By Jacob Kholi, Partner, The Abraaj Group
The last 25 years have witnessed growth at a remarkable rate across Africa – with GDP running at three percentage points higher than global GDP[i].
A demographic dividend
A key factor driving the upward trend in Africa is the youth demographic. The continent’s working age population is predicted to double to one billion people in the next 25 years, and that is fuelling innovation and investment. In Sub-Saharan Africa itself, 70% of the population is under 30. These young people bring about tremendous opportunity, as well as driving consumption patterns. Indeed, they will be the consumers of tomorrow.
With this surging youthful population – alongside a growing middle class across Africa – we also see an increased need for schooling and education. Based on current trends, 59% of 20-24 year olds will have a secondary education in 2030, compared to around 42% today[ii].
Although the provision of education has grown with the African economy, there are gaps in the quality of the education provided. Abraaj has been able to leverage experience from across our markets to help improve these standards, as in our partnership with Tiba Group in Egypt, where we have formed a company to provide education support services to schools, academies and universities across the country.
Set for growth
Much of our investment focus is in high growth cities such as Accra, the capital of Ghana, and Lagos in Nigeria, which are growing fast. Populations in these burgeoning cities benefit from strong infrastructure, telephony services and access to basic services such as electricity.
We find that income distribution in cities is high and that populations are swelling as people flock to the cities from the countryside to find new opportunities and work. As the urban population increases, this enhances the consumer sector and opens up more opportunities in service delivery – both arenas where we can invest and make an impact.
The consumption in these cities is much higher than the country average. For example, consumption in Accra is 1.6x greater than the national average in Ghana, 2.3x greater in Lagos than the average in Nigeria, and 2.7x greater in Nairobi than the average in Kenya.
As cities, urban areas and the populace continue to grow, there is a parallel need for more infrastructure across the continent. Africa lacks many key infrastructure resources and there is a massive focus by many governments on bridging this gap through, for instance, private public partnerships. Private equity mobilises private capital to take advantage of these opportunities.
Our aim is to also drive growth in a more sustainable way and a commitment to ESG is high on our agenda. This is no longer a ‘nice to have’ but instead is essential to how we do business, and how we add to the bottom line.
As well as supporting inclusive growth, our priority is to implement good governance practices where we invest. An anti-corruption tool, this is a genuine priority that allows us to grow companies that will be of interest in the longer term to international strategic and financial investors.
Taking the long view
Some investors have withdrawn funds in recent years to focus on, for instance, the US economy. Whilst this has impacted growth in Africa to an extent, it has also meant that there are many more opportunities available for LPs in the market.
Abraaj has a long term commitment to investment in the region, and, growth remains strong, creating more value for investors and our partners. With the right local knowledge, partners and sector focus, we are able to look past the headlines, focusing on areas of great opportunity.
While the fall in commodity prices has certainly had an impact, some countries – such as Ethiopia, Cote D’Ivoire, Rwanda and Tanzania – do not rely on commodities and are seeing steady growth. The commodity price drop is also forcing governments to look more closely at the structure of their economies, and their governance.
Our view is that this period of reflection could potentially lead to policy makers restructuring the basis of their economies, and in the long term leading to the creation of a more diversified economy. Nigeria is just one example of a country where there are government initiatives in place to start to shift the focus of the country from oil to other outputs.
Abraaj has demonstrated a long term commitment to investing in the continent and that is set to continue. By increasing, or introducing, partnership capital in countries where we operate we are helping to build dynamic businesses that can serve the growing needs of a young and dynamic populace.
[i] World Economic Forum on Africa: Meeting Overview – http://www3.weforum.org/docs/AF15/WEF_AF15_MeetingOverview.pdf
[ii] African Economic Outlook