The British government owned investment firm, Commonwealth Development Corporation (CDC), will set up a new private equity fund in Kenya in the next few weeks to channel a new wave of direct investments in East Africa.
“The new private equity (PE) fund targeting general investments will be up and running in the next few weeks. It will focus directly on opportunities in Kenya, Uganda, and Tanzania,” said Richard Laing, CDC chief executive.
He added that CDC was yet to decide on the initial amount, but hinted it would be million of US dollars. Mr Laing said the firm also plans to make direct investments in the consumer goods sector.
This marks a shift in strategy in the firm’s investments model that has been defined by channelling funds through PEs with knowledge of the local market. The firm, whose current portfolio in Kenya stands at about Sh7.4 billion, has been investing through fund managers Actis, Aureos, ECP, Grofin, Helios, and Business Partners International. The move to make direct investments in future deals means that CDC will be competing with PE firms.
“This is a surprise move and it points to increased confidence in private equity investments in the region,” said Ms Eline Blaauboer, a partner at TBL MirrorFund.
Mr Laing said the advantage of investing directly is that it will allow CDC to quickly grab opportunities on a sectoral and geographical basis.
“The obvious first partners will be the fund managers, who have a good set of transactions. If they come across a transaction that may be too big for them and they desire more capital, we will invest alongside them. Over time, we will build up a subset of partners with whom we would like to make direct investments,” he said.
The new strategy, to be implemented in Sub-Saharan Africa and Southern Asia, was approved by the British government years ago. Earlier this year, Mr Andrew Mitchell, the British government’s International Development secretary, started to push for a shift for CDC to focus from investing in countries that can easily access private capital and focus more on investing directly in unattractive developing markets.
Britain is planning to commit half of all new investments to Sub-Saharan Africa in the next four years. Valued at over £2 billion, CDC is one of the biggest investors in emerging market private equity funds. Last year, it invested £359 million and £220 million in African and Asian businesses.
Mr Laing noted CDC investments in Kenya are low and said the firm will go big in energy, property and consumer goods — its main areas of focus.
“What is interesting in Kenya is that people have more money to spend now than ever before. Anybody providing the kind of goods consumers want will do well,” said Mr Laing.
CDC has stakes in Nairobi Business Park, the property complex at the Junction, Ngong Road; and two energy projects in Ol Kalou and Rabai. Other firms include Athi River Steel Plant, Brookside Dairy, Wananchi Group, Tsavo Power Company and Equity Bank.
Founded as a vehicle for promoting investments in former British colonies, CDC has been in Kenya since 1948. The economic upturn, stabilisation of the political environment, and deepening of regional integration has seen increased activity from private equity funds keen on riding the wave of growth expected in the medium-term.
East Africa, with a population of 126 million, presents a huge consumer base. Kenya, the region’s biggest economy, has high potential companies that can be harnessed to grow.
This has intensified activity by PE firms, as seen by AfricInvest’ injection of Sh1 billion Family Bank and the International Finance Corporation’s Sh2 billion in Diamond Trust Bank. Both banks are SME-focused. Catalyst Principal Partners is another new PE firm seeking to invest between $5million and $15million in SMEs in the region.
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