Category Archives: africa venture capital

Private Equity investment guide for East Africa

This week in Nairobi saw the launch by  EAVCA, FSD Africa and IFC Africa of a new private equity (PE) investment guide for East Africa.

The PE investing guide is a tool to enable pension funds across East Africa to assess and invest in private equity assets by raising knowledge among pension fund managers who are primarily invested in stocks and bonds.

It is a simple guide that can be read in just thirty minutes to gain an understanding of private equity assets. It has a checklist of useful information to look for before investing in PE, and after to manage portfolios, and roles for general and limited partners.

Also, EAVCA released a market report on n the current status of private equity investments in the region following a survey of pension schemes and PE general partners. It found that, while five Eastern African countries have generous provisions for pension funds to invest in private equity, led by Rwanda at 20%, Uganda at 15% and Kenya at 10%, the uptake has been low with Uganda attaining 2.2% investments in PE funds followed by Kenya at 0.08%.

Nzomo Mutuku of Kenya’s Retirement Benefits Authority (RBA), who officiated the launch,  said that while pushed for pension schemes to diversify and explore alternative investments to grow returns for members, many still had huge investments in one company (i.e Safaricom) and stocks and bonds of banks in which they held their deposit funds. (Later it came up the concentration in a few NSE stocks is not unusual among sub-Saharan markets- Nigeria’s largest firm commands 35% of the market while in Ghana, the top three firms have an 80% share).

Other Insights from the Q & A after the launch:

• Excluding South Africa, there is about $100 billion of funds held by pension and insurance funds and collective investment schemes (CIS). Of that East Africa, has about $30 billion with  Kenya at $20 billion.

• The IFC has been in private equity for over 20 years and is invested in 300 funds globally, with 50 of them active in this region.

• One pension manager cited their investments in I&M bank before it listed at the NSE, UAP, and invested in an energy IPP that gave attractive returns of 13% on a Euro investment.

• Another mentioned that they had participated in 40 bonds offers in 17 African countries with decent returns and no defaults.

• Speakers cautioned about Kenya’s move to raise the capital gains tax on private equity from 5% to 12%, a move that the country’s parliament has since set aside thanks to concerted lobbying.

The teams will next move to market the assets class to trustees in Botswana and Nigeria.

Equity – Atlas Mara bank deal

Atlas Mara and Equity Bank Group announced an agreement for the exchange banking assets.

The deal will see Equity acquire Atlas Mara’s 62% shareholding in Banque Populaire du Rwanda  and Atlas Mara’s interests of 100% of BancABC Zambia, 100% of BancABC Tanzania and 100% of BancABC Mozambique in exchange for Atlas Mara receiving 252 million newly-created Equity shares worth $105 million (Kshs 10.7 billion). Through the deal, Equity expands its Africa footprint into two new countries of Mozambique and Zambia

This also came the day that Atlas Mara announced their financial results for December 2018 which ended with $2.8 billion assets and profit after tax of $34 million, which were slight declines partly attributed to reduced interest income, the enactment of IFRS9 and the economic situation in Zimbabwe.

The four banks combined constitute less than 2% of the revenue of Atlas Mara. They would all require capital and liquidity to support and will now be consolidated off the Atlas Mara balance sheet in the deal to be concluded by the end of the year. Atlas Mara will now continue to focus on core investments where they can be market leaders. In 2019, they plan on stabilizing the bank in Zimbabwe and increasing their 49.7% shareholding at Union Bank of Nigeria.

Also In the results announcement, Michael Wilkerson, the Executive Chairman of Atlas Mara wrote about being frustrated, liked other shareholders, that the company’s share prices did not represent its true value and that the new stake in Equity, digital banking leader, would help improve that. They also did a BankABC Bostwana IPO in December 2018 selling 25% of the bank to investors on the Botswana stock exchange.

EDIT: The Business Daily reported on October 9, 2019, that Equity got a $130 million (~Kshs 13 billion) discount on the purchase of the four banks from Atlas Mara whose prices were marked down after a due diligence exercise.

AVCA 2019 private equity and venture capital conference in Nairobi

The 16th annual conference of African Private Equity and Venture Capital Association (AVCA) was held from 1st -3rd April 2019 at the Radisson Blu Hotel in Nairobi. A guest post by Marcela Sinda.

This flagship conference event for the African continent had a fantastic kick-off and turnout, bringing together private equity and venture capital investors who handle a portfolio of over $1.5 trillion in assets. This was according to Kenya’s Cabinet Secretary for Trade, Peter Munya who officially opened the conference on behalf of President Uhuru Kenyatta. The goal of this kind of conference, he said, is to expose investors to the diverse prospective investment markets across the Africa as the continent was now being looked at as any other region, with the focus being around checking due diligence, ethics, looking at best practices and asking the same questions around deal sourcing.

 

DFI’s Role: Kenya is an increasingly attractive investment destination and according to AVCA data, it is the 2nd most attractive country for private equity investments in Africa over the next three years and hence an obvious choice to gather the industry players for this conference. The African PE sector has been shaped for decades by DFIs, and at AVCA 2019, there was some discussion about new DFI strategies for investment across Africa. Maria Hakansson, the CEO of Swedfund, noted that, as a community, DFIs could do so much more when it comes to anti-corruption, e-waste management, customer protection principles etc. and that Africa’s portfolio is constantly outperforming in terms of impact compared to other regions portfolio.

Djalal Khimdjee, Deputy CEO of Proparco said SMEs in Africa are essential towards job creation and achieving the sustainable development goals (SDG’s) and that 60% of the 1.5 million jobs that have been created in Africa every month come from SMEs and venture capital firms. He said that PROPARCO and French development agencies had committed £2.5 billion by 2022 to support African MSMEs, including £1 billion through private equity investments. 

Mathew Hunt, Principal at South Suez Capital shared that one of the reasons why investors are in Africa and especially now is because of the tech-driven growth that’s been on the rise in recent years. Venture capital investments are new in Africa and only a handful of funds have grown successfully.  The role of African Development Bank, said Robert Zegers, their Chief Investment Officer, was to now help support the industry and act as anchor investors in these funds as a lot of development agendas can be achieved by generating value through VC’s and great businesses.

The narrative throughout the discussion panels was around the real opportunities Africa presents for investment with building blocks in place such as improved policies, the rise in middle-income earners, the Africa Continental Free Trade Area, and enablers such energy, improved infrastructure and technology as pathways that cater for development needs. The most attractive areas for P/E investment were perceived to be consumer-driven sectors (financials, FMCG, agribusiness, healthcare and technology).

Deals Galore: VCs are willing and able to take risks and are looking to invest much more than they did previously. According to the  AVCA report 2018, VCs invested $725.6 Million in 458 deals a 300% leap in the total funding amount and over 127% increase in the number of deals as compared to 2017.  VC fund managers, therefore, need to have great entrepreneurial skills to identify numerous opportunities and create great pipelines for growth and expansion. This is the first generation of PE owners and from the lessons learnt, a good company always attracts a buyer and a great way for VCs to approach funding private companies is to ask; ‘if everything works out, how big can this be?’. But investors ought to be cautious not to misconstrue Africa as a single country with regard to investments, rather, and instead start by breaking down the micro trends in each jurisdiction and analyse the different risks.

Investments, not Aid: Charles Mwebeiha of Sango Capital urged investors to look at Africa while investing, like any other region in the world noting that many times, investing in Africa is made to sound like some sort of assistance. He offered that the issue should be whether returns can be made and reiterated that with good strategies, there is money to be made in Africa.

Women: It was also highlighted that having a gender-sensitive lens when investing is an imperative for an inclusive and fair investment strategy and that, especially in Africa, the number of female entrepreneurs supported is a key metric. There is an even split between male and female entrepreneurs on the continent but less than 2% of those women are getting formal funding as they are often working in hidden, informal sectors.

Exits: A major area of discussion was around exits. Carlos Reyes of the IFC,  pointed out that; “to prepare companies for exits, we try to improve reporting standards, corporate governance and we look at the bench – so if the entrepreneur leaves, who can come in? The succession process is quite important.” Exits are not the easiest but they are not deal-breakers and good exits can be achieved. At Leapfrog Investments, they evaluate exits right at the beginning, by sitting down with the owners to try to understand their dreams for the future so as to align funding with their plans for exiting.

Predictions: And finally, taking a forward look at the sector five years into the future, George Odo, Managing Director of AfricInvest Capital Partners observed that there would be more capital raised from African economies, more policy changes required to mobilise pension funds, much more experienced fund managers, and also more EA players paying attention to Ethiopia.

Glossary
AVCA – Africa Venture Capital Association
EA – East Africa
PE – Private Equity
LP – Limited Partners
DFI – Development Finance Institution
IFC – International Finance Corporation
PROPARCO – A Development Financial Institution partly owned by the French Development Agency
SME – Small Medium Enterprise
MSME – Micro Small & Medium Enterprises
VC – Venture Capital

Stanchart opens eXellerator Lab in Nairobi

Standard Chartered Bank today announced the opening of an innovation lab in Nairobi, its first in Africa.  Run by Standard Chartered Ventures (SC ventures), the eXellerator lab will work with clients, staff, and local fintech companies on banking solutions for the future. This will be the fifth such lab after the first in Singapore, then Hong Kong, San Francisco, Bangalore, London and now Nairobi.

Stanchart Kenya CEO Ngari Kariuki CEO said that SC ventures, launched in March 2018, had a mission to invest in disruption and come up with new business models by partnering with fintechs in Asia, Middle East And Africa, scaling little ideas, giving them a global platform and investing in the companies. Kennedy Mubita the Africa Regional Head for SC Ventures said that the eXellerator was based on principles of human-centred, design, having a lean startup mentality, embracing an entrepreneurial spirit  (enabling staff of the bank to suggest ideas and develop them into products with rewards) and that the bank would also invest in local companies through a $100 million innovation fund. So far they are developing ten ventures drawn from 1,500 ideas submitted globally, with a notable one being Credit Card Buddy from Indonesia.

At a Q&A after the launch, It was queried what pipeline of projects Stanchart would target given that there were very few companies able to absorb series B funding here. The bank will have a country venture challenge, one of three in Africa, and will seek to work with companies to address payment gaps and trust gaps in value chains across all sectors.

Like with the video banking launch, tried and tested in Asia, Nairobi is the launchpad for the eXellerator lab program in Africa. Other banks with innovation labs in Nairobi include KCB with its Vooma Lab and I&M bank, which has a digital factory, called iCube.

TEF 2019 class unveiled

The fifth cycle of beneficiaries of the Tony Elumelu Foundation (TEF) entrepreneurs program was unveiled on Friday, March 22 in Abuja, Nigeria.

This year 216,000 applied to join (up from 151,000 in 2018), with 90,000 being women during the window that opened on January 1. After an extensive shortlisting process, 3,050 entrepreneurs, from 54 African countries, were selected to receive $5,000 capital for their business ventures, 12 weeks of tailored training, and the opportunity to attend the annual TEF Forum in July 2019.

Over the years, more strategic partners have come forward to assist the Tony Elumelu Foundation to expand the impact of their ten-year $100 million program that aims to empower 10,000 entrepreneurs and create 1 million jobs and in 2019, partners are providing funding support for 2,500 entrepreneurs.

The African Development Bank (AfDB) is sponsoring 1,000 entrepreneurs (a commitment worth $5 million) and matching the support of the Tony Elumelu Foundation this year. Also, the United National Development Program (UNDP) is sponsoring 754 from 45 countries, while the International Committee of the Red Cross (ICRC) is sponsoring 180 entrepreneurs from conflict-hit countries. Others are Seme City (from the Federal Republic of Benin), the US Consulate in Lagos (sponsoring 20), the Anambra State Government, Indorama, and the Government of Botswana (sponsoring 20).

Present at the unveiling, that was livestreamed around the world, was Aisha Buhari, the First Lady of Nigeria, and Tony Elumelu, who founded the Program. Others were the Foundation CEO Ifeyinwa Ugochukwu, her predecessor Parminder Vir, TEF partner representatives, and the media.

Also at the event, a team of evaluators from Accenture explained the selection and short-list process they had done since the application deadline of March 1 2019. They also provided a breakdown of applications by country, gender, business stage, and business industry, with the highest number of applicants for 2019 engaged in agriculture, ICT and education sectors. They also highlighted trends in the program over the years including the overall increase in the number of female applicants.

All the applicants are now part of TEF Connect, which, with over 600,000 members, is the largest social network of African entrepreneurs. On the Connect platform, they can chat with fellow business owners in different African countries, access mentors, learning materials and network and share business ideas.