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KR – 201109 - 1

- Research Paper –

Francophone Africa: the untrue Private Equity investment black hole

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About Kusuntu

Kusuntu-le-Club is an Africa Diaspora executives and sympathizers partnership set up

with the ambition to act connecting worldwide capital to frontier market economies, especially Africa.

Kusuntu-le-Club aims at providing leadership thought and act to promoting change and

development in Africa through private equity investment. Kusuntu-le-Club behaves as a

Think Tank and advocacy group to promote Private Equity investment in Africa. It action

take various forms such as public position taking, research publication, social networking or edition of an African Private Equity Directory.

Contact : info@kusuntu.com

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Francophone Africa: the untrue Private Equity investment black hole …

The African private equity asset class gets to a light in recent years with series of deals, being exits as the Celtel US$ 3.4 bn deal in 2005 or even breaking fund raisings such as the recent closing of Washington based Emerging Capital Partners 7

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funds with US$ 618 million in 2010 or the more recent London based Helios US$ 900 million. Next to this, Africa has spotted into the worldwide investment radar screen. Arguments for this have been notably, the China and others emerging markets interests on the black continent and the successful achievement of the 2010 world cup in South Africa, which has brought back Africa to the worldwide economic scene. However, from the perspective shown within articles, surveys from International consulting firms or professional commentators, the investment activity has concentrated to the Anglophone Africa, leaving the perception that the francophone states were out of the nascent game. As many perception situations when it comes to Africa, is this the reality or another face of the global African business misperception?

First, reviewing countries that make up the Francophone Africa, it is of good study to identify those specific ones that create economic traction and why, especially looking at how they compare to private equity well known countries like Egypt, Kenya, Nigeria and South Africa. Secondly, the African private equity deals story might be a good indicator to confirm or not such a perception. Finally, some perspectives will has to be drawn on expectations for more private equity activity within the Francophone Africa. As many Africa exists as countries on the

continent, the francophone Africa could be described as four diverse groups (see Table 1). Each of these four francophone Africa has common and specific business dynamics and none of these countries have been absent from the overall economic progress witnessed in the recent years, nor the private equity activity, but at a very different magnitude. Economic indices explain country attractiveness to private capital Elements for strong country attractiveness have been identified in a recent university research as a combined index of 1) Economic Activity, 2) Depth of Capital Market, 3) Taxation, 4) Investor protection and corporate governance, 5) Human and Social Environment, and 6) Entrepreneurial culture and deal opportunities

2. Taking some proxies such as GDP, GDP growth, Doing Business Index,

Diversification and Competitiveness indices, Basic Education and Demographic Indicators developed by the World Bank, the OECD and the African Development Bank, there are clear advantages for Anglophone countries on the others (see table 2).

1 Rwanda has turned from French as official language to English. For the purpose of this article and given the number of people that speaks

French, we have counted this state as FR-Africa 2 Alexander Groh, Heinrich Liechenstein and Karsten Lieser in « The Global Venture Capital and Private Equity Country Attractiveness” –

2011 edition

Table 1 - The four Francophone Africa a) The North African French speaking countries (the Maghreb), b) The West African French speaking countries, all sharing, but Guinea, the same currency and many common points on their business code – the West Africa Economic and Monetary Union Countries or WAEMU, c) The Central African francophone countries, that also share same currency and business code while linked into an economic union, the Central Africa Economic and Monetary Community - CEMAC and, d) The other francophone countries, that is very diverse and taking together states like The Democratic Republic of Congo, Rwanda

1, Burundi, Djibouti, Madagascar, the

Comoros, to some extend Mauritius and the Seychelles, as well as and the French territories of Mayotte and La Reunion.

SOUTH AFRICA

SWAZILAND

LESOTHO

SIERALEONE

Private Equity Activity HighMedium Low

Source : Kusuntu-le-Club Research Jan. 2011

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Regardless of recent political troubles or unrests, data shows on the north Morocco and Tunisia, on the south of the desert, Cameroon, Côte d’Ivoire, Madagascar, Mali, Rwanda, Senegal as places for major private equity potential, although at a lesser extend to what does already exist in neighbouring states Ghana, and Kenya, not to mention giants Egypt, Nigeria and South Africa. And this reflects in where are seen the main private equity transactions within the Francophone Africa (see table 4). Table 2 – Comparing key leading countries – FR-Africa / EN-Africa / Other Region Country Population GDP Growth Rate

(Inflation rate)

Doing Business

Rank3

Mo Ibrahim4

Rate (Rank)

North Africa Morocco 31.285.174 145.60 4.9 (1.2) 114 56.57 (13)

Tunisia 1.0486.339 86.35 3.0 (3.7) 55 62.12 (8)

West Africa Cote d’Ivoire 20.617.068 35.86 3.8 (1.0) 169 36.83 (44)

Mali 13.443.225 15.70 4.4 (2.5) 153 52.94 (19)

Senegal 13.711.597 22.38 1.7 (-1.0) 152 56.32 (14)

Central Africa Cameroon 18.879.301 42.85 0.9 (2.01) 168 44.23 (34)

East Africa Madagascar 20.653.556 20.15 -1.0 (9.0) 140 48.74 (28)

Rwanda 10.74.311 11 4.5 (10.4) 58 47.17 (31)

Benchmark

Countries

Egypt 78.866.635 470 4.7 (11.8) 94 60.46 (9)

Ethiopia 85.237.338 77.40 8.7 (8.5) 104 43.52 (35)

Ghana 23.887.812 35.83 3.5 (19.3) 67 64.61 (7)

Kenya 39.002.772 62.56 2.6 (9.3) 98 50.53 (26)

Nigeria 149.229.090 339 6.1 (12.4) 137 43.25 (37)

South Africa 49.052.489 505.30 -1.8 (7.1) 34 71.45 (5) Data Source: African Economic Outlook – OECD AfDB end 2010

Deals pipeline and it potential are actually more robust than thought Data from the Emerging Market Private Equity association reveals from year 2008 up to 1

st half of year

2011, 30 private equity investments in the francophone Africa (FR-Africa), where the English speaking countries (EN-Africa) report 147 deals, with 67 deals allocated South Africa only, 31 to Nigeria and 23 to Kenya. Detail review for EMPEA data on Francophone Africa indicates 4 deals each for Cote d’Ivoire, Madagascar, Morocco, Togo and Tunisia, with one Togo deal going into a bank holding platform to fund 3 new subsidiaries across Africa

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There are some factors that explain the limited strength of private equity activity within a region vis-à-vis the others. As do the English speaking countries in Africa with the Great-Britain, Francophone Africa shares a lot with the former ruler France, notably business practices and, the delay in private equity development. More into the details, corporate development funding overreliance on bank loans that equity capital as well as a business culture of secrecy where financial and management information provision is very conservative. For long time, business development has been the privilege of the government with a so-called “state capitalism”, with commerce and distribution being handled by local branches of non African multinational companies such as Unilever or CFAO. Former British colonies at the contrary have historically been geared to more entrepreneurialism and use of equity financing,

3 State ranking provided by World Bank review of ease of doing business across it 183 member states

4 Mo Ibrahim index is an average rate on 100 which allows ranking of African 53 states on overall governance

5 It has to be noted that number of transactions overall is greater as there are limited transactions data disclosed on African private equity –.

For the consistency of the diagram and presentation, this statistics reflects data provided by EMPEA Research. For the same period of time,

supplementary data collected from press articles and Private Equity Fund managers’ website, deal flow for the Francophone zone only is 70,

as listed in Table 4. And this probably underestimates the real figure.

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even with local entrepreneurs competing against multinational companies or being hired by them to develop the activities. From these different inception or situation, naturally highest number of private initiatives in the Anglophone Africa has called for higher search for entrepreneurial and equity financing, which in return yields today to a higher number of private equity teams establishing themselves to support the renewed economic vitality. However, this situation does not mean Private Equity business is neither weak in Francophone Africa nor limited. Many changes since accession to free sovereignty have been a catalyst for more business culture. In recent years, first have been the economic reforms that are taking place with a greater recognition of private business – but for many professionals, more need to be done. Second, - and this is encouraging - generation of graduates are looking to create their businesses as mean to be part of the development game and create value, jobs and wealth. Third, easy access to information worldwide, accelerates generation for ideas that are quickly been turned into action. In summary, the culture of entrepreneur that is propagating worldwide reaches as well Africa and especially the former colonies of France. More Fund Managers in activity than thought The English speaking countries business culture largely explains the highest number of locally domiciled Private Equity firms, so do the size of markets such as Nigeria, Kenya, and more specifically South Africa. It is nevertheless interesting to compare both speaking zone activities in Africa. Situation contrasts in Anglophone Africa from many locally based teams, executing many small to big size and cross regional deals, to few, not necessarily locally based teams, executing few much localized large deals in Francophone Africa. Private Equity Funds Managers active in the region include both domestic firms, raising money to invest locally (single country or region) and, international firms allocating funds to Africa. A good number of the locally domiciled firms are similarly to the others region, first time fund managers. They are the Senegal based Advanced Finance Investment Group (AFIG), Malimbe Capital, recently established in Mali and in the UK, currently raising it first funds, and, SINERGI SA, based in Niger. Established local firms also exist across the region, with more than a decade impressive track record for some of them. The extent to which they are known is variable. Among them are the Morocco based Capital Invest, the Tunisia based Tuninvest-AfricInvest Group, the Togo based Cauris Management, the Cameroon based CenaInvest and on the eastern side, Madagascar Development Partners that recently leads formation of a domestic private Equity Association. Equally, some initiatives have failed International names present on the continent do not overlook the Francophone Africa. If it is thought be the case, probably this roots it cause with the prism used to read African stories, giving more attention to either one region or the other, depending each other of it own origin. Transaction records indeed demonstrate quite a strong presence of the Washington based ECP, London based Actis or Aureos (table 4). Finally, reviewing General Partners that are on the continent, it is worth to mention cross-zone initiatives whereby actors established in Egypt, South Africa or outside the continent enter the Francophone zone. Among them, the US based Thousand Hill Fund which focuses on Rwanda, the France based companies such as I&P Management or Horus Development Finance, the Switzerland based Vital Capital, or firms based in Africa such as Fanisi Capital, Citadel Capital, etc. Table 3 – Firm raising fund to be invested in Francophone Africa Manager GP domicile Country Countries of Investment Fund Target

Fund Size mn$

Status

Advans SA (Horus Development Finance)

France/Luxembourg Advans Sicar II 60 (45m€)

AFIG Senegal WAEMU + CEMAC + Guinea

Atlantic Coast Regional Fund

150 First closing at 72m$

Cauris Management Togo WAEMU + Guinea Cauris Croissance II 90 (60m€)

First closing at 45 m€

I&P Management France WAEMU + CEMAC + Guinea

Malimbe Capital UK / Mali Mali Mali SME Fund I 20 Raising Fund

Salt Capital Partners UK/France Raising

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Fund

XSML/CenaInvest Netherlands Cameroon, Chad Central Africa SME Fund

25 First closing

Data Source: Kusuntu Research

Two different business dynamics leading to two different private equity models Development routes taken by Francophone Africa could be described as a “Capacity and Infrastructure building based”, led and organised at the level of the states, while the Anglophone Africa approach is more private business driven, with private initiatives leading the state to adjust the required infrastructures or capacities. As such, Private Equity firms in Francophone Africa are active in those sectors that could form infrastructure platform for economic development such as mining, energy, financial services and telecom. Other sectors that are looked at are: the food and agriculture transformation industries, healthcare, pharmaceutical and drugs distribution. Transaction history often shows that those investments to a large extent are acquisition deals from foreign direct investors (buy out or expansion) and to a very little part, companies taken back from the states (privatization). This situation generally leads to transactions that size above US$ 1 million to often multiple of US$ 10 million. And, increasing number of actors have also started looking at Francophone Africa, not necessarily on the expansion or buy-out segment but as SME venture capital provider, this is the case for example of I&P Management which usually funds SME creation initiatives by Diaspora returning home. A future full of potential for Private Equity The Francophone Africa has good prospects for more private equity. Attention is coming either from more informed entrepreneurs no more shy to open their capital and welcome GP’s as strategic and technical partners, or from the very specific deal sourcing style where GP’s approach firms to reveal them their potential to grow into regional champion. To date, private equity transactions compared to the size of country GDP or overall impact on jobs creation and GDP growth has left Anglophone countries at the forefront of this industry in Africa. As private initiatives develop in Francophone Africa, one could expect that the delayed zone will converge quite rapidly. Catalysts to this process are greater liberalization, ease of doing business reforms but also brain gain. Because of an increasing attractiveness, funding initiatives will certainly increase from the noticed economic vitality, and this is seen from those many diaspora financiers or former DFI’s executives visiting LP’s to market dedicated funds creation for the Francophone Africa. Money exist worldwide looking for great return, it is a question for the Francophone African market to attract it.

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Table 4 – Sample list of key transactions in Francophone Africa between year 2008 and year 2011

Country Fund Manager, Co-investors Company Name Sub-Sector Investment Date

Algeria Emerging Capital Partners (ECP) Shoresal Real Estate June 2009

Swicorp Petroser Oil & Gas October 2008

Tuninvest-Africinvest Group General Emballage Wood & Paper Products June 2009

Benin Emerging Capital Partners (ECP) Financial Bank Banking January 2010

I&P Management France Bhelix Construction Year 2009

Carotech Benin Construction Year 2009

FINADEV Benin Financial Service- MicroFinance Year 2010

Nomad Distribution Year 2009

Benin/Chad/Guinea Emerging Capital Partners (ECP) Finadev Banking - MicroFinance January 2010

Burkina I&P Management France ACEP Burkina Financial Service- MicroFinance Year 2009

Cameroon Horus Development Finance France Advans Bank Cameroon Financial Service- MicroFinance Year 2009

I&P Management France GENEMARK Pharmaceuticals Year 2008

LOOP SA Optical Year 2008

Sagex Agroindustry Year 2009

Tuninvest-Africinvest Group Reef Hout Timber August 2009

Chad I&P Management France FINANDEV Tchad Financial Service- MicroFinance Year 2010

Congo Horus Development Finance France Advans Bank Congo Financial Service- MicroFinance Year 2008

Congo Dem.Rep. Actis Copperbelt Minerals Extractive Industries (Mining) July 2008

Trans-Century Limited Cableries du Congo SPRL Industrials & Manufacturing March 2010

Cote d’Ivoire / Guinea Cauris Management SwindevCo Telecom Year 2009

Cote d'Ivoire Cauris Management Planor Capital – MTN Telecom Year 2009

Emerging Capital Partners (ECP) Finagestion Infrastructure July 2008

La Nouvelle Societe Interafricaine d'Assurance Participations SA (NSIA)

Insurance December 2008

Thunnus Overseas Group Food & Beverage October 2008

I&P Management France Afrique Emergence Initiative Financial Service- MicroFinance Year 2008

Cofipeche Food Year 2009

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Country Fund Manager, Co-investors Company Name Sub-Sector Investment Date

Vue et Vision Optical Year 2009

Horus Development Finance France Advans Bank Cote d’Ivoire Financial Service- MicroFinance July 2011

Kingdom Zephyr Africa Management Thunnus Overseas Group Food & Beverage December 2008

Tuninvest-Africinvest Group Alios Finance Financial Services TBC

CDCI Distribution & Retailing TBC

Petro Ivoire Energy TBC

Planor Capital – MTN Telecom TBC

Djibouti Emerging Capital Partners (ECP) Salt Investment Mining July 2008

Madagascar Hony Capital Madagascar Wisco Guangxin Kam Wah Resources SA (MWG)

Extractive Industries (Mining) July 2011

I&P Management France Phileol Agroindustry Year 2009

Madagascar Development Partners LLC

BICM (Banque Industrielle et Commerciale de Madagascar)

Banking November 2009

CAM Aviation / Sky Services Services January 2010

Madarail Development SA Infrastructure July 2008

Tuninvest-Africinvest Group Microcreed Madagascar Financial Service - MicroCredit TBC

Mali I&P Management France Trainis Eductation Year 2010

Mauritania Emerging Capital Partners (ECP) Bacim Bank Banking April 2008

Morocco ALMAMED (Almal Meditterrannée Invest)

Alma Bat (ex Car & Automotive furnitures March 2010

Alma Pack (ex Nordenia Morocco) Packaging March 2010

Alma Plast Packaging October 2010

Amundi Alkantara Emteyco SA Telecom furniture March 2009

Oksa Maroc Metrology TBC

Atlamed SA Intex Compagnie Industrial construction February 2010

M2T Electronic banking November 2009

Emerging Capital Partners (ECP) Almes Engineering & Construction July 2009

Compagnie Miniere de Touissit Extractive Industries (Mining) January 2008

Finaccess Group Information Technology April 2009

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Country Fund Manager, Co-investors Company Name Sub-Sector Investment Date

Kingdom Zephyr Africa Management Mixta Africa Engineering & Construction March 2009

Niger I&P Management France CAT Logistics Logistics Year 2010

Rwanda Altira Group Banque Rwandaise de Developpement S.A. Banking & Financial Services July 2008

Societe Monetique at de Tele-Compensation au Rwanda (SIMTEL)

Technology July 2008

Senegal Aureos Capital Les Ciments du Sahel Industrials & Manufacturing February 2009

Emerging Capital Partners (ECP) Teranga Gold Mining April 2011

I&P Management France Duo Pharm Pharmaceutical Year 2010

Equip Plus Construction Year 2009

Togo AFIG – Advanced Finance Investment Group

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Ecobank Transnational Incorporated Banking July 2010

Cauris Management Banque Populaire pour l’Epargne et le Crédit Banking Year 2010

Socopharm Pharmaceutic distribution Year 2010

Sodigaz Energy Year 2009

Emerging Capital Partners (ECP) Financial Bank Group (now Oragroup) Banking August 2008

IFC Asset Management Company (AMC)

Contour Global Energy June 2010

Ecobank Transnational Incorporated Banking July 2010

Tunisia Actis Poulina Group Chemicals & Industrial Materials August 2008

Amundi Alkantara Opalia Pharma Pharmaceuticals October 2009

Emerging Capital Partners (ECP) Societe des Articles Hygieniques (SAH) Industrials & Manufacturing May 2008

Islamic Investment Bank Artes Automotive May 2008

Data Source : Kusuntu Research & EMPEA data

6 Transaction into ETI the holding structure of Ecobank for funding subsidiaries in Chad, Liberia and Rwanda, therefore could be allocated back to those countries