Private equity firm ECP upbeat on Africa growth

LAGOS Mon Mar 7, 2011 8:29am EST

LAGOS (Reuters) - Africa offers plenty of scope for private equity investments, with at least another decade of strong growth expected from consumer goods, broadband internet and financial services, the co-head of one of the continent's top private equity groups said.

Africa has already produced years of explosive growth in cell phones and banking, but new sectors such as TV over internet, insurance and real estate are set to form part of the next wave, according to Washington-based Emerging Capital Partners (ECP).

The group, which has raised more than $1.8 billion for African investments over the past 10 years, has made more than 50 investments and 20 successful exits on a continent still shunned by many private equity firms.

"I can assure you there's no bubble in Africa at the moment. Every guy in the elevator's not pitching a deal here yet," co-Chief Executive Hurley Doddy told Reuters in an interview at the group's offices in Nigeria's commercial capital Lagos. "A fast-growing African economy can suck up a lot of capital unlike Asia or China. There are maybe too many private equity dollars chasing deals there, which is just not the case here."

Past investments include Nigerian wireless network operator Starcomms (STARCOM.LG) and pan-African mobile operator Celtel International, sold to Kuwait's MTC for $3.4 billion in 2005 before MTC was rebranded Zain (ZAIN.KW).

Zain's African assets were bought by Bharti Airtel (BRTI.BO) last year for $9 billion.

"Cell phones, that was a very important business seven, eight years ago. When we started investing in Africa, it had about as many cell phones as New York City, maybe a little less ... Now it's got way more than the U.S.," Doddy said.

"Those companies are now quite big. The rates of growth are declining so we've been getting out of our last investments in that segment of the telecom business, looking maybe to get in some other segments," he said.

One such example is Kenya's Wananchi, a triple-play telecoms firm which bundles broadband internet, cable television and voice telephony into one package and is rolling out its services to nine east African countries.

"A country like Kenya may be over 50 percent in terms of cell phone penetration but Pay TV, broadband are still at the one and two percent type range, so once again we probably have another decade of growth in that type of business," Doddy said.

REAL ESTATE, AGRICULTURE

He saw further growth in Nigeria's banking sector, a favorite of frontier market investors, and predicted financial services including insurance would also generate high returns.

Changes in land ownership laws would also allow lucrative real estate investments and growth in mortgage lending.

Soaring food prices in recent quarters meant investors were increasingly interested in Africa's agricultural potential, with swathes of arable land that could be put to more productive use.

"We've seen a real uptake in people looking at agro-businesses here," Doddy said.

There is uncertainty about north Africa, given the popular uprisings that have toppled governments in Tunisia and Egypt and now the unrest in Libya. This might slow investment in the short term but could unlock the region's economic potential further down the line.

"Those places had been held back by governance that needed to be changed...I think it is reasonable to expect higher growth rates in north Africa if you look over the next decade."

Some short-term investors are nervous as Africa is due to hold 17 national elections this year. A stand-off over disputed polls in Ivory Coast, has brought the world's top cocoa grower close to a return to civil war.

But Doddy pointed out that with more than 50 countries in Africa, there was always an election "just on the horizon" and that for longer-term private equity investors such political risk was "part of the operating environment."

He said there was increased interest from Chinese and Indian investors but viewed these as potential co-investors or exit opportunities rather than direct competition.

"If you have a good cash-generative business here in Africa, almost anywhere in almost in any sector, somebody is probably interested in buying," Doddy said.

"And I think that'll remain the case."

(For full Reuters Africa coverage and to have your say on the top issues, visit: af.reuters.com/ )

(Writing by Nick Tattersall. Editing by Jane Merriman)