Top 5 food markets in sub-Saharan Africa

By Kurt Davis

The food sector is the focus of investors who are seeking to capture the opportunity of a rising middle class in Africa. 

They were lost in Luanda, Angola's bustling capital, until they found the McDonalds. Being American in a familiar place in a foreign country is home until you see the price for the burger meal: $14. 

This being Africa means there must be a local twist, says the American tourist John, and sometimes the twist is the price.

Investing in the sub-Saharan African market is the right move at the right time. Call it the “last frontier” or the “last big opportunity.” Either way, the numbers speak to great prospects.

The International Monetary Fund’s (IMF) latest Regional Economic Outlook for sub-Saharan Africa projects GDP growth to reach 5.5% in 2014 from around 5% in 2013. The accelerating growth is expected to be buoyed by large investments in infrastructure and mining, maturing investments in transport and telecommunications, and a rebound in agricultural output.

The sustained boom creates more consumers. Global management consulting firm Mckinsey & Company projects that more than half of African households will have discretionary income by 2020, rising to 130 million households from 85 million today. Restaurants want a piece of the pie.

Kentucky Fried Chicken (KFC) and McDonalds are the big first movers. Other American brands, including Burger King and Pizza Hut, are salivating at the growing opportunity. But franchises are not the only players as local brands, including South Africa's Debonairs Pizza and Nando’s, continue to expand across the region.

Here are the top 5 countries for restaurant expansion in sub-Saharan Africa:

Nigeria

It has a Johnny Rockets! But the entrance of lesser known brands Johnny Rockets and Dominos underline two big things about Nigeria: (1) its approximate 170 million-plus population (biggest in sub-Saharan Africa) and (2) its GDP, which stands north of US$520-billion - the largest in sub-Saharan Africa.

Nigeria’s population is likely to overtake the United States by 2045, according to the United Nations, and its GDP is likely to surpass US$1.6-trillion by 2030 with a yearly growth rate of 7.1%, propelling it into the top 20 for economies by GDP. In a similar time frame, global management consulting firm Accenture in a recent report projects consumer spending to grow to $167-billion by 2020.

Tapping into this market is obviously imperative to gaining market share in sub-Saharan Africa. But creativity is necessary – for example, throw in jollof rice or seafood okra to excite the local palate. Nigerian tastes span local delights to British adoptions and American transformations.

Kenya

Kenya is a favored destination for investment in Africa. It is sub-Saharan Africa’s sixth largest economy and population. And its birthrate remains in the top quartile globally. The IMF projects the Kenyan economy to grow 5% in both 2014 and 2015, compared to 4.7% in 2013. All this being said, the underlining numbers in Kenya indicate more spending consumers in one of Africa’s biggest food-loving countries.

Accenture projects consumer spending to grow to US$38-billion by 2020. back in 2012, an Africa-focused private equity firm invested in Nairobi Java House, a local Kenyan coffee house and restaurant, signifying a new focus of investment firms. A large expansion by Kentucky Fried Chicken (KFC) only further underlines the opportunity. And Subway has entered and likely confronting Subzone, a healthy eating alternative in Nairobi that has a similar look and appeal of Subway.

The Kenyan palate, to a distance observer, initially seems fulfilled by the simple presence of meat – ideally chicken. But locals will suggest that you have only tapped the surface if you leave with that belief. Asian influence, British and American influence (from Kenyans studying abroad), and a well-travelled middle class undoubtedly implies greater diversification.

South Africa

The former “largest economy” in sub-Saharan Africa is still trying to get its growth back on track. The IMF projects the economy to grow 2% in 2014, only barely surpassing the 1.9% growth in 2013. Weaker economic numbers worry investors and politicians alike. Yet consumer spending remains strong with untapped potential.

Consumer spending, projected at US$315-billion in 2020 by Accenture, will be approximately double that of Nigeria. The South African palate is nuanced accompanied by larger pockets. Local brands, including Spur and Ocean Basket, compete strongly against Western brands inside (and outside) South Africa. It is also easy to find a McDonalds and a KFC in country.

Skeptics routinely suggest that the food service business is approaching saturation in South Africa. Yet all the numbers indicate growing competition, but nowhere near any level where investors cannot snag great returns.

Uganda and Tanzania

This grouping will not excite Tanzanians and Ugandans – the countries are definitely different in many ways. But they do have a lot in common too. As the 5th and 7th most populated countries in sub-Saharan Africa, Tanzania and Uganda already possess large consumer bases. This base will only expand with birthrates in the top 20 globally – Uganda at the 3rd highest and Tanzania is the 18th highest.

Tanzania and Uganda embody the East Africa boom. Underpinned by recent natural resource discoveries, both countries possess fast-growing economies. The IMF projects the Tanzanian economy to grow 7% in 2014, compared to 6% in 2013 while the Ugandan economy grows at 6.25% in 2014, compared to 5.75% in 2013. As commercialisation of these resources take hold and pipeline projects mature, these growth figures may very much be higher in a few years.

If not for the supply chain challenges, many investors think these two countries would rise to the top as investment destinations for the food service industry. Yet a lack of commercial quality inputs, ranging from potatoes typically for French fries to meats (i.e. chicken and beef) stymie operators and create deficiencies throughout the value chain. Focused efforts on agriculture from central governments and local investors will continue to improve the industry’s prospects.

Honorable mention: Angola and Ethiopia

This article is re-published with permission from Frontier's content partner, Ventures Africa.

Ventures Africa chronicles business and investment news, and the success stories of African entrepreneurs and business leaders.

Top property markets in Africa

Andrew Golding, the chief executive of Pam Golding Properties, tells Frontier why he is optimistic about the property sector in Africa.

Which African countries have the best opportunity for property investors?

Each African country has its own specific dynamics and opportunities. Pam Golding operates in all the SADC countries, and in Kenya and Uganda in East Africa. 

Mozambique is 'the flavour of the month' at the moment, due to its booming resources sector. There is a lot of activity across all the segments of the property sector, with cranes dominating the skyline of Maputo. One can find upmarket leisure developments just south of Maputo that cost US$10-million a unit. Two years ago this would have been unthinkable. Mozambique has a shortage of A grade residential accommodation, but this area is developing rapidly. We are very optimistic about the extent that this is going to happen.

The same thing is happening in Nairobi (Kenya) where the market is really doing well, and has similar characteristics as South Africa's. There is shortage of stock and yet there are many buyers with purchasing power.

We are seeing more investment in residential and commercial market segments across the board. There is a culture in many countries of investing in residential property - the buy-to-let market. Nairobi has strong buy-to-let developments. There is definitely a strong but small residential market in Lusaka (Zambia). Namibia, Zimbabwe and Swaziland are enjoying quite a strong residential market characterised by shortage of stock, moderate to good price growth (depending on the focus market), and a strong buy-to-let market.

The two countries with massive growth opportunities that we are now targeting are Angola and Nigeria. The Nigerian market is huge (150 million people) and potentially an enormous opportunity, but with a lot of potential pitfalls.

Uganda is an interesting market. We have just been appointed to do a project there - a residential golf estate located between Entebbe and Kampala, a beautiful site on Lake Victoria. The developer who is associated with a hotel which is already operating is now launching 100 residential units at an average cost of US$1-million per unit. All indications are that the project will be finished successfully. In Uganda and several other countries, there is a lot of demand for upmarket property.

Other notable markets are the Indian Ocean Islands of Mauritius and Seychelles. They continue to tag along remarkably well. The Marina development in Seychelles that we are involved in is almost complete. We have sold 450 out of 550 properties, to the value of more than US$500-million. The country continues to attract buyers looking for that sort of lifestyle, whether it is leisure or permanent. There is a big cross-section of nationalities that have bought property here. 

We are about to launch a new big development in the north of Mauritius. We have been involved in this project for the last 10 years. There is also potential of at least 500 units in the form of an integrated resort scheme in the south. The scheme will allow owners to buy in at an entry level of between US$1 -1.5m.

What is your strategy for entering new markets?

We have a few models. In Zambia we have a franchise in which we are shareholders. In Kenya, it is a 100% franchise. It depends on the individual operator that we find in a specific country. The key to success is finding somebody who fits into our corporate culture and who we believe we can have a long-term relationship with. In Nigeria, we are an equity participant in a business. Our entry strategy is guided by various factors such as the appetite of the investors - whether they want us there or not, or whether they would benefit from our participation as shareholders as opposed to being an operator.

What are the trends in South Africa’s property market?

Two years ago and 18 months ago someone turned on the lights, and suddenly the stock started to dry out in one or two pockets. Now most of the metros are characterised by the same phenomenon - a critical shortage of stock, buyers competing with each other, and property starting to sell at asking prices or even above asking price...

Click on this link to read the rest of the interview

Private equity navigates regulatory headwinds

Chief executive officer of tax and management services firm Intercontinental Trust Limited, Ben Lim, gives insight on private equity growth in Africa and the evolution of regulatory environments to make investing more efficient.

With your 15-year history in Mauritius, how have you have built your business, and how has Mauritius evolved to be a gateway for investment into Africa?

Today we see Mauritius as the key financial centre for Africa, and indeed African private equity, having seen a real shift in the investment flows from other emerging markets to Africa in recent years. To provide some context, in the early 90s, I witnessed the emergence of Asia, particularly China and India, through investments passing through Mauritius, and our business was heavily weighted towards those regions. When the financial crisis emerged in 2008, we saw a significant change in investment flows, and we re-focused our business from Asia to Africa. Mauritius on the whole seemed to follow this shift. 80% of all investment companies in Mauritius pre-2008 were Asia-bound, and post-2008, 70% of all investment companies in Mauritius are now Africa-bound. It makes sense; although an island, we form part of Africa, we are a member of the African Union, Southern African Development Community (SADC) and Common Market for Eastern and Southern Africa (COMESA), and we are building the skills and intermediary businesses that so many of the businesses in Africa need as they grow.

Our business largely serves the private equity fund managers in South Africa, we have a strong foothold in this market. Interestingly since around 2009, these managers have sought to look for investible opportunities beyond their home market, to other countries in Southern Africa and even further afield to other countries in sub-Saharan Africa.

We see this as an increasing trend as well as a general pick-up in the number of fund managers and activity in some of the larger economies of Africa, such as Kenya. East Africa, we believe, is a real private equity growth region of the future. 

How have the regulatory environments in Africa evolved to be more conducive to PE funds and their ever increasing pool of global investors?

If we look at East Africa specifically, I think there are still a number of tax systems that can be inefficient for international investors investing directly in those countries. For example, in Tanzania, the tax system lifts the corporate veil and taxes the beneficial holder, which can result in double taxation exposure for a non-domestic investor. Mauritius is in the process of negotiating a Double Tax Agreement (DTA) with Tanzania to alleviate investors in funds domiciled in Mauritius of this double exposure, as well as other nations, including Algeria, Lesotho, Malawi and Togo. The government of Kenya is about to introduce capital gains tax, which had previously been absent from the tax system, and which can be a significant return drain for private equity investors. While this tax is on the horizon, Mauritius has ratified a DTA with Kenya that is awaiting enforcement. Once enforced, this will significantly benefit Mauritius-domiciled funds investing in Kenya.

One country which has structurally morphed into an attractive region for private sector investment is Rwanda. The government has put in place a number of structural enhancements to consolidate the socio-economic recovery and to generate sustainable and equitable growth and poverty reduction. Further, Rwanda's government has signed a DTA with Mauritius which is awaiting ratification. Rwanda recently ranked second of all African countries in the World Bank Group's Ease of Doing Business Index, behind Mauritius which ranks number one, and ahead of South Africa in third place.

Overall, Mauritius has worked very hard towards increasing efficiency and reducing risk for those investing in Africa, on a relative basis. The below table provides a snapshot of how investing in Africa via Mauritius can benefit investors.

Investor Promotion and Protection Agreements (IPPAs), mentioned in the table can provide comfort to investors who are investing in countries where there are risks of nationalisation or expropriation. The IPPAs encourage and protect investments by virtue of measures to minimise any deprivation of investments, and in the worst case scenario, any deprivation of investments will have to be justly compensated. IPPAs with Mauritius exist with Burundi, Madagascar, Mozambique, Senegal, South Africa, and Tanzania, with a further 14 IPPAs awaiting ratification, including Kenya and Rwanda.

Given the current trends, it is likely that Africa will finally emerge from its history to position itself as one the most affluent and developed regions of the world, developing at a much faster rate than one would have predicted only a couple of decades ago. We are confident that Mauritius will remain the preferred hub as a gateway for investments in African private equity and venture capital markets. 

Intercontinental Trust Limited operates in Kenya, Seychelles, Singapore, and South Africa. The firm serves Africa-focused private equity funds with targeted capital commitments of approximately US$ 5.5-billion. 

Article sourced from Frontier's content partner, African Private Equity and Venture Capital Association 

Top 10 African cities of the future

By 2040, Africa will experience faster economic growth than any other region and is expected to have the biggest labour force in the world, according to PwC’s latest Global Economy Watch, which puts the spotlight on the largest cities in sub-Saharan Africa.

As companies around the world look to exploit the widely reported untapped potential on the continent, the question now is, where can one focus if they want to expand their activities in sub-Saharan Africa (SSA)?

Most major corporations are already active in at least one of the four largest cities in SSA – Lagos, Kinshasa, Nairobi and Johannesburg. But, according to PwC economists, it is the ‘Next 10’ biggest cities in the region that should be exciting foreign investors. The population of these cities is projected to almost double by 2030, growing by around 32 million people.

Next 10 biggest cities

1. Dar es Salaam (Tanzania)
2. Luanda (Angola)
3. Khartoum (Sudan)
4. Abidjan (Cote d'Ivoire)
5. Nairobi (Kenya)
6. Kano (Nigeria)
7. Dakar (Senegal)
8. Ouagadougou (Burkina Faso)
9. Addis Ababa (Ethiopia)
10. Ibadan (Nigeria)

Top 3 cities

1. Lagos (Nigeria)
2. Kinshasa (DRC)
3. Johannesburg (South Africa)

The latest UN projections show that by 2030 two of the ‘Next 10’ – Dar es Salaam and Luanda – could have bigger populations than London has now.

Cities are the typical entry points for businesses trying to expand into new overseas markets, because they enable closer interaction with customers in a relatively small geographic space, which in turn helps contain distribution costs.

One of the key factors that drive economic growth is the number of people of working age. PwC expects a bigger and younger urban population to be associated with strong GDP growth. The firm’s analysis shows that economic activity in the ‘Next 10’ cities could grow to about $140-billion by 2030. “This is roughly equivalent to the current annual output of Hungary,’ says Stanley Subramoney, Strategy leader of PwC’s South Market Region

This is a comparatively conservative estimate by PwC that assumes no real exchange rate appreciation despite relatively strong projected growth in these SSA economies.

More people, bigger business opportunities

One of the key factors that drive economic growth is the number of people of working age. PwC expects a bigger and younger urban population to be associated with strong GDP growth. Several trends are responsible for the increasing appeal of the region to international investors. These include high GDP growth rates, rapid urbanisation and the “demographic edge”. Other economic factors are the big new discoveries of natural reasons, substantial investment in infrastructure, sustained growth in per capital incomes and the growing ability of countries to raise project financing on international capital markets.

The three big hurdles 

There are however three problems that could slow the pace at which the ‘Next 10’ biggest cities in sub-Saharan Africa grow, says the report. These are issues that African countries have been trying to tackle for many decades with limited success:

Low quality of 'hard' infrastructure like highways, airports and trains, which increases the cost of doing business, eats away at business profits and discourages investment.

Inadequate 'soft' infrastructure like schools and universities, which could lead to a persistent skills gap that hampers long-term business growth.

Growing pains stemming from the inability of regulators and policymakers to manage effectively a larger and more complex economic system as growth proceeds. These problems could, for example, lead to credit or property bubbles as a result of rapid economic growth, or a failure to tackle issues relating to corruption and excessive bureaucracy that deter international investment.

Looking ahead

The challenges that policy makers face is to convert Africa’s demographic dividend into economic reality by overcoming these hurdles. “History suggests this will not be a quick or easy process. Investors should form their own plans to mitigate these problems by supporting infrastructure skills and development programmes,” says Stanley.

Source: APO

What are the prospects for South African banks?

The fallout from ill-fated unsecured lender African Bank continues. Chief investment officer at Futuregrowth, Andrew Canter, talks about the implications for banking investors in South Africa.

The South African Reserve Bank (SARB) placed unsecured lender African Bank under curatorship on August 10 after it reported major losses and said it needed at least R8.5-billion (US$800m)of capital. A consortium involving South Africa's major banks will inject R10-billion into the embattled bank. Following this development, rating agency Moody's downgraded the credit rating of African Bank's closest competitor, Capitec, by two notches - from Baa3 to Ba2, and also cut the local-currency debt ratings for the country's four biggest lenders.

Andrew Canter, chief investment officer at Futuregrowth Asset Management. He gives his perspective and context to these events below.

After the collapse of African Bank, what are the prospects for Capitec Bank?

While Capitec is facing the same macro-economic headwinds and consumer strains as African Bank, our view is that Capitec is not another “African Bank disaster in the making” for the following reasons:

• Capitec is still first generation owner-managers with their “hands on the tiller”. African Bank’s management (with the exception of the previous CEO, Leon Kirkinis) was largely second or third generation, and the shareholding more widely dispersed. Capitec’s management is more risk averse than African Bank’s.
• Capitec has more honest and robust provisioning for bad debts in their asset book than African Bank had, as well as more conservative treatment of rescheduled loans.
• Capitec had taken the strategic choice to run a service-providing bank and thus has a better customer relationship model, and alternative fee and funding sources.
• Capitec was therefore slightly less driven to chase market share in lending than African Bank.
• Importantly, Capitec’s loan collection model is better than African Bank’s: Capitec generally gets their customers to open bank accounts and deposit their paychecks, while African Bank relied on debit orders.
• It appears Capitec has a less expensive branch infrastructure and therefore has better economies of scale than African Bank.
• Capitec has a reported capital adequacy ratio of 39%, which is considered robust.
• Finally, one can’t help but notice that Capitec’s largest competitor has just been hampered, which should reduce competitive pressures.

Capitec’s institutional funding has an average term of 36 months, and they receive over 60% of their funding from retail deposits: This means the destructive power of nervous institutional investors is muted, but (in a country without deposit insurance) a skittish consumer could cause large withdrawals. We think that is one reason for SARB’s extraordinary and (to our memory) unprecedented public statement of support on the weekend of August 16, 2014 following Capitec’s downgrade by Moody’s.

View SARB statement here.

What are the implications of Capitec’s credit rating downgrade?

We saw the Capitec downgrade as the thin-edge-of-the wedge for all South African banks to be downgraded - Capitec was first merely because of its exposure to the unsecured lending market. The fact is that the African Bank restructuring (bail-in?, bail-out?, resolution?) is a template for future bank failures. The notable points are that:

a) A South African bank has essentially been allowed to fail, and banks in the future will likewise fail. In fact, SARB’s statement said “a bank should be able to fail without affecting the system.”

b) All investors, save for individual/retail depositors, suffered losses. Equity, preference shares, and subordinated debt appear to have been entirely denuded, while senior debt suffered a 10% haircut. The taxpayer, through SARB’s purchase of African Bank’s “bad loan book” for R7bn, is taking risk with capital, but also has a first lien on the “bad” assets purchased for a discount.

Further, it’s noteworthy that the other banks in the system have been tapped to underwrite the equity in the new African Bank: This signals that SARB and the banks all knew the systemic risks of an African Bank collapse.

In short, the perceived probability of default of banks has now de-facto risen, and the recovery rate after default has de-facto dropped. This is a recipe for higher credit risk and rating downgrades.

Was SARB’s response to African Bank appropriate?

Bank failures are not new to South Africa: In a 2012 review, Futuregrowth was able to anecdotally recall over 17 bank failures or near-failures in South Africa during the previous 20 years. But in almost all cases depositors and senior lenders were protected by some sort of bailout or “arranged marriage”. However, once one added the global experience of 2008-2009 and regulators’ response to the massive bank bailouts, the writing has been on the wall: Banks will fail, and governments won’t bail them out.

We think the SARB’s response to the African Bank problem was predictable, well timed, rational, and justified. While it’s unlikely that anyone – SARB or investors – accurately predicted the cascading losses of African Bank, we are conscious that SARB had been monitoring the situation for a long time. Had SARB not stepped in quickly and decisively after the African Bank share price collapse we could have seen:

• African Bank branch closures with immediate job losses;
• An irrational undermining of confidence in the banking system, with accelerating withdrawals from all other banks;
• Chaos in capital markets as players scrambled to manoeuvre in an illiquid, fear-based environment;
• Large withdrawals from money market funds and other unit trusts; and
• A “reverse run” wherein people who have borrowed from African Bank simply stopped paying en-masse, causing even greater losses.

We believe that SARB’s response was the correct balance of timeliness, cost sharing, systemic stability, and loss prevention.

What are the investment implications of all this?

Futuregrowth has been taking a jaundiced view of unsecured lenders and banks for the past few years. Consequently, we have expressed strong public views on a range of related topics, such as the risks to investors of the advent of covered bonds, the unsustainable practices of the micro-lending industry, and the lack of clarity about South Africa’s bank resolution regime.

We have taken the view that the investor market has not been adequately pricing for the evolving risks in this sector. While as a large institutional investor in South Africa it is exceedingly difficult to completely avoid exposure to the banking sector, in order to mitigate risks Futuregrowth has been:

• Keeping clients’ bank exposures shorter-dated (e.g. avoiding bank debt with more than 5 year terms);
• Avoiding bank subordinated instruments (including subordinated debt, hybrids and preference shares);
• Reducing exposure to personal unsecured lenders, particularly African Bank; and
• Allowing such historical exposures to run-down over time.

We will retain this stance until such time as the market re-prices yields for the risks.

While credit spreads on bank debt will widen, the losses will arise only from mark-to-market changes (and not defaults). The scale of potential losses will be much less than the African Bank haircuts and losses.

What other key lessons can investors take away from the African Bank collapse?

The micro-lending industry’s and African Bank’s troubles were visible well in advance, and some portfolio positioning was possible. This case shows that good, forward-looking credit analysis can add value for client funds. Further, the changes to Regulation 28 in 2011 introduced the requirement for a wider range of investment analysis tools, notably environmental, social and governance (ESG) screening which focuses on business sustainability. The practices of the micro-lending industry were visibly unsustainable and that led Futuregrowth to implement suitable investment views. Unfortunate though it is, African Bank’s demise is a strong endorsement for incorporating sustainability screens into investment processes.

How to succeed as a franchisee

Turning a start-up franchise business into a success is tough, but possible. Learn from an expert the keys to striking gold.


By Jeremy Lang

If you’re the kind of guy who likes to go to sleep early, don’t buy a restaurant franchise. I am stating the obvious? Perhaps, but you’ll be surprised how many first-time franchisees make the mistake of buying a franchise that simply does not fit their lifestyles.

In the world of start-up franchising, it can easily be a fatal mistake to make, because there is so little room for error. Very few people who buy their first franchise have the resources for a second chance once they’ve found out that the franchise they had set their heart on is actually not the right fit.

Lifestyle preference is only one of three pillars which prospective franchisees must consider to make sure that the franchise they choose is the right fit for them. The other two are skills and personality.

The skills set of the entrepreneur is the most important. First, there is the technical know-how related to the specific industry, such as a beauty salon or a service station. You’ve got to be able to choose a franchise for which you either have a natural skills set, or one in which you’ve had previous experience in.

Irrespective of the industry, a franchisee will always have to be a jack-of-all-trades to a certain extent - the HR person, the salesperson, the office-manager person and the tea lady, so you’ve really got to have a good general hybrid of skills such as:

• Good management ability, which is the core of what the franchisee is signing up for
• Sales skills, because your whole enterprise revolves around your ability to secure business
• An eye for detail and practical problem solving skills. Because you will be fulfilling multiple tasks in your business, you have to know as much about all the different systems as possible
• Networking and relationship-building skills for forging ties with your clients, staff, suppliers and franchisor, and
• Practical problem-solving skills. You are going to be faced with many challenges every day. You will have to be decisive, and think quickly to find solutions to problems.

This list is true for any start-up business, franchised or not, but there is one set of skills particular to franchising: the ability to follow the rules of the concept. Franchising is a recipe that requires strict adherence by franchisees, otherwise the service or product will start differing from branch to branch, and the collective power of the brand will suffer. If you are not somebody who likes to operate your business under a strict set of rules that you have not created, then franchising may not be for you.

Being a successful franchisee not only has to do with skills, but also with personality. Prospective franchisees need to be honest with themselves about their personality. A generally introverted person should shy from retail or service-heavy businesses such as restaurants. Similarly, a sociable, outgoing personality will become frustrated in a desk-bound business where there is little interaction with clients.

Although nothing can replace common-sense self-knowledge, I would suggest doing a personality test such as the Myers Briggs test, more to help you think through what you already know about yourself rather than teach you about aspects of your personality that you didn’t know.

The unknown usually lies on the side of the franchise. A first-time franchisee who knows himself well could still be in for a nasty surprise when it turns out that the franchise requires an approach, attitude or trait that he simply isn’t comfortable with.

There are two methods of avoiding this mistake. First, speak to the franchisor that you have your eye on. A reputable, established franchise group will have a very clear idea of what kind of personality and skills set are required to make a success of their concept. Some will have formal descriptions and even tests as part of their assessment process.

Most importantly, speak to the franchisees in the group that you want to join. If possible, work-shadow franchisees who are hands-on involved in the management of their businesses for a week or two. The exercise should leave you under few illusions about whether you are up to the task, and whether the work and lifestyle suit you.

Jeremy is regional general manager of Business Partners Limited.

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Below are links to some franchise opportunities on the Frontier platform

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Consumer-facing sectors are proving to be the most compelling for private equity in Africa, as demonstrated by the type of deals in July.

The Abraaj Group invests in Tunisian private hospital

The Abraaj Group announced its funds had acquired a majority stake in Polyclinique Taoufik S.A., the second-largest private hospital in Tunisia with 164 beds.

The investment will help the hospital to consolidate it’s strong position in the market by further increasing patient capacity and adding new services, upgrading and renovating the hospital, and investing in human resources and training.

To implement its growth strategy for Clinique Taoufik, Abraaj will draw on its extensive experience in the healthcare sector, gained from investing in businesses across the Middle East, North Africa and Turkey.

Population growth in North Africa is expected to reach 190 million by 2020, and with life expectancy also on the rise there is potential for further demand for quality healthcare services.

Tunisian healthcare sector made up almost 7% of GDP in 2013.

The investment is the sixth by Abraaj in Tunisia. It’s portfolio includes baked goods company Moulin d’Or; Unimed, a leading player in sterile form pharmaceutical products; and Plastic Electromechanic Company (PEC), which specializes in plastic injection, the assembly of electrical equipment and harnesses, and medical products.

AfricInvest Group and FMO form SFC Finance

AfricInvest Group and FMO (The Netherlands Development Finance Company) are part of a consortium which created SFC Finance, a senior secured lender providing funding for growth or expansion to small and medium enterprises (SMEs) in Africa.
SFC Finance will structure its loans with tenors adapted to the cash generation capabilities of its customers. Shareholders committed equity of US$20-million, alongside an initial US$50-million debt facility extended by the Overseas Private Investment Corporation. 

Debt financing for SMEs in Africa is poor, particularly the lack of credit facilities with repayment schedules that reflect company cash flows, a factor which has inhibited their growth. SFC Finance will address these needs, and also SME governance and environmental and social responsibility.

Amethis Finance announces final closing at US$530m

Private investment fund, Amethis Finance, saw final close of their first fund at US$530-million, which included institutional investors from Europe, US and Africa, together with close to 40 European and US entrepreneurs and family offices. 

Amethis has already made five investments since announcing their first close 18 months ago, in fast -performing companies in Kenya, Ghana, Cote d’Ivoire and Mauritius - in the banking, oil and gas, retail distribution, and logistics sectors. 

The Fund's shareholding structure mixes classical institutional investors (banks, insurance companies, fund of funds) with successful private entrepreneurs from the manufacturing and services sectors who are investing often for the first time in Africa and are looking to know better the continent. It assists its investors in their expansion, notably through co-investments.

Economic models are rapidly changing in Africa, with consumer and retail oriented companies taking advantage of those evolutions. This rapid growth is creating significant capital needs for local companies, and Amethis’ strategy is to foster long-term ties with well-established, high-growth African businesses that need long-term capital. 

Private European and US entrepreneurs and family offices are increasingly investing in Africa, and see the continent as the next world frontier for growth.

DPI and PIC in consortium acquisition of RTT

Development Partners International (DPI), through African Development Partners II, and the Government Employees Pension Fund (GEPF), represented by the Public Investment Corporation (PIC), acquired 80% of the RTT Group, Africa’s largest privately owned parcel distribution company, for an undisclosed sum. Ethos Private Equity leads this consortium.

The investment will expand RTT's offerings, and help to tailor services to specific customer needs.

RTT is a market leader in third-party logistics and distribution, and a forerunner in break bulk and express distribution. The company operates across sub-Saharan Africa, comprising over 120,000m2 of warehousing and cross docking facilities. RTT has a combined fleet in excess of 1,200 vehicles and employs close to 5,000 people. Revenues exceed R2.5-million per annum.

Fusion Capital buys equity stake in Kenya’s first free newspaper

Fusion Capital acquired a 40% equity stake in Xtra Publishing Limited, a free newspaper and digital content company in Kenya. 

Xtra will leverage free print and digital services in an attractive new media hybrid model. The company launched the region’s first free newspaper in March and is already the third-largest newspaper in Kenya. The newspaper will be supported by online and mobile services targeted at the young professional demographic. IPSOS/Synovate readership surveys confirm that the newspaper has secured the young, urban professional readership, providing near zero wastage for advertisers.

The investment by Fusion will be utilized in advancing IT and editorial systems, and for working capital requirements.

Kenya and East Africa is showing encouraging trends in digital news and entertainment dissemination. The statistics show impressive growth with Internet usage having doubled between January 2010 and 2011, from 3 million to 7.5 million users. Usage further increased by another 65% between October 2010 and October 2011, rising to 14.3 million users.

That figure corresponds to over 36%of the population having access to the Internet (WAN-IFRA 2012).

Helios Investment Partners and IFC in US$630-million equity fundraising round for Helios Towers Africa

Telecommunications towers company, Helios Investment Partners, and the International Finance Corporation (IFC) participated in Helios Towers Africa’s latest equity fundraising round, which raised US$630-million in new equity resources from existing and new shareholders.

Existing shareholders including Quantum Strategic Partners, Helios Investment Partners, Albright Capital Management, RIT Capital Partners and IFC, added to their current stakes and are now joined by new shareholders, Providence Equity Partners and IFC African, Latin American, and Caribbean Fund.

Helios also expects to complete negotiations shortly on new and extended debt facilities of over $350-million with a strong syndicate of international and local lending institutions.

Following this latest injection of capital, Helios will have raised over $1.8-billion in external financing since inception in late 2009 to fund acquisitions and organic growth.

The telecommunications towers industry in Africa has huge potential. There is need for 100,000 Points of Service (PoS) to merely satisfy demand for 2G coverage and associated capacity demand over the next five years. This PoS requirement is underpinned further by the growing demand for 3G and 4G data, which is driving the need for significant additional infrastructure capacity and in-fill across the continent.

Helios owns over 7,800 towers in Africa.

Prospects for cement companies in Africa

Free download report: Outlook for the cement industry in Africa

Cement companies are expanding their footprints and investing in more capacity to meet the rising demand for cement in Africa.

In East Africa, old and new players are jostling for a share of the booming market, with Kenya and Tanzania attracting the most interest from investors.

In Southern Africa, cement companies are expanding to take capture growth opportunities in the region's massive pipeline of infrastructure and housing projects.

In West Africa, companies in Nigeria are taking advantage of government incentives to increase cement production.

Imara Securities looked at the sector recently and compiled the cement outlook report that we are now sharing with you.

Download the report  to get comprehensive information on:

• Regional consumption and production trends
• Drivers of consumption
• Opportunities for investment
• Risks for investors
• Top industry players and other Pan African companies to watch

To access this report you must be a Frontier member. Click on this link to sign up and get immediate access.

Visit www.frontiermarketnetwork.com to read some country-specific articles on cement production.

Private equity success story in Botswana

CEO of Venture Partners Botswana, Anthony Siwawa, speaks about the opportunities and challenges in the private equity industry in Southern Africa.

What led you to create an investment firm focused on Botswana? 

I come from a corporate finance background and spent some time investing in private equity in South Africa before moving back to Botswana. We established the business primarily because we saw the gap in capital deployment; 90% of the local capital was reserved for investment in the public market whereas the majority of the capital needed was in the private markets. Botswana had come from 30 years of uninterrupted high growth but investments were primarily in extractive industries. We wanted to channel capital into the fast growing local companies. 

What were the challenges you faced when fundraising for the first time? Do these challenges still exist and what strategies have you developed to overcome them? 

To fundraise effectively we spent a lot of time educating the market, government and regulators, as there wasn’t a strong non-banking regulatory framework. At the same time, the government was evaluating ways to stimulate the local economy, broaden the economic base away from traditional extractive sectors and attract capital from the private sector. 

This culminated in the launch of the CEDA Venture Capital Fund (CVCF) in 2002, which was primarily sponsored by the government of Botswana through the Citizen Entrepreneurial Development Agency. It was a US$40 million fund, which provided venture capital and growth equity financing to indigenous companies in high growth sectors such as manufacturing, retail, agribusiness, and financial services. 55% of the fund was dedicated for venture capital investments and 45% for growth capital investments, with ticket sizes between US$0.5 - 5 million. 19 investments were made through the fund, with 10 successful exits as of February 2014. 

In 2007, we decided to become a regional firm as part of our expansion strategy, after honing our investment strategy on the first fund. We focused on Namibia as it has the largest institutional structure in sub-Saharan Africa outside of South Africa, and there were only subtle differences between the economies of both countries. We were able to successfully raise the fund (approx. US$ 20 million) in 2010 from local Namibian institutional investors, as they saw this as an opportunity to re-invest in private equity, taking cognizance of the regulatory changes with regard to alternative assets as well as the country's need for risk capital. We had also considered raising capital from international institutional investors, but 2009 - 2010 were difficult years for fundraising globally. 

On our latest fund VPB III, we have developed a different fund strategy, which will enable us to list the fund on the Botswana Stock Exchange to attract investors from Botswana, Namibia and South Africa. This gives institutional investors an opportunity to invest in a listed entity (which they are familiar with), while accessing alternative investments. This hybrid model was created in response to local investor appetite. 

Beyond the extractive industries, what makes Botswana and Southern Africa an attractive area for investment? 

Southern African countries are going through significant infrastructure investment, which has driven growth in consumer demand. Hence our focus on primary industry sectors such as logistics, retail, financial services, healthcare and service industries, like hospitality across the SADC region - Botswana, Namibia, Mozambique, Zambia and South Africa

How has the environment for sourcing deals evolved with South African fund managers and companies looking north of their borders to access growth opportunities? 

As majority of our deals are sourced through our local networks, we are seeing some competition for deals, however we also view these companies as potential investment partners, (as they are relatively new to the market) and future exit opportunities. For example, we invested in a local transport and logistics business and then brought in a large multi-national as a partner, and have successfully grown it into a sector leading company.

How do you address the well-documented issues to investing in African SMEs? How do you create value in your investments to maximize your exit potential? 

We’ve found that entrepreneurs and family owned businesses don’t understand the asset class and its value-add, therefore education forms an important part of our investment process. On all our investments, we acquire a significant minority stake, take board seats, establish reporting requirements, instill improved governance procedures and have veto rights on major decisions. It is important to note that a key value addition is developing clear strategies for achieving economies of scale expeditiously, in order to realize value upon exit. 

In addition, we found that constant engagement and proximity to the portfolio company is also key to driving value. To date, the majority of our exits have been strategic sales or sales back to the entrepreneur / founder. 

What is your one key message to the market? 

As investors in Africa, we understand the needs of the local economy. We are primary industry investors and we know where future growth will emerge. These markets require clear, informed strategies that are tailored to the needs of the local economies. Success in our markets is rarely a straight line.

Anthony spoke to Frontier's content partner, the African Private Equity and Venture Capital Association (AVCA)

AVCA promotes and catalyses the private equity and venture capital industry in Africa.