Being local is key. Simply put, it helps us to identify great businesses, work in partnership with investee companies, and manage risks. That philosophy has always been core to the investment thesis across each of the markets we work in and Africa is no exception.
With a two decade history in the continent and investment in over 80 businesses, this is a region that we know extremely well. Two fundamentals are clear: Firstly, the continent is not, and cannot, be treated as a monolith. Secondly, local, national and regional nuances are critical to success, and our track record in Africa is proof of Abraaj’s ability to create value for its partner companies.
At a time when the ‘Africa Rising’ narrative seems to be in question, our focus as long-term investors in the continent remains resolute. Why do I say that? If you look at the African Great Lakes area, the economic growth we expect to see over the next decade, combined with compelling individual investment opportunities, makes it an exciting time to be active in this market. And it is not just Abraaj that believes in this opportunity. The African Private Equity and Venture Capital Association (AVCA), the pan-African body which promotes and enables investment in Africa, likewise foresees a shift of investment activity to East Africa and a maturing secondary market in the years ahead.
The economic, political and regulatory progress made by the East African Community (EAC) nations in the past two decades has laid the groundwork for this opportunity. Tanzania, Uganda, Kenya and Rwanda are projected to record consistent 6-7% GDP growth over the next 10 years, with each nation demonstrating what they have to offer. For example, Tanzania and Rwanda are among the top 5 fastest growing African nations, while Kenya is one of the most pro-business countries in Sub-Saharan Africa.
Agricultural policies implemented by Uganda are set to open up this promising industry to greater international investment opportunities. Another important trend transforming the landscape of African cities is urbanisation. The average population living in cities is expected to grow from 25.5% in 2015 to 45.4% in 2050. Along with rapid urbanisation, the development of a strong middle class across the EAC has also led to significantly increased demand for the services available to this income bracket, be that in education, healthcare, real estate, consumer goods and entertainment.
But there is more: GDP growth, increased urbanisation, and the development of a strong middle class are not factors unique to the EAC – they are embedded across each of the markets in which Abraaj is active. We believe that what is different is the EAC itself. Since the launch of its own common market for goods, labour and capital in 2010, the bloc offers investors a free trade area, giving businesses the chance to easily cross borders and expand their geographic footprint. Further, plans for the creation of an EAC monetary union within the next decade will only serve to make cross-border trades even easier.
Building African Champions
At Abraaj, our focus on macro drivers is important when evaluating investment opportunities, but it is the focus on the micro that can be game changing. For us, company and management team selection is as fundamental as sector and geography. Having worked on transactions in Dubai, Lagos and now Nairobi, I can confidently assert that it is this differentiated approach that makes all the (investment) difference.
Java House Group (Java House) was compelling for Abraaj, not only because of the growth of the region and the enabling environment in which the company operates, but also due to our ability to add real partnership value through our deep experience in the QSR and casual dining space (think Kudu in the Middle East, Acurio in Latin America, and Wine Connection and PS Cafe in South East Asia).
Our plans for Java House are exciting as we intend to leverage its strengths and market leadership in Kenya to create a regional champion across the nations that shape Sub-Saharan Africa. Our own experience of taking local companies regional has served us well in the past and we are passionate about the growth opportunities that Java House provides, both by way of new market expansion and the development of unique themes and concepts in existing markets.
This article was originally published on Abraaj Insights.« Back to Afri-Spective: An Inside Look at Private Equity in Africa