In the March 2010 issue of Infrastructure Investor magazine (click on related item, right), we featured an extract from an interview with Ahmed Heikal, founder and chairman of Egyptian private equity firm Citadel Capital. Citadel recently announced plans to invest up to $400 million over the next two years in a range of sectors in East Africa, including infrastructure.
Below, you will find the rest of this interview in full.
What encourages this level of investment in East Africa?
AH: As the leading private equity firm in the Middle East and Africa, we have always seen East Africa as a natural part of our core regional footprint. If you look at the markets to which we are attracted, they all have immense competitive advantages offered by large, fast-growing populations that translate into sizable skilled workforces and substantial consumer markets. Many of them are proximal to important export markets. We see legacies of inefficiency and fragmented markets that can be redressed by smart private sector players with the vision, capital and management talent to create new engines of economic growth. All of these are, in one way or another, characteristics of the East African markets we are now exploring.
What has underlined Citadel Capital’s success to date is our commitment to shaping and growing emerging industry sectors and building capacity at local companies, turning them into true regional forces. Today, our investment professionals are investigating opportunities to deploy $200 million to $400 million in new capital across East Africa in 2010-12 in sectors spanning from agriculture and consumer foods to transportation, banking and financial services (including microfinance), mining and cement.
What has been the experience of the firm so far in each of the countries it has targeted in the region?
AH: We are already investing heavily in Sudan, where we will have investments of more than $900 million by the end of 2010 in sectors ranging from cement production, food and agriculture and financial services to mining, oil and gas and transportation and logistics. By and large, we find governments and other private sector actors alike are very welcoming to foreign investment, particularly from an African private equity player of our size.
Each market has its own unique challenges but none are radically different from our experiences in Algeria or Sudan for example. These are large markets, which are hungry for investment and welcome the type of capital and management expertise we bring to the table.
What types of infrastructure are attractive in particular?
AH: The first of several investments we are exploring in East Africa will be a natural extension of our interest in the continent’s transportation and logistics sector. There is a lot of potential waiting to be unlocked by the smart deployment of capital and management talent to improve the efficiency of Africa’s railways, for example.
Transport prices in East Africa are among the highest in the world. A lack of operating capacity has resulted in rail capturing less than 10 percent of East Africa’s transport market. An efficient rail network could bring East African transport costs down by as much as 50 percent due to the operational and fuel efficiency of shipping by rail. For example, the Kenya Uganda Railways hauls just over 1 million tons per annum today. New investment and a fresh approach to management could see that figure grow to 5 million tons per annum within five years. We are also exploring other sectors including gas distribution, river transportation and cement.
Tell us about river transport company Nile Logistics?
AH: Citadel Capital’s investments in Africa’s transportation and logistics sector are carried out through platform company Nile Logistics which includes three portfolio companies: Nile Cargo, the National River Ports Management Company (NRPMC) and Keer Marine.
Nile Cargo is serving bulk clients with a fleet of 30 refurbished barges and is building a further 62 custom designed, state-of-the-art, fuel efficient, environmentally friendly barges that will be capable of transporting up to 15 million tons of goods along the Nile each year by 2012.
NRPMC is investing up to $75 million to establish and operate several new river ports strategically located in Cairo, Alexandria and Upper Egypt. Keer Marine also operates river barges and is developing networks of supporting river ports and logistics hubs in Sudan.
Nile Logistics capitalises on the region’s underdeveloped river transport sector and provides seamless door-to-door service for industrial and agricultural producers and traders. River transport will act as a critical competitive advantage as the firm’s growing transportation and logistics operation facilitates national and international trade in countries including Egypt, Sudan, Uganda, Ethiopia and Chad.