Middle East investors are increasingly looking to Africa for Business Opportunities

Though the fast-growing continent offers plenty of opportunities, bankers say there are also a raft of problems for Middle East investors, particularly the relatively small size of deals.

"We're seeing more interest but I think it's fair to say that we haven't seen a lot of that crystallise into deals so far," said Diana Layfield, Africa chief executive at Britain's Standard Chartered.

"The Middle Eastern sovereign wealth funds are very interested in Africa. The challenge that they face is that the amounts they need to invest are way too large for the continent at the moment," Layfield said on the sidelines of the World Economic Forum on Africa.

Held this week in the Ethiopian capital, Addis Ababa, the forum highlighted Africa's attractions: it is home to some of the world's fastest-growing economies and disposable incomes are rapidly rising.

A decade of relative political stability has also helped the case for African investment.

"Definitely there will be more investment coming to Africa," Saudi Arabian Minister for Agriculture Farad Balghunaim said.

"With the clear vision building up in African leadership now there will be more and more investors from Saudi Arabia," he said.

But tapping that growth is not easy, given the lack of liquidity in public capital markets. For private equity bankers there is often a shortage of deals to meet their mandate on size.

For instance, emerging markets private equity firm Actis said last month it is aiming for individual deals of $50-million or more in Africa, meaning it has to focus on the continent's biggest economies - South Africa, Egypt and Nigeria to find deals.

Some Middle East investors, therefore, are focusing on smaller deals to gain exposure to Africa.

Dubai's Abraaj Capital is acquiring UK private equity firm Aureos Capital, which invests in small and medium businesses in Africa, Latin America and Asia.

"We tend to have a sweet spot at about $10-million, but we have investments as low as $2-million and going up to about $35-million," said Davinder Sikand, Aureos' regional managing partner for Africa.

Because of the constraints in their home markets, Middle East investors are familiar with Africa's drawbacks, such as shoddy infrastructure, scarcity of a trained workforce and lack of liquidity in capital markets.

"The Middle East, part of which is rich in capital, is starting to look at Africa as an investment destination," said Frederic Sicre, a partner at Abraaj Capital.

Sicre said he was "definitely" seeing more interest in African private equity from Middle East investors.

"Behind us are 200 of the wealthiest merchant families and royal families from the Middle East, and sovereign wealth funds in the region. We can pull them into looking at the opportunities here."

Reuters
14-May-2012