Private Equity Group Carlyle Group Expansion in Africa

Just over a year ago the Carlyle Group, a US-based private equity firm, entered Africa and opened offices in Johannesburg and Lagos. During a panel discussion earlier this week, Marlon Chigwende, managing director and co-head of the Carlyle Sub-Saharan Africa Fund, discussed whether he thought the continent would deliver on its promising growth potential for investors.
“I think that is the multibillion dollar question,” said Chigwende. “The historical growth over the last ten years has been very strong; only India and China have grown faster than us. Looking forward it is projected to continue to be strong. I think only China is projected to grow faster than sub-Saharan Africa as a region… But I think there is a clear gap between perception and reality, particularly when it comes to risk and investing in Africa. Clearly there is risk on a pan-African basis but the question is: is the risk as high as investors on a global basis currently perceive? I would like to make a sweeping generalisation saying that the risk premium that has been required of Africa in the past is reducing. I still think that we are very much, as a continent, in delivery mode.”
“When you speak to international investors, there is a lot of interest in the Africa story but there is also a lot of caution,” continued Chigwende. “Typically people are starting to get the message that most of the economies now are actually growing relatively quickly compared to a lot of our global peers but there are still one or two countries that cause international investors room for pause and room for thought. I do think that will change over the next five to ten years but it’s very important that the strategies that we currently implement … really do deliver for our investors over the next five to ten years.”
Chigwende said that there wasn’t much difficulty in setting up their offices in South Africa and Nigeria and referred to the decision as a “no brainer”. “South Africa and Nigeria is just the start. Together they are roughly 50% of sub-Sahara’s GDP and so those are natural places to start. I would say they also act as a hub in terms of regional economic activity – so South Africa obviously in Southern Africa and Nigeria in West Africa.”
But the Carlyle Group is also planning to expand to East Africa, with their eyes on Kenya. “I would say East Africa is a crucial market for us and it has taken a lot of our focus in the last 16 to 18 months or so. I think it’s one of the more integrated markets on a pan African basis,” said Chigwende. “One has to be careful when one talks about sub-Saharan Africa because you are talking about many different countries so you need very specific strategies by regions and actually by country, so it varies hugely. While I think the macro numbers are very good and very positive and they are very good tailwinds, one has to be very specific and focused on a country by country basis, specifically within East Africa. I wouldn’t say we prioritise one country over another. Typically as investors we will look to the larger economies. The largest economy in East Africa is clearly Kenya so that’s a key focus for us, but equally Tanzania, Uganda and some of the other countries are as important for us.”
Chigwende said that the quality of the growth seen across Africa was what prompted the decision of the private equity firm to enter the continent. “I would say the Carlyle entry into Africa is really a story about growth. If you look at the growth rates across sub-Saharan Africa over the last ten years or so, the average growth rate in terms of real GDP has been 6% per annum and when you look at that growth, the quality of that growth is really what has attracted us as a global institution to set up our pan-African fund. Two-thirds of that growth has come from increasing domestic consumption. So as economies grow there is more money in pockets of consumers.”
Nigeria’s growing consumer base and the need for retail infrastructure is of particular interest to the Carlyle Group. “It certainly is an opportunity for private equity… when you look at the size of the country and the size of the population, and then the growth rate that Nigeria is currently experiencing, you then ally that to the infrastructure… the biggest, single challenge in my view to growth in Nigeria,” explained Chigwende.
“One could, and we have, looked at this in many different guises. If one could improve or increase the number of shopping malls and places where consumers could go and shop, I think that is a fantastic opportunity and that is exactly the sorts of things that we see and are looking to potentially invest in,” he added.