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Africa is World’s Most Attractive Equity Market

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  • Africa is World’s Most Attractive Equity Market

Africa is still one of the world’s most attractive markets for private equity, Boston Consulting Group (BCG) has said.

The Financial Group, in a statement signed by Associate Director and a co-author of the report, Marc Becker, said Africa remains one of the world’s growth opportunities for private equity investors, though with some facing serious challenges of recent.

To generate the high returns that investors expect, however, funds should consider more flexible investment strategies and new types of corporate targets, the report stated.

The report, titled: Why Africa Remains Ripe for Private Equity, notes that since the early 1990s, the number of private equity funds active in Africa has swelled from about a dozen to more than 200, while funds under management have risen from some $1 billion to upwards of $30 billion. This rapid growth, combined with the recent downturn in Africa’s largest economies, has raised concerns among some analysts that a bubble is emerging, the statement said.

The report said most private equity funds and principal investors tend to invest only in minority stakes, with the goal of better managing their risks by leveraging robust local partners. While they overwhelmingly focus on a limited pool of investment targets: profitable companies with annual revenue of more than $100 million and proven track records.

The report advised that alternative investment approaches are particularly important if funds are to meet the rising expectations of their investors. It said: “Increasingly, development finance institutions are being joined by global institutional investors that are far more focused on high returns. As prices for stakes in large African companies rise, it will become more difficult for private equity funds to deliver high returns. To fully capture the opportunities in Africa and earn high returns, private equity funds must adapt to the rapidly evolving market and consider more flexible investment strategies.”

The report recommended that private equity investors consider other investment approaches, such as majority stakes, strategic partnerships, and evergreen funds, rather than only funds with timing constraints for divestiture. It also suggested that funds look at a wider range of targets, such as Africa’s growing pool of dynamic smaller companies with significant growth potential.

“Too many private equity investors are pursuing the same kind of target with the same kind of deal structure,” said Patrick Dupoux, a BCG Senior Partner and a co-author of the report who leads the firm’s activities in North Africa.

He added: “But look beyond the narrow cohort of Africa’s corporate elite and you’ll see that the continent offers real opportunities. Some of the most promising targets in Africa are companies that are still off the radar of most funds.”

On their optimism, he stated that despite the rapid growth in funds and a crash in global commodity prices that has hit a number of African economies, the following factors support a positive outlook for private equity.The factors he itemised is that the amount of private equity and principal investment capital under management in sub-Saharan Africa remains very low relative to world standards with a mere 0.1 per cent of GDP. That compares with approximately 1 per cent of GDP in western countries.

Others are that despite recent setbacks, most economists expect that GDP growth in Africa will rebound over the medium term, driven by a swelling middle class, rising foreign investment in infrastructure, and a growing skilled labor force. The statement also hinted that the pool of investment targets is growing with nearly 11,000 African companies having revenue of $10million to $100million and assets of $20 million to $200million yearly.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

A Loud Blast Heard in Dhahran, Saudi Arabia’s Largest Crude Oil Production Site

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Loud Blast Heard in Dhahran, Saudi Arabia’s Largest Crude Oil Production Site

Two residents from the eastern city of Dhahran, Saudi Arabia, on Sunday said they heard a loud blast, but they are yet to know the cause, according to a Reuters report.

Saudi’s Eastern province is home to the kingdom’s largest crude oil production and export facilities of Saudi Aramco.

A blast in any of the facilities in that region could hurt global oil supplies and bolster oil prices above $70 per barrel in the first half of the year.

One of the residents said the explosion took place around 8:30 pm Saudi time while the other resident claimed the time was around 8:00 pm.

However, Saudi authorities are yet to confirm or respond to the story.

 

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Crude Oil

Brent Crude Oil Approaches $70 Per Barrel on Friday

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Crude oil

Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension

Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.

Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.

Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.

While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.

According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.

“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”

Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.

The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.

I do believe we’re headed for a much healthier supply and demand environment” she said.

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Crude Oil

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

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Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

Brent crude oil, against which Nigerian oil is priced, rose to $67.70 per barrel on Thursday following the decision of OPEC and allies, known as OPEC+, to extend production cuts.

OPEC and allies are presently debating whether to restore as much as 1.5 million barrels per day of crude oil in April, according to people with the knowledge of the meeting.

Experts have said OPEC+ continuous production cuts could increase global inflationary pressure with the rising price of could oil. However, Saudi Energy Minister Prince Abdulaziz bin Salman said “I don’t think it will overheat.”

Last year “we suffered alone, we as OPEC+” and now “it’s about being vigilant and being careful,” he said.

Saudi minister added that the additional 1 million barrel-a-day voluntary production cut the kingdom introduced in February was now open-ended. Meaning, OPEC+ will be withholding 7 million barrels a day or 7 percent of global demand from the market– even as fuel consumption recovers in many nations.

Experts have started predicting $75 a barrel by April.

“We expect oil prices to rise toward $70 to $75 a barrel during April,” said Ann-Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”

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