West Africa’s rising profile

Make room, Johannesberg.

The undisputed centre of private equity investment on the continent has been pushed out of the African spotlight of late by West Africa, a region not traditionally known as a hotbed of private equity activity.

Over the last month, West Africa has had several positive developments that may foretell increased private equity investment in the region. Earlier this week, Emerging Capital Partners (ECP) and Actis International announced their successful joint-exit of Starcomms, a Nigerian mobile telecommunications operator. Separately, the government of Liberia is seeking private capital for its power infrastructure.

ECP, which since 2000 has raised more than $1.5 billion (€956 million) for Africa-focussed investments, made a 2.9x return on its original investment via a $547 million private placement preceding the listing of Starcomms on the Nigerian stock exchange.

ECP and Actis partnered to acquire majority control of the company in 2005 for $43.2 million, with ECP pumping an additional $34.3 million into the company since the buyout. The capital stream helped Starcomms increase its subscriber base from 100,000 to 1.5 million, making it the country’s fourth largest telecom operator.

Actis declined to disclose its returns on the deal.

The exit is notable not only for its returns but also for Starcomms’ subsequent successful public float.

For decades, West Africa – defined by the United Nations as 16 nations in the northwest portion of the continent stretching from Nigeria in the southeast to Mauritania in the northwest – had among other difficulties seen its business community face the dual challenges of poor corporate governance standards and a shortage of available capital.

Public markets like Nigeria’s, by far the largest in the region, are helping remedy those problems.

The maturation of the Nigerian stock exchange “has been important, and it’s been important not only for the value associated with having a market that is large enough to permit ECP to exit some fairly meaningful investments”, Thomas Gibian, ECP chief executive, told PEO.

“But the value of the stock exchange, the improvement of the stock exchange goes beyond that because it really suggests a number of things: an improved regulatory environment, that there are more local institutions that are keeping money in Nigeria and investing in Nigerian companies rather than taking money abroad.”

Gibian also points to the country’s deregulation efforts in the financial sector as a major growth driver, not only for Nigeria but for the rest of the region as other West African countries consider similar regulatory changes.

ECP has owned or currently owns several portfolio companies on the Nigerian exchange, which has grown its annual value traded from $2 billion in 2005 to $17 billion in 2007, according ECP. Those companies include Continental Re, one of the largest reinsurance companies in Nigeria, and Ecobank, which is also listed on the Ghana and Cote d’Ivoire exchanges.

Although lacking its own exchange, war-torn Liberia has also publicised policy efforts in recent weeks that could make it a fresh destination for private equity activity.

Earlier this month, the Liberian Electricity Corporation disclosed that it was seeking roughly $200 million in private investment to repair a primary hydroelectric facility. The call for private capital is part of the Liberian government’s broader program to funnel money into the nation’s decrepit energy infrastructure, which has not yet recovered from the nation’s bloody 14-year civil war.

“We have had informal discussions with private equity firms purely on the West African region, but more in a general sense and not on specific deals,” Jumoke Jagun, Liberia country manager for the International Finance Corporation, told PEO.

The IFC, a division of the World Bank, is acting as a lead advisor on Liberia’s infrastructure initiatives.

Although cautioning that Liberia had not yet settled on where it would seek external funding for its plans, Jagun added that private equity could be a potential source, among many.

“There’s not as much private equity money coming into Liberia partly because of their assessment of country risk,” she said.  “It’s more private sector-focussed development institutions. But the IFC and OPIC [Overseas Private Investment Corporation] could support and attract PE.”

Private equity involvement in sub-Saharan African energy infrastructure is not without precedent.

In December, the Blackstone Group made a splash in the sector when portfolio company Sithe Global Power led a group of multi-lateral institutions in an $872 million deal to construct a Ugandan hydroelectric plant.