As an Executive of Alternative Investment Services at RisCura, Sean Winter is a strategic thinker passionate about delivering innovative solutions. He devises plans on investment services, analysis, and reporting. Sean holds a Bachelor of Business Science, Finance degree from the University of Cape Town and he is also a qualified Chartered Financial Analyst (CFA).
Featured in Investor’s Mag, 21th Edition, June 22 – Aug 22
How would you describe recent private equity activity across Africa? What factors are driving capital investment in the region?
Africa is large, colourful, complex, and certainly investable. The continent remains an attractive market for private capital investment, primarily due to its significant impact and diversification benefits.
Impact investing, confirmed by recent patterns in RisCura’s Bright Africa Private Equity report, is accelerating, and there are few markets which are better for investors to meet their impact mandate than Africa.
An opportunity exists to capitalise on the global trend of sustainable investment practices to help reframe Africa in the mind of the global investor. It stands to reason then that any investment opportunity in Africa aligned to the UN’s Sustainable Development Goals outcomes and which is able to show it has integrated ESG risk mitigation, should prove to be extremely attractive to global capital.
Institutional investors are also increasing allocations to alternative investments, given their superior returns relative to other asset classes and low correlation to traditional asset classes, decreasing portfolio risk.
Historically, many African countries ranked among the most difficult in the world to conduct business. However, many investable, larger economies have shown significant improvement over time in key “ease of doing business” metrics, such as how long it takes to start a business, increasing their competitiveness as investment destinations.
African institutional investors should start collaborating through the AfCFTA (African Continent Free Trade Area) to put intra-African trade at the heart of Africa’s post-pandemic economic recovery.
What are the key takeaways of RisCura’s recent “Bright Africa” survey?
RisCura’s latest “Bright Africa” report suggests that, with high economic growth and significant tailwinds for long-term investment, balanced against elevated medium-term risk, a lasting, long-term upward growth trend in private equity investment on the continent over the last decade is likely to continue, as fund management hub Mauritius continues to play a key role in facilitating the continent’s investment flows.
Despite erratic fundraising, volatile risk, and growth conditions, exemplified by current global geo-political events, long-term market trends in African private equity have remained constant.
For 2021, notwithstanding the dramatic drop in funding and the change of risk and growth outlook, research data from the report shows that deal activity in Africa reached new highs, albeit at lower transaction values that shrunk from USD40.44m, over the 2016-2019 period, to USD11.1m, between 2020 and 2021.
Another significant finding was that USD498m, or 38% of the African private equity funds raised in 2020, was allocated to impact fund managers, a substantial increase from prior years and a pattern most likely to continue, given the growing conviction on the part of investors that smart investing is responsible investing.
The report also highlighted that the global pandemic has accelerated e-commerce in many parts of the world, which could present substantial investment opportunities for tech-enabled businesses.
Which countries and sectors seem to be of particular interest to investors?
In the post-pandemic era, key sectors for investment include healthcare, pharmaceuticals, IT and education, and tech-enabled businesses.
A specific investment opportunity also lies in energy. While Africa may have the lowest per capita carbon emissions of all the continents, in part, due to Africa’s low levels of industrialisation, an opportunity exists for Africa to bypass carbon-intensive industry and leapfrog to low-carbon industrial development through renewable energy infrastructure.
When evaluating opportunities in emerging and frontier markets, certain structural advantages and disadvantages make specific markets more or less competitive. Investors consider the size of the economy, growth expectations, ease of doing business, tax considerations, legislative frameworks, quality of institutions, development of capital markets, and industrial capabilities.
Considering these factors, South Africa, Kenya, Nigeria, Egypt, Ivory Coast, Morocco, and Senegal remain the favoured investment destinations on the continent.
Have any recent high-profile investments caught your attention?
The Women Entrepreneurs Finance Initiative (We-Fi) recently announced a new round of funding, providing USD15m of funding to the African Development Bank’s Africa Digital Financial Inclusion Facility. We-Fi is hosted by the World Bank Group and is a partnership among 14 governments, 8 multilateral development banks, and other public and private sector stakeholders.
This funding is critical to women-led businesses in Africa trying to access funding. It arrives at an important time, post-pandemic, aiming to reduce the gap in access to finance for women. This round of funding is aimed at assisting businesses in Cameroon, Egypt, Kenya, Mozambique, and Nigeria.
How would you describe regulatory frameworks in Africa as they apply to the private equity industry?
The regulatory framework is fragmented and can differ significantly from one country to another. Countries that have created policy certainty and open dialogue with the industry, such as Mauritius, have benefited from this enabling environment.
What due diligence and risk management considerations should be part of the process?
Investors in emerging markets cite political risk and currency risk as their most important considerations when investing. For both of these risks, robust due diligence processes that look at the individuals executing the investment and the investment environment are essential.
Diversification is a critical risk management consideration supported by the pan-African investment strategies that most private equity investors follow.
What’s the role of the Mauritius International Financial Centre (IFC) on the international chessboard of private equity?
The Mauritius IFC is a core part of the Mauritian economy, incorporating cross-border investment and corporate banking, private banking, and wealth management.
The role of the Mauritius IFC regarding private equity is to continually develop, promote and facilitate measures around enhancing regulation and the business environment, further developing skills in the financial services sector, ensuring global best-practice alignment, and managing country reputational risk, to grow its contribution to GDP.
Mauritius is already an expert facilitator and gateway of investment flows into Africa, facilitating the routing of more than USD80bn of foreign direct investment into Africa, and the over 180 management companies on the island, structure approximately 25% of private equity funds investing into the continent, according to a report done by Capital Economics for the Economic Development Board.
The IFC must continue pushing initiatives such as the Mauritius Africa FinTech Hub, an ecosystem attracting entrepreneurs and investors in one of the fastest-growing private equity sectors: IT and e-commerce. The Financial Services Commission of Mauritius also has its finger on the pulse of global sustainability initiatives and laid out its first guidelines on 23 December 2021 for the issue of green bonds, a step forward in attracting impact investors, a key growth area in private equity.