Paul Boynton, chief executive officer, Old Mutual Alternative Investments, shares his views on the importance of private equity firms encouraging long-term investments across multiple regions.
Africa is home to approximately 1.2 billion people, more than 60 per cent of whom are aged under 25. That figure is predicted to double by 2050 so that in 30 years, Africa’s under 25 population will stand at around 1.25 billion. Recent figures have predicted the possibility of a “massive” unemployment crisis across parts of Africa, with the continent facing a shortfall of 50 million jobs by 2040. This huge swell of disaffected youth presents a concerning security issue that risks destabilising developing economies and it is no wonder this prospect is increasingly described as a ticking time bomb. This is not a distant issue; the picture now is equally concerning with youth unemployment figures averaging more than 51 per cent between 2013 and 2016. Mass job creation on such a scale is no easy task, especially when the traditional approach to it, through industrialisation and manufacturing, is hampered in Africa due to shortage of adequate infrastructure. The ‘fourth industrial revolution’ cannot happen without power firstly and good transport links to ports and regional hubs secondly, underlining the urgent requirement for further private sector investment in infrastructure.
Between 2010 and 2016 private equity (PE) firms invested around US$25.6bn in Africa according to Baker McKenzie/The Economist Corporate Network, demonstrating that it’s an important partner in development efforts, especially by following the lead of African governments and international organisations and starting to invest in sectors that need to see meaningful growth, such as manufacturing, renewables, housing and transport. The private sector provides 90 per cent of all jobs on the continent, according to a 2016 report from the Africa Private Equity and Venture Capital Association (AVCA), demonstrating unequivocally that private sector investment is an important force in the drive for economic growth and stability in Africa. The same study revealed a 17 per cent increase in new jobs being created in portfolio companies after PE investment with the majority, 91 per cent, of those being permanent roles. And it’s not just greater employment opportunities that are created through PE; the industry is playing a essential role in capacity development. According to AVCA, the majority of PE firms have implemented initiatives to improve the quality of these jobs as well, with training in environment and health and safety, leadership and HR, as well as more effective measuring of workplace quality. The aims of PE firms correlate with those of local governments as the long term nature of investments ensures that businesses, and thus jobs, can grow healthily, which of course means good returns.
Compared to a record 2015, 2016 saw a dip in PE investments in South Africa, as finding opportunities with attractive returns became more challenging within the overall economic environment. However, such dips should not be too discouraging. As PE investments require a longer-term financial commitment (of 15 years or so in the case of infrastructure), meaning it can deal with economic and industry cycles. What is needed on the part of governments is a well thought out coordinated investment programme, transparent about project scope and concession, which will then unlock private capital in infrastructure.
And what PE firms must do now is encourage a more thoughtful and coordinated approach to investments across Africa, supporting long-term investments across multiple regions with a firm eye on positive impact as well as positive returns. This approach is already starting to make a difference in countries such as South Africa, Kenya and Nigeria. More and more firms are waking up to this reality and investing further, and not just in Africa but increasingly in Impact funds specifically. A Financial Times report last year found that 59 per cent of 182 family offices and foundations had achieved positive financial returns from impact investing. And good returns for PE is also good news for the continent’s sustainable growth and job creation. Old Mutual Alternative Investments (OMAI) is the largest private alternative investment manager in Africa, with more than US$4bn under management in infrastructure, private equity and impact funds. The business originated in 1970 as Old Mutual’s private equity fund.