Sir Bob Geldof's latest incarnation says something about Africa's changing place in the world. Not for the first time, the Irish rock star turned campaigner for aid and debt relief in Africa has been seeking to raise as much as $1-billion. This time, however, he hopes to champion investment in a continent that he had tended to portray as a basket case in perennially urgent need of alms.
His transformation into private equity guru has not been seamless. The former Boomtown Rats and Band Aid frontman has struggled since the global financial crisis to raise sufficient financing to close his fund, 8 Miles, named after the distance between Europe and Africa at the straits of Gibraltar. But Sir Bob's journey nevertheless chimes with a turnround in global perceptions.
With many of its 48 economies rebounding from the crisis faster than the rest of the world, sub-Saharan Africa is increasingly viewed as an opportunity rather than a burden. It is rising rapidly up the agenda for global investment managers and is talked about as never before in almost every big financial centre.
For the past few years big names including Jamie Dimon, chief executive of JPMorgan Chase of the U.S., have been popping up in places such as newly oil-rich Ghana. In London, Helios Investment Partners, an investment firm founded by young Nigerians, is poised to close subscriptions to a $900-million fund, so far the largest private equity fundraising exercise to target Africa. This comes as the much bigger Carlyle Group of the U.S. is backing the continent for the first time, setting up in South Africa and Nigeria - the two biggest economies south of the Sahara.
The perception that Africa has reached a turning point - one qualitatively different from previous false dawns - stems from a combination of global and regional circumstance. "If the politics can be managed, there are the talent and resources in Africa for this story to be real," says Michael Turner, managing director in east Africa of Actis, a UK fund backed by pension funds, sovereign wealth funds and international development institutions. "The more people become confident with that idea, so the more the other big players will start to come in, especially now that big US institutions like Carlyle are coming."
Talk about Africa among investors has yet to translate into the kind of inflows seen before the financial crisis. In 2007, the value of stocks traded on the Nigerian exchange was about $70-million a day. The figure today is nearer $18-million.
Large global emerging market funds are not trading African equities to the extent they have done in the past. Private equity activity is picking up but has not yet fully recovered either.
The Emerging Markets Private Equity Association says fundraising for sub-Saharan Africa peaked in 2008 at $2.24-billion. In the first quarter of 2011 it reached only $156-million.
Growth has been spurred by market liberalization and improved public management of finances as well as a boom in the commodities that Africa has in abundance. Perhaps the biggest factor has been the engagement of emerging powers including India and Brazil but led by China. Asian demand for African resources has engendered a revival in the terms on which the continent trades.
Africa has about 10 per cent of global oil reserves, possibly more. South Africa has 40 per cent of the world's gold. The continent has more than one-third of all known cobalt reserves; base metals abound. China in recent years has sources almost half its imports of alumina, copper, iron ore and oil from Africa. The continent's agricultural potential is barely touched.
But the story is no longer just about resources. The commodity price surge has coincided with the rapid expansion of banking, telecommunications and other services formerly weighed down by the dead hand of the state. This and the sluggish pace of recovery in the developed world have encouraged investors from elsewhere, including Europe and the U.S,. to look at Africa with different eyes.
"GDP was 2.9 per cent during the crisis and is now back at 5.5-6 per cent. If you look at the demographics, the resource endowment and improved policy environment, Africa looks like an attractive investment destination," says Graham Stock of Insparo Asset Management, a London-based hedge fund. "By contrast, the picture in the developed and other emerging markets does not look as rosy."
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