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Net Net: Promoting innovation and managing change

Private equity's growing play: Africa

A worker scans a product in Lagos.
Pius Utomi Ekpei | AFP | Getty Images

Africa's rapid economic growth has lured top American private equity firms to invest in recent years, including the Carlyle Group, Blackstone, KKR and PineBridge Investments. While the continent represents a sliver of their overall investments, there's likely much more to come.

"We're not even in Chapter One of private equity in Africa. It's more like the prelude," David Marchick, global head of external affairs at Carlyle, said during a panel discussion Monday night in New York. "We hope all the major firms will be there in five to 10 years."

That optimism was not diminished by the recent terror attacks in Nairobi that killed dozens; Marchick and others at the Africa-focused event did not bring up the shootings.

Carlyle launched a sub-Saharan Africa fund in 2012 based out of Johannesburg and Lagos, Nigeria. The fund, which focuses on buyouts and minority investments, partnered with The Pembani Remgro Infrastructure Fund and Standard Chartered Private Equity in November 2012 to invest $210 million in Export Trading Group, a Benin-based agricultural supply chain business.

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African countries have average economic growth that Americans and others would love. The International Monetary Fund projects gross domestic product growth of 5.1 percent in 2013 and 5.9 percent in 2014. That compares to global averages of 3.1 percent and 3.8 percent, respectively.

Blackstone has been in Africa for nine years, focusing on large energy project development—and more is planned.

"Being there early in many of these countries with transformative projects ... will then position us well to try and understand the economies on a go forward basis," said Sean Klimczak, senior managing director in Blackstone's PE unit, during the same panel hosted by PricewaterhouseCoopers and the Foreign Policy Association.

Klimczak said the energy investment thesis was obvious. Africa's electricity grid is the size of Spain's, but it serves 20 times more people, he said, and debt to gross domestic product ratios were low compared to the U.S. and others. In other words, there's tremendous demand and the money to pay for it.

Blackstone was the lead investor in the Bujagali Hydroelectric Power Station in Uganda, which was completed in 2012. Blackstone, through its Sithe Global unit, put up $116 million to build the $900 million dam, which dramatically increased electricity in the country.

Blackstone also invested in Kosmos Energy to fund oil and gas exploration off the coast of Ghana. Kosmos went public in 2011. And Blackstone plans to invest in hydroelectric plants in Tanzania and Rwanda, according to a Bloomberg report.

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Private equity firms invested $850 million through 36 deals in sub-Saharan Africa in the first half of 2013, according to a review by the Emerging Markets Private Equity Association. That's growth of 6 percent in the number of deals and 45 percent in capital over the same period in 2012. The largest was by London based PE firm Warburg Pincus, which invested $600 million in Kenyan oil and gas firm Delonex Energy.

As of 2011, only about 1 percent of all U.S. foreign direct investment went to sub-Saharan Africa. Most of that is concentrated in mining and extractive industries--about $33 billion of the $57 billion total, according to a November 2012 government report.

Others at the event Monday, titled "Game On: Private Equity Investment in Africa," were similarly bullish.

Hurley Doddy, founding partner and co-CEO of $2 billion Africa-focused PE firm Emerging Capital Partners, said his seven funds average 2.4 times returns on their exits. Washington-based ECP has made about 50 investments across 40 countries in Africa since 2000.

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And Kola Olofinboba of fund of private equity funds Fairview Capital Partners said more institutions were interested in Africa but needed intermediaries like Fairview to do the manager and investment selection. Olofinboba leads the African practice at the $3.4 billion firm.

"There's a sense that this time is different. Something is happening—a significant structural shift," said Olofinboba, whose firm has done PE in Africa since the mid-1990s. "We think the opportunity is still very early. For those who get in now, the windscreen is a lot brighter than what you see in the rearview mirror."

By CNBC's Lawrence Delevingne. Follow him on Twitter @ldelevingne.


This version deleted an incorrect reference made by Sean Klimczak that about 10 percent of Blackstone investors are African. A Blackstone spokeswoman said Wednesday that "much less than 10 percent" of its investors are African.