbidding.”

“Over the past 20 years or so, the frontier moniker, like a baton, has been passed from one emerging country to the next. Not long ago, I experienced China as a sleeping dragon,” and India as a country that was once “pinned down by its own rules and regulations. Look at them now!”

Before being involved in Africa, Gibian managed a global Asia fund and was earlier employed by the U.S. investment banking firm Goldman-Sachs.

ECP bills itself as the first private equity group to raise more than $1 billion for investment in Africa and stands as the largest private fund manager working across the continent since 2000. ECP’s Africa fund enjoys an annual return in excess of 30 percent. When ECP began eight years ago, Africa, he said, had not yet achieved its frontier status but was “pre-frontier” in the eyes of investors.

Gibian said ECP thrives on change and views “the rapidly changing and improving perception of Africa by emerging-market investors to be a realistic reappraisal of a long-overlooked region.”

Gibian drew parallels between current economic performance across the continent and conditions seen in both China and India as both economies began to take off.

Gibian said he was in Beijing last week and can personally attest to the gleaming infrastructure that can now be found there along with 400 million people in China who are now “poised” to begin leading better lives as a result of some level of involvement with capitalism.

Allowing the private sector to be the engine of growth -- encouraging trade, lowering barriers to starting businesses, implementing economic reforms and improving regulatory environments -- encourages the creation of wealth. And that wealth, Gibian said, responsibly taxed by governments, creates a revenue stream that can be invested in infrastructure. Such development, he said, allows a middle class to take root and flourish within a stable society.

No magic formulas are needed for development, according to Gibian. He praised a host of African leaders for realizing that reform of the telecommunications, insurance, banking and pension sectors can “work in Africa the same way and for the same reasons that they work in China and India. ... Most of Africa is on a trajectory that is clearly recognizable to those of us who have seen the potency of markets being allowed to work in other complicated places with over a billion people.”

It is no coincidence that Africa has an economic growth rate seven times that of the United States this year and at least three times that in Europe, he said, as most African leaders have embraced the private sector as the route to economic growth and development. Gibian said African farmers should be well positioned to take advantage of the highest commodity prices in a generation.

Gibian cited the recent election problems in Kenya, noting that the disruptions failed to significantly stall that country’s economic growth rate, which is averaging 5 percent to 6 percent annually.

In closing, Gibian said private-sector investment can accelerate the demand for improved political governance and, by doing so, can contribute to a culture of transparency in both business and government.

“Companies can be built in Africa that are profitable, have a life in perpetuity, accrue tangible brand value and provide appropriate rewards to all stakeholders. In Africa, there are now hundreds of examples of interesting businesses and the numbers are growing at an exponential rate,” he said.

Source: http://www.america.gov/st/econ-english/2008/July/20080716115825WCyeroC0.8545801.html?CP.rss=true

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