Pan-Africa fund will back businesses targeting regional expansion
CDC, the UK’s development finance institution, has announced a new commitment of US$75 million to the Africa Development Partners II LP Fund (ADP II), managed by Development Partners International (DPI). The Fund will invest throughout Africa, providing much-needed risk capital to businesses to help them grow, develop and increase the contribution they make to their local economies, including providing employment.
The ADP II fund will typically take significant minority stakes in businesses across a range of sectors, focusing on high growth companies that are seeking to expand into newly liberalising countries, such as Angola, Ethiopia, Mozambique and Rwanda, the economies of which are expected to grow at 7%+ between 2012-2017. Deal size will range from US$20m to US$70m.
While ADP II will be sector agnostic, its strategy will focus on well-managed African companies that can benefit from strong growth in industries that cater to the requirements of the emerging middle-classes. Examples of industries that will be targeted by ADP II include FMCG, financial services, retail, logistics and healthcare. DPI is an active investor, which adds value to its investees not only through its financial backing, but also through active Board participation and the implementation of good environmental social and governance (ESG) practices.
Commenting on the commitment, Jeremy Cleaver, CDC’s Portfolio Director for its Africa Funds team said:
“DPI has retained its focus on growth transactions in newly liberalising economies. As a development finance institution with a focus on supporting the building of businesses to create jobs across Africa, it’s vital for CDC that our investment partners are able to invest and deliver strong financial returns in less developed markets as well as more developed economies such as Kenya and Nigeria.”
“CDC’s US$75m commitment at first close, which equals its largest single commitment of 2012, signals its continued confidence in the market and the DPI team, and aims to catalyse further commitments from other private sector investors.”
Despite rising foreign direct investment into the African continent over the last decade, private equity remains a relatively small asset class in Africa compared to developed or other emerging markets. Private equity penetration in sub-Saharan Africa currently stands at only 0.09% of GDP and lags developed countries such as the US (0.98%) and the UK (0.75%) and other emerging markets such as India (0.33%). Investment into pan-African private equity funds has yet to return to 2008 levels, as private sector investors remain cautious.
Currently, Africa’s middle class is estimated to number about 313 million people or 34.3% of the population, a similar-sized middle class to that of India. McKinsey estimates that from 2005 to 2008, consumer spending across the continent increased at a compound annual rate of 16 percent, more than twice the GDP growth rate, and that spending power will increase by more than 35% in the next few years.
DPI was set up in 2007. CDC invested in its first fund, ADP I, which raised €271m in 2008. ADP I has successfully expanded businesses out of their primary markets into less developed countries. For example, investee company Letshego, a financial services provider originally based in Botswana now serves over ten countries, including South Sudan and Rwanda. It now provides 145,000 customers with access to finance.