Banker Africa sat down with Jean-Claude Bastos de Morais, Founder and Group Chairman, Quantum Global Group, to discuss the growing Gulf-African trade corridor and what the economic landscape for investment looks like in 2018.
Which industries have you focused on at Quantum Global for private equity investment?
With a net equity of $3bn, Quantum Global Group has established seven dedicated private equity funds that target high growth industries in the areas of agriculture, healthcare, hospitality, infrastructure, mining, structured equity and timber. Let me elaborate
Agriculture – This sector continues to be a key driver of economic transformation across Africa. In the midst of fluctuating commodity prices, several African economies are encouraging investments in agriculture to diversify and stabilize their economies. Further, sustained growth in global demand for food, biofuel, forest, and horticultural products continues to lead more international investors to invest in agricultural land in developing countries. These trends are likely to continue to result in some upward pressure on agricultural assets, especially in countries with acceptable land ownership and tenure frameworks and developed supply chains. Our Group has allocated capital worth $250 million to the sector.
Healthcare – The role of private investment towards improving healthcare delivery in Angola and across Sub-Saharan Africa will become increasingly important over the long-term. A combination of economic growth, a growing urban middle class and an under-developed healthcare sector will boost the demand for healthcare services, creating revenue earning opportunities for companies that provide primary and secondary care healthcare services. As part of our focus on the healthcare sector, we will aim to invest USD $400 million of unleveraged equity, or when fully leveraged up to four times this ticket across Africa
Hospitality – The growth in Sub-Saharan Africa is currently attracting investment and talent from more mature economies. Hotel facilities are a low-risk investment compared to other real estate assets due to the dynamics of supply and demand for their services, and the pressing capital investment needs of our continent. In addition to generating financial returns, the hotel sector creates immediate employment opportunities in construction and maintenance and hotel management, which contributes to the development of the domestic supply chain and drives demand for new goods and services.
The Group established a dedicated $500 million hotel fund which aims to fulfil the significant undersupply of international standard hotel management capacity in the continent. As part of this vehicle, the Group acquired a 100% interest in the InterContinental Hotel Lusaka in 2016. We also acquired a 100% ownership of the Movenpick Ambassador Hotel in Accra which was the biggest open-market hotel transaction in sub-Saharan Africa to date
Infrastructure – To date, infrastructure has been and continues to be one of the most attractive segments. Right across Africa, roads, airports, dams, ports, railways and telecommunications networks have been coming to life and adding significant logistical capabilities to African economies. With a dedicated $1.1 billion infrastructure fund, the Group is a long-term direct equity investor in greenfield and brownfield infrastructure and industrial base assets across Sub-Saharan Africa. Our key investments in the sector include a multipurpose deep-water port situated in Cabinda, a northern province of Angola, named Porto de Caio (PoC). We have invested $180 million in the management company and the concession holder to make PoC a competitive alternative to the regional shipping constraints that currently exist. PoC aims to be a preferred shipment port based on storage capacity, a tax-free trading zone that is also being developed, the ability to accommodate deep draught ships as well as smaller general cargo vessels and efficient traffic capacity.
Mining – There is high growth potential for the mining sector in the years to come. However, there is a lack of funds to unlock the sectors potential. The Group will invest USD $250 million of unleveraged equity, or when fully leveraged up to four times this ticket, in mining over the next three to five years in Angola and across the continent. It is also important to understand that mining can be a transformational industry and play a part in bringing down indirectly the cost of electricity, benefitting Africans and the cost of mining itself. This and other developments in logistics are crucial in increasing project viability.
Structured Equity – The relative scarcity of traditional financing in Africa requires increased equity and equity-like capital, particularly for small to medium sized enterprises. We conduct investments in structured equity that seek to bridge this financing gap. With a dedicated $250 million private equity funds, we target a broad range of sectors along with providing expertise through knowledge-sharing and best practices to companies in our portfolio to support their development.
Timber – This sector represents one of the greatest African resources, offering huge development potential. African governments recognize the importance of a developed timber sector. We are aiming to invest USD $250 million in timber investments over the next 3-5 years, with an investment horizon of more than 10 years. The Group has established a partnership with the Angolan Government to develop 80,000 hectares of large-scale wood fibre plantations in the Planalto region of Angola. As part of this concessional agreement, Quantum Global aims to invest approximately $50 million to the new plantation establishment, infrastructure and wood processing industries over the next five years.
We believe timber investment is core to promoting rural economic development, employment and socio-economic development. Furthermore, investments in the sector will bring much needed long-term stability and jobs into underserved rural communities. Consequently, investing in this sector contributes to some of the most important economic and social goals across the region. This will also significantly contribute towards maintaining adequate forest levels and prevent illegal logging which is a serious problem in Africa.
Where are we likely to see an expansion of private equity investment?
Despite the current global volatility, Africa remains one of the most exciting markets to invest in due to its growth potential and young population. We have also seen African Governments putting a special emphasis on diversifying away from hydro-carbons and natural resources. Improvements in commodity prices and Africa’s expected economic recovery will drive further investments into the continent, particularly in the Western African region.
Nigeria and Angola will benefit from The Organisation for Economic Co-operation and Development (OECD’s) forecasts of around $58-$60 per barrel in 2018, easing public expenditure pressures. Private Equity investors and other State players such as China will also benefit from a potential uptick in public sector spending on important infrastructure works and we may see greater appetite for PPP’s and general private capital in government-led projects.
There is also significant deal appetite and interest in quality assets in countries such as Zimbabwe and South Africa.
What impact has working in a wide variety of different business cultures across the continent had on your investment strategy?
Working across the continent, with different business realities, varied social economic life cycles, multiple languages and vastly different cultures has enabled us to get to grips with what stakeholders on the ground need. Investing in Africa is significantly more complex because of the challenges brought about by political pressures, differing levels of infrastructure quality and legal investment frameworks, and young capital markets. Socio-economic issues are also ever-present and the work that we do makes an immediate impact. These are important considerations, which have led us to build a strategy that supports socio-economic growth through sustainable investments over the long-term. Our strategy also involves building strong local connections with a wide range of stakeholders, including local and national governments so that the work we do meets different regulatory requirements across borders.
How have you mitigated the risk of doing business in Africa?
By focusing on long-term projects that are part and parcel of overall socio-economic development, across seven high-growth sectors, we have invested in areas that are inherently more sustainable. Simply put, they deliver jobs growth and business-critical infrastructure that benefit all of society and receive strong support from local communities, business leaders and government. Some sectors, such as agriculture and timber are also designed to bolster domestic production and reduce reliance on imports, which in the long term will help them to weather global economic shocks.
What is your outlook on Gulf-African trade for 2018?
With rapid urbanization and a population boom, Africa is a fertile ground for Gulf economic growth and many Gulf investors are actively investing in the continent. According to the Dubai Chamber of Commerce, total non-oil trade between the two regions is currently valued at around $24 billion – a 700 per cent increase over the last decade. Examples include an investment from the Investment Corporation of Dubai, which has placed $300 million in Dangote Cement of Nigeria, one of Africa’s fastest growing companies; and Etihad Airways’ acquisition of a 40 per cent stake in Air Seychelles.
With the growing political relations between the Gulf and Africa, we are likely to witness significant economic cooperation based on mutual benefit and common goals with investments in key areas such as agriculture and infrastructure.
Why should Gulf investors explore the opportunities available on the African continent?
The slowdown in global economic activity, a sluggish recovery in the developed markets and the impact of the fall in crude oil prices have all turned investors towards opportunities in emerging markets. Africa represents a growing number of opportunities in key developmental sectors for Gulf businesses – and it is geographically close.
Gulf investors should also be looking at opportunities in the region’s biggest single employer – agriculture – which can be greatly enhanced through investment and the implementation of modern farming techniques. Successful agribusiness investments stimulate agricultural growth through the provision of new markets and the development of a vibrant input supply sector. It is a high-growth industry that should be attractive to Gulf investors.
How competitive is the Gulf-African private equity space?
Private capital is more important in Africa than it was 10 or even five years ago. The realignment of national budgets in response to oil and commodity price shocks is propelling further economic diversification in many African countries. We are witnessing an increased effort by many regional Governments to attract more FDI and thus they are offering significant opportunities for foreign investments which is opening new opportunities for private equity investors from around the world.
Have you got any new projects launching in 2018?
We expect 2018 to be an extremely busy year in terms of investments across all the private equity funds. We will support new projects in the targeted high growth industry sectors taking advantage of the emerging economic trends and attractive regional demographics.
What needs to be done to foster innovative solutions and start-ups in Africa?
The lack of availability of capital for small and medium sized businesses is a challenge in Africa. Banks are reluctant to offer capital to young businesses which is hampering the growth of the SME sector across the continent but Africa remains a resilient region that continues to attract investors towards it. I believe we all have a role to play in terms of raising the profile of African innovation, in galvanizing support for African innovators and creating opportunities for them to attract the right investments at a Pan-African and international level. Doing so will kick-start a chain reaction that will ultimately drive economic diversification, job creation and prosperity for Africans. This is why I set up the African Innovation Foundation, which rewards innovators with $185,000 every year to foster the African innovation spirit and the Fabrica de Sabao, a warehouse in a Luanda slum which is today a thriving community centre.
Africa has the fastest growing youth population in the world. Sixty per cent of its population is under the age of 24. This youth bulge creates an important opportunity for sustainable development in Africa. These youth segments will have specific needs different from developed or first world nations. Therefore, there is an urgent need to invest in local innovation ecosystems which respond to these real needs.
What are your general thoughts on the trends we will likely see for Africa’s economy in 2018?
Seeking investment opportunities in a stable political system with a stable economy is always a priority but perhaps more so in 2018 after a year of political surprises around the world – including the unexpected change of leadership in Zimbabwe. Political changes in Africa as seen over the past year have, however been moderate in comparison to those that have taken place in the USA and EU. Countries such as Angola have enjoyed a smooth, peaceful change of power in a fully democratic election – the first Party Political change since peacetime in 2002. Likewise, neighboring countries are noteworthy for their commitment to political stability, economic growth and economic reform – this is indicative of a region that is determined to build robust, diverse national economies.
A) ECONOMIC RECOVERY IN WEST AFRICA
Improvements in commodity prices and the region’s expected economic recovery will drive further investments into the Western African region. Nigeria and Angola will benefit from the OECD’s forecasts of around $58-$60 PB in 2018, easing public expenditure pressures. PE investors and other State players such as China will also benefit from a potential uptick in public sector spending on important infrastructure works and we may see greater appetite for PPP’s and general private capital in government-led projects. GDP figures have recovered across most of west Africa in 2017 and are in some cases forecast to surge in 2018. The IMF’s most recent World Economic Outlook (released in Q3 of 2017) has projected growth of almost 9% for Ghana in 2018 with an overall rise of around 3.4% for SSA.
B) IMPROVED GLOBAL LIQUIDITY CONDITIONS
With projected higher oil production, OECD forecasts of a steady rise to near $60 PB throughout 2018 and improved foreign exchange liquidity rates globally, private equity in Africa will offer much higher rate of returns compared to cash and fixed income assets. Around the world, borrowing rates and inflation remained stable throughout 2017, which has also been the case in many parts of Africa – even in countries that have struggled with low FX reserves and the slump in oil prices. Some of the region’s biggest economies such as Angola and Nigeria have reigned in spending and demonstrated fiscal restraint, including currency controls. These measures have contributed to greater liquidity.
C) NIGERIA TO ATTRACT MORE INVESTMENTS
With Nigeria’s economy projected to grow to over US$650 billion by 2022, medium to long term prospects look optimistic, with solid fundamentals underpinning growth expectations particularly in the non-oil sectors of the economy. However, the country is facing an infrastructure investment gap between now and 2040 in the region of $878 billion. This figure (which pertains only to infrastructure) is based on forecasts of an annual GDP rise of 4.1 per cent and a population that is rising by 2.4% per year at current trends
What is your personal management style?
Coming from an entrepreneurial background and growing up in a multi-cultural environment, my mind and intuition had to be constantly adaptable and flexible.
Having financed my studies myself and becoming an independent financial advisor whilst studying at University, I have built a set of principles over the years:
Source: Banker Africa