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KITE Invest meets the African Private Equity and Venture Capital Association

KITE Invest recently had the pleasure of interviewing the CEO, Michelle Essomé of the London-based African Private Equity and Venture Capital Association (AVCA). Essomé, boasts a powerful career track record having worked for some of the largest names in the finance sector, including Merrill Lynch, Goldman Sachs and JP Morgan to name a few. As the CEO of AVCA, Essomé is leading the way in promoting, developing and stimulating private equity and venture capital across the entire continent of Africa. With over 200 members, the Association represents an industry that manages over $25 billion in assets across 54 countries. Also joined by Ponmile Osibo, the Head of Research, the interview addressed some of the challenges AVCA has dealt, especially in terms of the perceptions of Africa. We also discussed how there are vast opportunities and real excellence taking place across the continent, and ultimately, as Michelle pointed out, “if you want economies to grow, then you have to move away from aid and towards attracting more FDI”.

KITE Invest: We would like to start the interview by talking about the investment climate in Africa, as experts on Africa, have you seen the investment focus shift from the usual suspect, South Africa, to new destinations throughout the continent?

AVCA: People do not know what to make of the continent. It’s not somewhere that the average person goes to on holiday or will emigrate to for work, outside of the philanthropy and charity sector. So it is very hard for the average citizen to associate with the continent of Africa that has 54 countries and thousands of languages, as a key investment destination. This is part of what we are trying to change here at AVCA.

What we think is really exciting about the opportunities on the continent is that which is underpinning growth. For instance, investors are trying to capitalize on are the consumer story. As the middle class is growing, they are making more money and putting more money into circulation, which has a really positive circular effect. Second, people are also returning to Africa. Africans who have been educated and spent part of their careers in Europe, the US or other places are coming back.

Third, by focusing more and more on this growing middle class, there is a whole plethora of opportunities within infrastructure, telecoms, financial services, agriculture, consumer goods or retail goods.

We will say though that it is still an emerging market. Even in the countries where there is more private equity or private investment opportunities than others, it is not easy and it shouldn’t be. It’s a frontier market.

KITE: You referred to different investment opportunities and economic sectors that are presenting great return on investment to those in the international investment community. Can you highlight any specific countries within the African region you may think are presenting great opportunities?

AVCA: The continent of Africa is very diverse, so if you split it into north, east, west and south, there is always one main major economy in each region. What we have found is that we see fund managers operating across all the different countries, even from post-war countries like Sierra Leone, Liberia, Central African Republic. These fund managers are comfortable working there because they understand the market; they have experience working in those sorts of countries, either in other emerging markets or in Africa itself. Whereas, those who are maybe new to Africa, they would obviously look to target Nigeria, Kenya, and before the Arab Spring, Egypt.

KITE: Turning to AVCA, with its presence in Africa over the past 12 years, we would like to know what have been some of the main challenges that your Association has faced?

AVCA: The main challenge has been changing the perceptions around Africa and the investment opportunities. I think that it is still a challenge, but it is lessened day by day, because people are awakening, looking for investment opportunities outside of the norm. I think that the greatest challenge for AVCA is to be able to produce more research pieces that debunk these myths.

I think communication plays a very key role in changing perceptions. We have found that Africa being spoken about in a positive light by putting out research in international and local media truly begins to change the perception.

KITE: All but two of Africa’s countries were colonized. How do you see the progression and separation of these African countries away from past colonizers?

AVCA: It’s true; the first African country that got independence was Ghana in 1957 and probably, South Africa could be counted as the last in the 1990’s to leave a majority rule or shared power. I think in a short time period though – if you will – the continent has come a long way. If you look at the leadership, and I mean in a governmental way, for example the Nigerian Finance Minister who was the Vice President at the World Bank and was educated at Harvard and Yale to Lamido Sanusi, the Central Bank Head in Nigeria who reformed the banking sector, there is a lot of excellence, African excellence. If you want to grow economies, then you have to move away from aid and towards attracting more FDI.

KITE: AVCA has signed a Memorandum of Understanding with the British Venture Capital Association. How do you value the UK’s commitment into Africa’s growth in the 21st century?

AVCA: I think it is really exciting to have a partnership. The United Kingdom is significant in Africa, with a large portion of African countries being Anglophone, and therefore, there are historical ties, similarity in terms of rule of law, language, jurisdiction, and also from a proximity standpoint the UK is very close. The MoU was signed in 2011, in the presence of the UK prime minster David Cameron.

Over the past decade or so, the UK has been and still remains one of the top ten FDI investors into Africa. Showing that the UK Government has the commitment to keep investing in Africa, and I think we will see that relationship to continue to grow and strengthen over the years.

KITE: In the countries that are presenting less activity in terms of private equity, how do you help to stimulate greater private equity in the coming years?

AVCA: Everything we do is on a pan-African basis, and through a pan-African approach we look to connect with pension funds, fund managers, regulators and lawmakers in those counties to ask for their input on what we are doing.

To further clarify, the majority of what our private equity investment professionals are financing is growth capital / development capital; and in some sectors and regions seed and venture capital.

KITE: Private equity firms primarily tend to invest in what is their “comfort zone”. In terms of African private equities do you see them being interested in expanding their investment reach to Europe or other parts of the world?

AVCA: Not directly, because Africa is still such an emerging market and the GDP growth rates are so strong, you do not have African fund managers looking beyond the African borders. Of course, there have been instances of when a country has such a strong product or services that they are now selling to Europe or the US as seen in the telecom industry or flour, coffee and cocoa industries of East Africa.

KITE: At the beginning of the interview we were talking about the importance of communications in changing the perception of the international investment community. In line with this, we know that AVCA’s Annual Conference is coming up, an event that in the past that has attracted 400 delegates from 30 countries. How would you say that these conferences help to address and change the perception towards the African continent?

AVCA: AVCA has been holding conferences that are held each year in a different country in Africa since 2000. Effectively, it is about bringing people together who have been investing on the continent for a long time, such as development finance intuitions or fund managers or foundations or wealthy families, in order to talk about what are the obstacles and challenges and investment opportunities and how to continue to grow the industry and attract more capital for greater development of the continent.

Our conference has become the conference, the foremost one that everyone comes to. It has grown from strength to strength every year. What we are proud of is that we are able to attract investors who have never stepped foot on the continent, not for business nor a holiday. We are hoping that each year we can deepen that pool of investors, because they will then go back to the US or Europe and say “I had this perception wrong, and you should go.”

KITE: We would like to end the interview with a question about your professional trajectory, which by the way is extremely impressive having worked at Goldman Sachs, Merrill Lynch among others, and now you are the CEO of AVCA. Due to these experiences we would like to know how do you relate and bring the experience from these prior positions to your current position?

AVCA: Thank you so much for your compliment, that is very kind. I feel very lucky and I love this job. I think it is a very exciting time for the continent of Africa and I think that the role that private equity can play is absolutely the right one.

As an asset class, if you think about private equity in its simplest form, an investment in a company allows it grow, more people can get hired, more children can got to better schools. It simply puts more money into circulation and that means more tax revenue. It may be simplistic, but it is really about developing economies. Within private equity there is also a focus on corporate social responsibility, governance, environmental responsibility, and therefore greater transparency and accountability. I do not know of another asset class that gives you that. You won’t get that in listed investments, its not fixed income so you are not indebting companies. At AVCA we are a team of six people, and we all feel very lucky to be a part of this when we are at this juncture when there is more and more focus on the continent.

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