The Next 3 Decades Are Africa's: Citadel Capital
Over next three decades, Africa will flourish on the back of improved governance and political stability, the chairman of Citadel Capital, Africa's largest private equity firm told CNBC, arguing that now is the time to invest in the continent.
"This is a great time in history to start investing in Africa. You have the entire continent which is open to you, very little competition, a political environment that is better than it was 20 years ago, and it will get better," Ahmed Heikal said in an exclusive interview with CNBC's "Access: Middle East."
The continent has long been touted for its abundance of natural resources and favorable demographics, but the rise of improved governance was the game-changer.
Europeans and Americans were not accustomed to those types of risks, he said. "If you want to invest in a very low risk environment, come and buy Swiss T-Bonds".
"Africa has improved tremendously along this third dimension and it is what is getting the world to take notice," he said.
Heikal identified the best risk-reward trade-offs in Ethiopia, Nigeria, Egypt, Kenya and Tanzania. Florence Eid, CEO at Arabia Monitor, told CNBC that understanding local circumstances was key to success.
"There are some countries that are mineral and petrochemical-backed, others that have demographics that are very favorable and therefore sectors like agriculture are important opportunities".
As the scramble for investments in Africa intensifies, there are wider concerns about practices. Oxfam International described the land grab underway in Africa as out of control, "leading to disastrous consequences for poor communities". But Heikal defended his investment in Southern Sudan, which "hardly qualified" as a land grab. The company was using local labor to produce for local consumption. Private equity players, in his view, were part of the solution as opposed to the problem.
Heikal admitted corruption was still frequent, but insisted companies could do business without paying bribes, and had himself walked away from opportunities in the past. There was also additional pressure to conform to guidelines outlined by the funding parties of Citadel Capital's investments. Described as a "triple combo", they consist of sovereign wealth funds (SWFs), export credit agencies (ECAs), and development finance institutions (DFIs) such as Germany's DEG.
"They would not touch somebody who is perceived to do something wrong"
One of the main players in Africa today is China, driven by a hunger for natural resources. Heikal was certain the burgeoning Chinese investment boom on the continent did not equate to other powers losing ground.
"That's a perception. It's just that it used to be that the Chinese were not there. Now they are there, people have started to take notice," he said. "Falling behind? Far from it."
Meanwhile, the firm's home turf of Egypt is still embroiled in political uncertainty, but according to Heikal the incumbent Muslim Brotherhood administration were "clearly pro-market" despite the occasional rhetoric. After waiting over eight decades to come to power it would be unfair to expect the government to initiate economic reforms at a high political cost. With political consensus however, there was no reason why Egypt could not follow in Turkey's footsteps towards a swift recovery to economic growth and prosperity.
Citadel Capital, with close to $10 billion in assets under management, has one of the "most diverse investment portfolios among private equity players", but is exposed to a high risk premium, Allen Sandeep, Director of Research at Naeem Holding, told CNBC. Listed on the Egyptian exchange, the company's stock has gained 37 percent over the past year.
This week on Access: Middle East: An exclusive interview with the chairman of Citadel Capital, Ahmed Heikal. Tune in to catch his views on managing risk in Africa, the Egyptian economy, and implications of US energy independence.