Africa's stunning growth doesn't come cheap

Thu Apr 19, 2012 3:27pm GMT
 

By Helen Nyambura-Mwaura

JOHANNESBURG (Reuters) - There is a lot of hype and excitement around Africa as the next hot spot for global investors but what they are quickly learning is that acquisitions do not come cheap.

Africa, long seen as a basket case and only good as a source of minerals and metals, is turning around: democracy is taking root, wallets are getting fatter and populations younger. The International Monetary Fund sees sub-Saharan Africa growing at 5.4 percent this year against 1.4 percent for rich economies.

Buyers seeking a piece of that future growth are having to pay a premium now because sellers know opportunities with scale are slim. Also, new investors come expecting bargains because the continent is seen as poor.

"Valuations on the whole are challenging at the moment, but that doesn't mean you can't find individual opportunities," said Marlon Chigwende, co-head of sub-Sahara for private equity firm Carlyle Group.

Some bankers say Africa's biggest telecoms operator MTN is a good example of a company that paid what was considered a hefty price at the time, for the right to start operations in Nigeria just over a decade ago.

It paid $285 million for a mobile licence in Africa's most populous country. Now it has over 41 million subscribers and banked revenues of 34.9 billion rand in 2011.

The world's biggest retailer Wal-Mart bought a majority stake in South Africa's Massmart for $2.4 billion in 2011, a 19 percent premium to the 30-day volume weighted average price.

Sub-Saharan Africa's attractiveness as an investment destination has risen to fifth place this year from seventh in 2011, according to a survey by the Emerging Markets Private Equity Association.   Continued...

A mine worker looks on underground in Modderfontein east mine, outside Johannesburg, February 3, 2009.  REUTERS/Siphiwe Sibeko
 
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