Bullish on Africa – Carlyle Group

Managing director of Carlyle Group, is bullish on Africa.

The head of one of the world’s largest buyout firms expects economic growth in Africa to outpace every other region over the next decade.

Speaking at a conference on emerging markets in Geneva on Wednesday, David Rubenstein, co-founder and managing director of Carlyle Group, said Africa stood alone in terms of growth potential.

“I am very bullish on the prospects for Africa,” Mr. Rubenstein said. “Nothing compares in terms of economic growth as a percentage over the next decade, [partly because] it is starting from a low base.”

In the first five months of 2010, private-equity firms raised $2.8 billion in Africa-focused funds, or 80% of the total raised in all of 2009, according to data provider Preqin.

The International Monetary Fund says sub-Saharan Africa will be the second-fastest-growing region from 2010 to 2015, with gross-domestic-product growth averaging 5.4% a year, compared with 8.6% for developing Asia.

African economies are expanding amid increased political stability and high commodity prices, boosting disposable incomes and stimulating growth in the consumer sector, according to Tim Friedman, head of research at Preqin.

“Africa is the most attractive region globally in terms of the risk-reward ratio,” said Rod Evison, managing director at CDC, a U.K. government-owned fund of funds manager that invests in developing markets. He spoke at the same conference.

As with other regions, private-equity activity in Africa slumped during the financial crisis. Buyouts totaled $516 million in the region last year, compared with $6.4 billion in 2007, according to data provider Dealogic. However, activity has rebounded somewhat this year, with buyouts worth $413 million announced in the first half, Dealogic said.

IFC, a division of the World Bank that invests in developing countries, will use $40 million of retained earnings to invest in countries such as Sierra Leone, Liberia and the Central African Republic, after achieving net returns of 21% from its investments over the past decade, according to its chief investment officer, David Wilton.

However, the risks of investing in Africa are “enormously higher” than those in more mainstream emerging markets like China and India, Mr. Rubenstein said in his speech Wednesday. “There is less financing available, less management depth and fewer opportunities to sell businesses,” he said.

Volatility is also an issue in a region prone to sudden regime change. “There is much more volatility in frontier markets,” said Koonal Gandhi, a director at the Overseas Private Investment Corp., an agency of the U.S. government that promotes investment abroad. “Our portfolios in Africa have venture-capital-style volatility in underlying returns. The fund is often returned in one investment.”

Link to Carlyle Group.

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