By Jad Abbas, Director, The Abraaj Group
Being local is key. Simply put, it helps us to identify great businesses, work in partnership with investee companies, and manage risks. That philosophy has always been core to the investment thesis across each of the markets we work in and Africa is no exception.
With a two decade history in the continent and investment in more than 80 businesses, this is a region that we know extremely well. I have lived in both East and West Africa and worked on deals across sectors including Mouka, a leading mattress manufacturer in Nigeria. Two fundamentals are clear: Firstly, the continent is not, and cannot, be treated as a monolith. Secondly, local, national and regional nuances are critical to success and our track record in Africa is proof of Abraaj’s ability to create value for its partner companies.
This July, we announced our latest investment in Sub-Saharan Africa through the acquisition of Java House Group (Java House), the largest casual dining chain in East Africa with 60 outlets in Kenya, Rwanda and Uganda. As a member of the East Africa investment team that worked on the acquisition of this truly iconic asset, I believe the transaction was timely and targeted, especially when considering the underlying dynamics of the sector in East Africa, but also across Sub-Saharan Africa.
At a time when the ‘Africa Rising’ narrative seems to be in question, our focus as long-term investors in the continent remains resolute. Why do I say that?
If you look at the African Great Lakes area, the economic growth we expect to see over the next decade, combined with compelling individual investment opportunities makes it an exciting time to be active in this market. And it is not just Abraaj that believes in this opportunity.
The Africa Private Equity and Venture Capital Association (AVCA), a leading Pan African investment body which promotes and enables investment in the continent, likewise foresees a shift of investment activity to East Africa and a maturing secondary market in the years ahead.
The economic, political and regulatory progress made by the East African Community (EAC) nations in the past two decades has laid the groundwork for this opportunity. Tanzania, Uganda, Kenya and Rwanda are projected to record consistent six to seven per cent GDP growth over the next ten years, with each nation demonstrating what they have to offer. For example, Tanzania and Rwanda are among the top five fastest growing African nations, while Kenya is one of the most pro-business countries in Sub-Saharan Africa.
Agricultural policies implemented by Uganda are set to open up this promising industry to greater international investment opportunities. And let’s not forget one of the most important trends that is transforming the landscape of African cities – urbanization. The average population living in cities is expected to grow from 25.5% in 2015 to 45.4% in 2050. Along with rapid urbanization, the development of a strong middle class across the EAC has also led to significantly increased demand for the services available to this income bracket, be that in education, healthcare, real estate, consumer goods and entertainment.
But there is more. GDP growth, increased urbanization and the development of a strong middle class are not factors unique to the EAC – they are embedded across each of the markets in which Abraaj is active. We believe that what is different is the EAC itself. Since the launch of its own common market for goods, labor and capital in 2010, the bloc has offered investors a free trade area, giving businesses the chance to easily cross borders and expand their geographic footprint. Further, plans for the creation of an EAC monetary union within the next decade will only serve to make cross-border trade even easier.
Building African Champions
Within this context, it is helpful to step back and think ‘Why Java House’? At Abraaj, our focus on macro drivers is important when evaluating investment opportunities, but it is the focus on the micro that can be game changing. For us, company and management team selection is as fundamental as sector and geography.
Having worked on transactions in Dubai, Lagos and now Nairobi, I can confidently assert that it is this differentiated approach that makes all the (investment) difference.
Java House was compelling for Abraaj, not just because of the growth of the region, and the enabling environment in which the company operates, but, critically, due to our ability to add real partnership value through our deep experience in the QSR and casual dining space (think Kudu in the Middle East, Acurio in Latin America, and Wine Connection and PS Cafe in South East Asia).
Our plans for Java House are exciting as we intend to leverage its strengths and market leadership in Kenya to create a regional champion across the nations that shape Sub-Saharan Africa. Our own experience of taking local companies regional has served us well in the past and we are passionate about the growth opportunities that Java House provides, both by way of new market expansion and the development of unique themes and concepts in existing markets.