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Operating in Africa:

Operating in Africa:. The practicalities. Operating in Africa: The Practicalities. Africa: 54 countries/hundreds of cultures – a heterogeneous operating environment Achieving scale in developing markets

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Operating in Africa:

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  1. Operating in Africa: The practicalities

  2. Operating in Africa: The Practicalities Africa: 54 countries/hundreds of cultures – a heterogeneous operating environment Achieving scale in developing markets Embracing the operational challenges / opportunities presented by frontier financial markets in Africa • The Africa picture as ‘we see it’! 2

  3. The True Size of Africa A small contribution in the fight against rampant immapancy* • Operating in Africa: The Practicalities • Section 1: Africa: 54 Countries/Hundreds of Cultures NETHERLANDS Graphic layout for visualisation only (some countries are cut and rotated) *Kruse explains the term Immapancy thusly: "In addition to the well known issues of illiteracy and innumeracy, there should also be such a concept as "immapancy," meaning insufficient geographical knowledge." 3

  4. Africa Breakdown • Operating in Africa: The Practicalities • Section 1: Africa: 54 Countries/Hundreds of Cultures Sources: World Bank, IMF 4

  5. Why Africa? (1990) • A convergence of forces (Historical, Political, Economic, Financial, Social) • End of colonialisation • Cold war replaced by capitalism • Universal acceptance of democracy and capitalism • Reduction of civil wars • A broad acceptance to end corruption • A time to build • Section 1: Africa: 54 Countries/Hundreds of Cultures • Operating in Africa: The Practicalities 5

  6. African Alliance Coverage • Section 1: Africa: 54 Countries/Hundreds of Cultures • Operating in Africa: The Practicalities • African Alliance has offices in 13 African countries and over 300 employees Tunisia Algeria Morocco Libya Egypt Mauritania Mali Niger Chad Sudan Eritrea Senegal Burkina Faso Ethiopia The Gambia Nigeria Djibouti Cameroon Guinea Bissau Guinea Somalia Ghana Benin CAR Cote d’Ivoire Sierra Leone Liberia Togo DRC Kenya Uganda Equatorial Guinea Gabon Congo Rwanda Tanzania Burundi Angola Zambia Malawi Mozambique Madagascar Comoros Zimbabwe Namibia Botswana Mauritius Swaziland South Africa Lesotho 6

  7. Why Africa? (2013) • Population growth • Urbanisation • Confidence / skills of Africans • Momentum • Availability of Capital is improving • Economic growth • Africa has been ‘rediscovered’ • Section 1: Africa: 54 Countries/Hundreds of Cultures • Operating in Africa: The Practicalities 7

  8. Africa Today • Section 1: Africa: 54 Countries/Hundreds of Cultures • Operating in Africa: The Practicalities Source: McKinsey Global Institute 8

  9. Africa Tomorrow • Section 1: Africa: 54 Countries/Hundreds of Cultures • Operating in Africa: The Practicalities Source: McKinsey Global Institute 9

  10. Differentiators Private Equity Africa focused private equity investment company specialising in sub-Saharan SME sector • Operating in Africa: The Practicalities • Section 1: Africa: 54 Countries/Hundreds of Cultures • Operating in Africa: The Practicalities Africa footprint • Teams are: • Local and well established • Excellent extensive networks • Intimate understanding of the local political and economic landscape Africa Experience • Funds are currently being expanded, focusing on high growth sectors. • Experience in structuring, executing and managing transactions in Africa Existing Africa Pipeline • Through the African network, an extensive pipeline of investment opportunities persists 10

  11. Achieving Scale in Africa • Operating in Africa: The Practicalities • Section 2: Achieving Scale in Developing Markets Challenges (… in part) • Under developed (finance/capital) markets (supply) • Widely distributed population (supply/demand) • Lack of clarity on the levels of interest/demand (demand) • Capital commitment required to aggregate demand is limited due to perceived risk (supply) • Lack of information on markets limits decision making (demand) • Supply channels are not developed to first world standards (demand) 11

  12. Achieving Scale in Africa • Operating in Africa: The Practicalities • Section 2: Achieving Scale in Developing Markets Solutions (amongst others) • Leveraging of a single operation base (centralised operations) • Tax, legal, regulatory, with-holding tax considerations • Leveraging existing supply channels • Robust market research and testing before entry • Adequately model capital requirements and ensure a reserve fund is in place. Unchartered territory brings surprises! • Strategic partnerships can assist with speed to market 12

  13. Themes for Africa to Achieve Scale • Operating in Africa: The Practicalities • Section 2: Achieving Scale in Developing Markets • Large scale infrastructure – need a supportive framework • Typically the domain of PPP • More accessible development finance • Long term finance • Integrate regional capital/financial markets • Support and embrace local entrepreneurship, skills and knowledge growth – the seeds are in place • Reform stagnant business environments • Reduce the cost and risk of set-up 13

  14. African Alliance Securities Coverage • Section 2: Achieving Scale in Developing Markets • Operating in Africa: The Practicalities Execution capabilities in 21 African markets. Dedicated International distribution teams in Johannesburg, New York and London. On the ground teams in Johannesburg, Mbabane, Gaborone, Port Louis, Lusaka, Blantyre, Kigali, Nairobi, Kampala, Accra and Lagos. 14

  15. Market Value Traded trend since the highs of 2007/8 • Section 3: Operational Challenges/Opportunities • Operating in Africa: The Practicalities Source: African stock exchanges, African Alliance estimates 15

  16. Operational/Business Inhibitors • Operating in Africa: The Practicalities • Section 3: Operational Challenges/Opportunities Most problematic factors for doing business in sub-Saharan Africa (percent in respondents) Access to financing Corruption Inadequate supply of infrastructure Inefficient government bureaucracy Tax regulators Tax rates Inadequately educated workforce Poor work ethic in national labor force Inflation Policy instability Foreign currency regulations Crime and theft Restrictive labor regulations Government instability/coups Poor public health 0 5 10 15 20 Percent Sources: World Economic Forum Executive Opinion Survey, 2010 16

  17. Operational/Business – African Alliance experience • Operating in Africa: The Practicalities • Section 3: Operational Challenges/Opportunities • Get in early and take a long term view • Businesses, brands, presence and trust need to be earned • Stay close to what is happening on the ground • Business remains strongly relationship-based • although changing – the small skills pool makes this an influencing factor • Challenges need to be swiftly addressed through vigilance “Eternal vigilance is the price of liberty” Thomas Jefferson 17

  18. Africa - Business Guidelines • Operating in Africa: The Practicalities • Section 3: Operational Challenges/Opportunities 18

  19. Africa - Corporate Culture • Operating in Africa: The Practicalities • Section 3: Operational Challenges/Opportunities 19

  20. The Macro Opportunity Thesis of Africa • Section 3: Operational Challenges/Opportunities • Operating in Africa: The Practicalities POLITICAL REFORM More accountable government Governance STRENGTHENING OF EXTERNAL SECTOR AID flow and FDI Remittances into investment COMMODITY PRICE CYCLE UPSWING Currency stability Helpful global politics Food & fuel shocks – lead to agricultural sector reform? CONSUMPTION CYCLE Income growth Housing market Telecommunications INVESTMENT CYCLE Infrastructure – roads, railways, ports Pay down external debt Private equity • FINANCIAL MARKET DEVELOPMENT • Development of consumer credit • More instruments to trade CAPITAL MARKET DEVELOPMENT Listings, capital raisings Non-cash instruments COMPANY EARNINGS / PROFIT CYCLE Regional expansions Economies of scale Source: African Alliance 20

  21. Improved Macroeconomic Picture - Africa • Section 3: Operational Challenges/Opportunities • Operating in Africa: The Practicalities Source: World Bank Development Indicators, Political Risk Services, McKinsey Global Institute 21

  22. Africa’s Favourable Demographics • Section 3: Operational Challenges/Opportunities • Operating in Africa: The Practicalities Source: The United Nations World Population Prospect 22

  23. Financial Markets Are Developing • Section 3: Operational Challenges/Opportunities • Operating in Africa: The Practicalities Source: African stock exchanges, African Alliance estimates 23

  24. What Africa Needs? • Entrepreneurship • Vision • Execution • Technical skills • Capital • Management • Operational transparency and integrity • Section 3: Operational Challenges/Opportunities • Operating in Africa: The Practicalities 24

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