None Better Than Africa

“I’m very optimistic about Africa”, enthuses Stephan Breban, a seasoned investor with twenty years’ experience advising private equity firms globally.  While Breban says that some emerging markets like Mexico and Indonesia may come close, no other opportunities are as good as those in Africa.  And having already commenced investing in Africa with a play in South Africa, Nigeria is tops on his list. “This would be my number one place to move to right now”, he says.

Breban believes that private equity will have a strong role to play in continental growth.  For new Africa players he gives the following advice: “Buy an Africa company with a private equity investment, then build it up through the region, and then from the region to take it out through Africa.  Private equity gives more control, and in Africa you need that control.”

The Managing Director of City Capital, who views retail banking and current government debt plays as “a great big Ponzi scheme”, sees little value in entering public markets in Africa.  He has dealt with this before, he says, referring to major emerging investments he observed in the past where international investors “couldn’t get out of equity because no one wanted to buy it”.  And even when they could find a local investor willing to take their shares, exchange controls and other issues conspired to prevent them from getting their money out.

Although Breban understands that many observers see major opportunity in agriculture on the continent, that’s not where he would put his money.  The ideology of loading small farmers up with debt is “completely misguided” and has led to the challenges this sector faces globally.  Instead, Breban aims for infrastructural plays.  “Infrastructure is woeful throughout the continent.  If you want to help the farmers, give them infrastructure.  No matter how many tomatoes or mangoes a guy in southeastern Nigeria produces, it takes him three weeks to get them to market in Lagos, by which time they’re ruined.   There are significant economic benefits to transport infrastructure”, continues Breban, citing the possibility that with better infrastructure Africa could function as more of a breadbasket for Europe, with functioning rail lines taking many countries’ exports to seaports on the Mediterranean.

Nigeria commissioned a study to look at the investment and returns involved in such a project, that Breban concedes is “a long way off”, but he feels the concept is strong.  “Europe should be owning and funding that project.  Our two biggest security issues are food and energy, and if we got that from West Africa, we’d have greater control over the price than we do from Russia”.  Ultimately this could contribute to lower prices all round and potentially even lessen the current stress on the global economy.

South Sudan is another major area of focus, where “you’ve got huge swathes of land ready for agriculture.  Build the roads, build the ports to get products to market” and you’ll be helping South Sudan much more than you could through direct investment in farmers, says Breban.

Banks should be investing in infrastructure, not loading small producers with debt, believes Breban.  By focusing on infrastructure as a fundamental basis for economic growth, Africa can develop more quickly and sustainably.

 

Matthew Bader interviewed Stephan Breban for this article in May 2012.  Breban, who specializes in negotiating and reviewing LPAs and building private equity portfolios, lives in London.

 

 

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