What is the interest of investing in Africa? – Finance and banking

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Global: What is the interest of investing in Africa?

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Introduction

The fiduciary world devotes a lot of effort and resources to putting in place appropriate structures for the migration of wealth out of Africa, especially South Africa. However, little attention is paid to the vast opportunities for investments into the African continent itself, investments which will also require structures.

Over the past few years, Dixcart has seen a steady stream of requests for structure investments in Africa from family offices, private equity (PE) houses and mutual interest investor groups. The structures are generally tailor-made and often incorporate an ESG (environment, social and governance) investment strategy. Corporate and fund vehicles are typically used, with private equity funds (PIFs) being the preferred funding route.

What has been particularly interesting is the high number of acquisitions or investments targeted at the sub-Saharan region, ranging from processing and production facilities, to mining and mineral exploration, to infrastructure such as renewable energy and water.

While these investment structures are applicable to investments worldwide, the question is what attracts investors to the African continent and why use Guernsey structures for foreign investment?

The African continent

The great opportunity is the fact that the African continent is one of the ultimate frontiers as other emerging markets such as Asia-Pacific mature.

A few key reminders about this amazing continent:

  • The African continent

    • Second largest continent by area and population

    • 54 countries fully recognized by the United Nations

    • Important natural resources

    • Africa’s complicated political situation, history of colonialism and ongoing insurgencies in many countries have largely kept multinational and institutional investors away from certain countries.


  • South Africa – probably the most developed country, driven by raw materials and mining industries (largest producer of gold/platinum/chromium in the world). Also, strong banking and agricultural industries.

  • South Africa – Generally the most developed market with a strong mining industry

  • North Africa – Similar to the Middle East with oil reserves attracting oil-related activities and industries.

  • Sub-Saharan – Less developed economies often spared by international investors where infrastructure-type projects are key opportunities.

What are the trends in investment in Africa?

In working with our clients, Dixcart sees that the targeted countries are determined by the client’s specific industry of interest (see above) and has noted the following general trends:

  • Often targeting successful investments/projects in the more developed countries of Southern Africa first; so,

  • Then expand into less developed countries, after gaining an understanding and track record to build investor confidence (as it is more difficult to invest in less developed countries but can ultimately produce better returns).

What types of investments and investors are attracted?

  • start-up are the most risky but often require the least investment. Dixcart sees PE Houses/Family Offices/HNWIs often involved in equity at this stage, as the upfront money secures the projects and gets the highest return. FIPs are particularly used at this stage. Later, these initial investors have the option of exiting when larger investment sums are needed to move the projects forward. It is now at a time when the project is proven and less risky, which means that institutional investors are interested and will pay a premium because of the risky phase now passed.

  • ESG factorsattract large investors/institutional investors looking to increase their ESG activities and potentially offset an existing high carbon footprint. Low return green programs will often still be commercially acceptable to these types of investors. The bespoke nature of PIFs and corporate structures makes establishing a dedicated ESG strategy unique to the pool of investors very simple.

Dixcart also noted that investment banks, especially European banks, were being used to leverage projects.

Why structure through Guernsey?

Guernsey has a long and successful history of servicing Private Equity and Family Office type structures, either through the use of corporate vehicles (using Guernsey’s flexible company law), trusts and foundations, or through the use of internationally recognized collective investment regimes such as the PIF which brings a lighter touch of regulation.

Guernsey offers security with experienced service providers in a mature, well-regulated, politically stable and recognized jurisdiction.

Guernsey has a good track record of meeting global tax harmonization requirements and is a recognized jurisdiction for banks to set up banking and lending facilities.

Conclusion

We are all aware of the huge amounts of capital available from international investors seeking investment opportunities and from the African continent as one of the last remaining frontiers in the world offers attractive investment opportunities and returns. These international investors need their capital to be invested in solid structures registered in an appropriate jurisdiction and Guernsey is one of the prime choices for such structuring.

Corporate structures are often favored for individual investors, while the Guernsey PIF regime attracts private equity houses and fund managers as an excellent structuring vehicle for their networks of professional and institutional investors.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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