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June 4, 2014 11:14 pm
KKR, one of the world’s best known private equity groups, has made its first foray into Africa, investing $200m to buy a stake in an Ethiopian company.
The maiden deal underscores the growing appeal of investing in the region on the back of a virtuous cycle of strong economic growth and improved governance over the last decade and a half that many have called “Africa rising”. The continent is the world’s second fastest growing region, only behind developing Asia.
KKR is investing in Afriflora, an Ethiopian company which says it “cultivates, produces and sells sustainably grown roses” for the global market. The deal will help the company to “fund expansion plans”, according to one person familiar with the deal.
Although Africa still attracts a tiny proportion of the world’s private equity money, interest in the region has grown significantly. Carlyle Group recently closed its maiden African fund at nearly $700m, roughly 40 per cent above its initial target.
Africa-focused private equity and investment firms, including Helios Investment Partners, Citadel Capital and Nubuke Investments, have been trailblazers in the continent, slowly helping to popularise a region that until recently was largely ignored by mainstream investors. Analysts believe that the arrival now of global firms such as KKR and Carlyle will help channel more money into the region.
Kayode Akinola, head of KKR’s African operations, previously worked for Helios. The KKR investment in Afriflora was first reported by The Wall Street Journal.
The interest of global private equity firms in Africa coincides with an uptick in dealmaking by sovereign wealth funds in the continent. Temasek, the state-owned investment company of Singapore, last month made its first ever investment in Nigeria, Africa’s largest economy. And Beijing’s China Investment Corporation has also invested in the region. Bankers said other funds are also looking for deals.
The African Development Bank forecast that the continent will see record foreign inflows of $84.3bn this year, surpassing the record set in 2012. Portfolio flows, which include equity and bond investments, are expected to rise to nearly $24.1bn this year, surpassing the peak set in 2006. As recently as in 2001-03, Africa was registering negative portfolio flows as investors withdrew money.
Although Ethiopia’s fast-growing economy is still protected from foreign investment in several key sectors, including finance, telecoms and retail, private equity investors seeking ways into the continent’s second largest market – at 90m people – have made several deals in sectors including in cement, coffee, wine and biscuits.
Ethiopia has played catch-up to Kenya’s $1bn a year horticulture and floriculture industry for years, facing criticism from activists who argue the eastern African country has mortgaged its precious water resources in a drought zone.
But while Kenya’s flower industry has battled occasional political strife – in 2008 post-election violence hit the key growing and transfer areas – Ethiopia can count on regime stability as well as much cheaper wages, better tax incentives and global access via the state-owned pan-continental airline Ethiopian Airways for transport – a key advantage in a market whose daily auctions take place in the Netherlands.
The country started its first rose farm in 2000. Boosted by government loans, exports rose quickly from $1.4m in 2002 to more than $250m within a decade.
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