Regional Integration is a Driver Opportunity in Africa: An Interview with Andrew Brown of ECP


Andrew Brown is the Managing Director and Chief Investment Officer of Emerging Capital Partners (ECP), an Africa-focused growth capital investor.

In this interview, Andrew compares and contrasts the private equity opportunity in North Africa and Sub-Saharan Africa, highlights exit routes and strategies to mitigate risk, and explores how regional integration can open up unique opportunities for private equity investors on the continent.


How do the opportunities in North Africa compare to those ECP sees in Sub-Saharan Africa? What are the similarities and differences?

Over the past decade, both North Africa and Sub-Saharan Africa have experienced strong economic and population growth, driving the expansion of a consumer class and creating substantial investment opportunities. We see opportunities across Africa to invest in education, healthcare, financial services, fast-moving consumer goods (FMCG) and other consumer sectors.

North Africa, however, is also characterised by long-standing trade and investment connections with Europe. In particular, there are many North African businesses that benefit from free trade access to Europe, while Morocco has the added advantage of a free trade agreement with the United States of America. This gives rise to a stronger industrial base in North Africa, including a number of export-focused manufacturing businesses. 

By contrast, increased regional economic integration drives many of the opportunities in Sub-Saharan Africa. For example, the strengthening of trade partnerships like the Economic Community of West African States (ECOWAS) and the East African Community (EAC) enables companies to maximise their potential through geographical expansion into new markets. Planned infrastructure projects, including investments in transport and logistics businesses across the continent, will further facilitate regional expansion and create investment opportunities for private equity investors.



You mentioned the strong trade and investment connections between North Africa and Europe. What prospects—if any—do you see for portfolio companies in North Africa to expand their businesses into Sub-Saharan Africa? Is this an attractive opportunity over the next five years, or do you see more favorable growth elsewhere?

There is increasing interest in Sub-Saharan Africa as a market for North African companies. North Africa has a more established industrial and commercial base with larger companies and more sophisticated management teams, which can provide suitable platforms for expanding across the region. In addition, there are strong linguistic and historical ties between North Africa and Sub-Saharan Africa, and we see Moroccan businesses in particular looking to target investment opportunities in Francophone West Africa.

Expansion to Sub-Saharan Africa, however, is not the only route to growth. As home to five of the top ten economies in Africa, North Africa provides substantial opportunities to build businesses of scale that operate across the North African region. Until last year, for example, ECP was invested in Société d’Articles Hygiéniques (SAH), a FMCG business producing feminine and baby hygiene products. With ECP’s support, SAH was able to build manufacturing facilities and create joint ventures to become a regional player, operating across Tunisia, Algeria, Morocco and Libya.  

Additionally, given the size of many of the North African economies, there is also the potential to build scale in a single country. In March of last year, for instance, ECP invested in Atlas Bottling Corporation (ABC), the exclusive PepsiCo bottler in Algeria. With our investment, ABC is increasing its production capacity, introducing new products and cementing its position in the country’s beverage market.


Is there a discernible difference between your LPs’ views on North Africa and Sub-Saharan Africa?  Do institutional investors express any reservations regarding investments north of the Sahel, and if so, what are their greatest concerns?

Investor interest across the whole of Africa has remained high, but LPs have increasingly expressed concerns about political risk in North Africa and the possible impact on GDP growth in the aftermath of the Arab Spring. The more sophisticated investors, however, approach each country on its own merits and seek to understand the political and economic developments in each country. Tunisia remains an example of a successful political governance transition, which should help to drive increased economic growth. LPs have also continued to show strong interest in Morocco and Algeria, while Egypt is now drawing more attention as the country demonstrates an increased level of political stability.


You mentioned LP concerns regarding political risk in the region. How has political risk impacted your investment plans and/or portfolio companies in North Africa, if at all? How do you seek to manage or mitigate such risks?

We implement strategies to mitigate political risk across all our investments, and in particular, we focus on defensive businesses that meet basic consumer needs and vital business requirements. In general, we have found that defensive businesses are comparatively more resistant to the impact of political risk. In addition, we also focus on building geographically diversified portfolios through the creation of multi-country regional platform companies. This can significantly reduce the impact of political risk events on individual portfolio companies. For example, in the case of our investment in SAH, operations closed for two weeks in January 2011 following the Tunisian revolution, leading to a 40% drop in Tunisian sales that month. However, the business was able to benefit from regional sales in Algeria, Libya and Morocco. The impact on demand was also short-lived and by April 2011 sales had recovered above the levels achieved prior to the revolution.


From your perspective, how will exit channels change or evolve going forward in the region? In particular, what are your views on North African stock exchanges as a viable exit route for ECP’s portfolio companies over the next five years?


While the majority of successful exits in the region have been strategic sales to operators and company sponsors, we see significant potential for private equity investors to exit through listings on both North African and international stock exchanges. Morocco, Tunisia and Egypt are home to three of the larger and more liquid stock exchanges on the continent and, in our experience, can provide a realistic exit route. In 2013, for example, we exited Compagnie Minière de Touissit following an earlier IPO on the Casablanca Stock Exchange, and last year we exited SAH following a successful IPO on the Tunis Stock Exchange (TSE). At the time, it was the largest listing since the creation of the TSE and also marked the first exit of a financial investor through the TSE, demonstrating the potential of North African exchanges as a viable exit channel. Looking at international markets, ECP exited its investment in Société Internationale de Plantations d’Hévéas (SIPH), a natural rubber producer and exporter, through block sales via the NYSE Euronext Paris exchange, achieving 3.4x ECP’s initial investment. We expect that opportunities to exit from our portfolio companies on international stock exchanges will continue to grow.