Development impact through private equity in Africa

March 24, 2009KLM Club Africa, Amstelveen

Yvonne Bakkum, Director Private Equity

Private equity in Africa – March 2009

FMO, the Dutch Development BankOur vision is that a thriving private sector will lead to lasting economic and social development, which will empower people to employ their skills and improve their quality of life.

• Established in 1970

• Dutch State owned 51% and major banks 42%

• AAA rating from Standard & Poor’s

• Total committed portfolio EUR 4.2 bln (by year end 2008)

• Focus sectors: financial sector, renewable energy, low income housing

Private equity in Africa – March 2009

Our global network

As a committed and experienced emerging markets investor FMO has developed a broad network of partners across the globe, including a strong presence in Africa.

Partners include:Other Development Finance Institutions such as IFC, DEG and ProparcoCommercial banks such as Rabobank, Deutsche Bank (Capital Markets products) and Citigroup (risk sharing)Global investment firms with similar ‘mindset’: Aga Khan Foundation, TBI Other partners in specific areas such as Microfinance, and Private Equity Funds

Private equity in Africa – March 2009

FMO’s strategy in Africa:“Banking the Unbankable”

- Africa is full of opportunities

- But lacks parties that can transform opportunity into bankable projects

- FMO supports or creates parties that can…

- In Financial Sector, especially PE funds; Housing, Energy, and Mining .

- Venture Capital from government funds (LDC, AEF, MASSIF) is crucial

Private equity in Africa – March 2009

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200

400

600

800

1.000

1.200

1.400

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

AFRICA ASIA EUROPE LATIN AMERICA GLOBAL

FMO’s committed portfolio 1998 - 2008

Africa now 28% of total portfolio

FMO’s client countries in AfricaPrivate equity in Africa – March 2009

South22%

East 24%

North5%Various

20%

West29%

Private equity in Africa – March 2009

Private equity in Africa - snapshots

1994: FMO’s first African private equity initiative in Tunesia

1996: FMO initiates first of several small SME funds in West-Africa

2000: African Venture Capital Association (AVCA) established

2003: still few private equity funds outside South-Africa

2007: fund raising for Sub-Saharan African PE funds tripled in 2 yrs, to $ 2.3 bln

2008: African funds raise record high volume of $ 3.2 bln, trend is pan-African

2009: African private equity exits and investments ongoing but slower pace

2010: fund managers expect investment opportunities at reasonable valuations

Private equity in Africa – March 2009

FMO’s private equity network in Africa

Private Equity Funds (now 28) for African companies, including: Tuninvest Finance Group, 4 funds for North Africa region AfricInvest Capital Partners, 3 funds Pan African. Aureos Africa Fund (pan-African), Aureos East-Africa Fidelity Capital Partners, 2 funds for Ghana, Liberia en Sierra Leone Central Africa Investment for Cameroon, Chad, Congo DRC GroFin , SME finance in Kenya, Uganda, Tanzania, Rwanda KIBO Fund, Mauritius - operational in southern Africa countries

Direct equity investments (now 25), often together with funds: Financial sector (banks, leasing companies, microfinance, insurance) SME / small corporates in various sectors including energy

African Venture Capital Association

Private equity in Africa – March 2009

Development impact through private equity

Private sector development-Return on investment to local shareholders-Introduction of international best practice management systems-Technology and knowledge transfer

Employment creation => poverty reduction-FMO research shows 30 new jobs per USD 1 mln invested-Improve “employability” through training

Improving corporate governance-Financial transparency, IFRS accounting-Independent board members

Implementing environmental & social standards-Work towards World Bank/IFC performance standards in agreed action plans-ESG is a business case!

Private equity in Africa – March 2009

Case studies

Case study: Celtel

The Opportunity:

• Pan-African mobile telephony operator started in 1998, needed capital to meet

huge demand of underserved telecom market in Africa

FMO’s role:

• Invested scarce risk capital from LDC Fund together with other DFIs in 2001

• Provided local currency financing to various Celtel operating companies

Private equity in Africa – March 2009

Celtel was acquired by MTC in May 2005 for $3.45 billion, and currently operates in 15 countries in Sub Sahara Africa

Today’s situation:

• Celtel sold to MTC Kuwait (today ZAIN) in 2005

• This “Infrastructure deal of the year” showed FDI in Africa pays off!

• Celtel is a profitable company operating in 15 African countries

• More than 26 million customers

• More than 98% of workforce and management is African

• FMO continues (local currency) lending to various Celtel companies

Private equity in Africa – March 2009

Case study: Bank of Africa Group

The Opportunity:

• African-owned SME banking group with ambition to expand in Africa

FMO’s role:

• Invested risk capital in African Financial Holding, the group’s holding company

• Shareholder in various local BoA banks, incl. BoA Madagascar and BoA-Kenya

• Promoted improvement of corporate governance

• Initiated discussions to seek strong banking partner for further growth

Private equity in Africa – March 2009

Today’s situation:

• Large Moroccan banking group BMCE acquired significant stake in 2008

• BoA Group active in 12 countries in French and English speaking Africa

• FMO still involved as active shareholder at request of BoA and its new owner

• Many DFIs are interested in funding BoA group entities

Private equity in Africa – March 2009

Case study: Maghreb Leasing, Algeria

The Opportunity:

• Algeria, where SME’s have no access to financing

FMO’s role

• Involve Tunisie Leasing

• Founding shareholder together with our partner Tuninvest

• First long term local currency financing

• E&S, corporate governance and risk management through Board involvement

Private equity in Africa – March 2009

Today’s situation:

• Profitable since 1,5 year of operations

• High growth

• Capacity Development to extend product portfolio

Private equity in Africa – March 2009

Conclusion

• Africa is a growing and interesting market for private equity investments

• Local partners are key to successful investing

• FMO is seen as an innovative and creative DFI by clients and peers

• We are dedicated to the African opportunity, and aim to catalyse others

• Since 2008: Africa largest region in FMO overall and private equity portfolio!

Serious reforms, governance improvements, fight against corruption and return of well-educated Africans continue to improve investment climate. Africa is not immune for global crisis, but investors widely believe Africa offers good opportunities for sustainable profits.

Private equity in Africa – March 2009

Questions & Comments