The African financial sector has been active in the last 25 years; and thanks to digitalisation in the more recent years, emerging financial institution startups in Ghana, Zimbabwe, Kenya, Senegal, Burkina Faso and Madacasgar have been enjoying a smoother access to the global financial market.
These financial institutions in emerging markets have survived over the years, and at one point, some of them began exploring mergers with other entities and implementing new systems — including more digitalised processes in inter-banking and other transactions.
In this blog, we will discuss the opportunities in Northern Africa for Venture Capital and Private Equity investors.
The emergence of PE in Africa
Bolder Group’s Global Head of Growth, Marketing & Communication Jeroen van Zanten sat down for a discussion with Ben Zwinkels. Zwinkels, a banking expert in Africa and Chairman of the Board of Group AfricInvest, one of the leading private equity firms in North and sub-Saharan Africa, has witnessed the region’s financial evolution since the 70s. He said that the continent’s market has moved from a purely private equity player to a Pan-African Investment platform.
Initially, the market centered on smaller deals, resulting in the structuring of SMB funds. This was regarded as a significant investment in Africa around 1996, when there were only about six to seven PE institutions in South Africa and fewer in North Africa.
According to Zwinkels, the investment committee in PE activities he’s part of has initiated the Fidelity Private Active Fund in Ghana and various small investment funds in Zimbabwe, Kenya and Abidjan with local groups to help with management because they wanted to nurture the investment funds sector.
Investments began with small companies in Ghana, such as fruit juice shops, hotels, small house construction and agricultural businesses. However, there was no ambition to make high returns at the time; the focus was impact, specifically in job creation and small business support.
Fast forward to the present time, there are big investment groups in the region, including FirstRand, Standard Bank Group, RMB Holdings, etc.
It’s a constant challenge to convince investors to consider the possibilities in Africa, especially when the perception of Africa is it is an “underprivileged region”, Zwinkels mentioned. But with a strategic partner like FMO, a Dutch development bank, it became possible for Zwinkels’ team to create their first African investment. Their first fund at the time was more focused on PE principles, creating solid companies and designing strategies for company survival, sound financial analysis, as well as financial buildings.
“The success of this fund is what is very important from the story. You can start with finance with private equity creating funds, but you need to build a track record. And this track record is very important to give you sustainable development and what we did was also more development-minded,” said Zwinkels.
Moreover, they were able to convince their investors from the development finance in 2017 to create the African Invest Evergreen Fund, a successful front fund with a diversified team in Tunisia and Kenya.
ESG in African market
Along with the evolution of investment funds is the further highlighting of impact investing through ESG initiatives. This is especially true where there are social issues to be addressed, including startup support for small business owners who create jobs for locals.
The development from impact investing to ESG investment strategies, including those in the finance, healthcare and agribusiness industries, opened new financing channels and attracted new investors who focused on adhering to specific ESG standards while also granting access to export markets for the same reason. Fund managers and investors integrated this into their strategies to create social impact, too.
Foreign investors like the Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (FMO), development banks and even private investors are the biggest factors that drive PE and VC investments in the region. The question that comes into play, however, is whether the impact on the social economy is sustainable. For this reason, it is critical for investors and fund managers to assess the business model’s sustainability, as well as their business concept and proposition.
When it comes to investment, countries such as Madagascar, Kenya and Nigeria have been successful and despite the political situation, Rwanda is also a rising star in terms of strong leadership.
When establishing structures on behalf of fund managers, these pools must be set up in jurisdictions that will govern them as investors don’t usually invest directly in Africa. Normally, these must be structured in countries such as The Netherlands, Luxembourg or Mauritius,
African countries are stepping up to meet international standards and developing frameworks to protect foreign investors, whether directly or through investment funds. Finance authorities and central banks are becoming increasingly tough and demanding as they strive for a better reputation to attract more investors. Mauritius, for example, has the most bilateral investment treaties with all other African countries. As a result, it is critical to understand the country’s request and reporting standards from the financial authorities as they intensify their anti-money laundering efforts.
Future opportunities for VC and PE in Africa
The younger population of well-educated Africans would play a critical role in the economic development of the continent, Zwinkels believes, as well as the appeal of this vast continent to foreign investors. In the next 20 years, he said, there is a big opportunity for growth in the investment industry, especially in the sectors of renewable energy, digital landscape and banking.
Fintech is another vital player in the African market, thanks to the rise of average deal sizes an increase in the amount of fintech funding in Africa over the past years.
About Ben Zwinkels
Ben Zwinkels grew up in the Netherlands and has over 40 years of experience in banking and business development in Africa. After working for Stork Industries, Ben moved to Africa in the 70s, where he worked for cooperative banking in Cameroon and promoting SMEs in Tunisia.
Ben started his career in 1982 at FMO, the Dutch Development Bank, where he gained valuable finance experience. While working for FMO, he established himself as an authority on PE in Africa, establishing the African Venture Capital Association and reviving the NABC (Netherlands Africa Business Council).
After retiring from FMO, Ben remains active in the African financial sector by becoming Chairman of the Board for AfricInvest and continued to serve on the boards of Group Bank of Africa and the Afriland First Group.
You can contact Ben Zwinkels through email@example.com.
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