Private equity investment in Mozambique: a time for dramatic growth
Mozambique continues to experience dramatic economic growth rates, with gross domestic product (GDP) growth in 2012 estimated at 7.5 percent, and projected growth in 2013 and 2014 estimated at over 8 percent. Nevertheless, Mozambique remains extremely poor and underdeveloped, struggling to translate that robust economic growth into prosperity for its populace. Moreover, the sustainability of that growth is highly questionable. Mozambique suffers from a significant infrastructural deficit, and is also experiencing a negative trend in foreign aid flows.
As a result, the Mozambican government is threatened by a growing fiscal deficit. In order to overcome these challenges, the government plans to rely on private financing and public-private partnerships to finance infrastructure development. However, as noted by the African Development Bank, an enhanced institutional framework is badly needed to assure accountability and scrutiny for the plans to add economic value. Moreover, stimulating private equity investment in Mozambique is challenging, given the historically lethargic state of the capital market. However, it appears that changes stemming from rising consumer spending and from natural resource discoveries may be instrumental in changing that trend. Mozambique is an increasingly attractive prospective destination for the international investment community.
Mozambique seeks increasing attention from international investors
Private equity is a critical source of financing for companies in emerging market economies. Through a blend of growth capital, venture capital, leveraged buyouts and mezzanine investment, private equity enables positive development. Private equity funds greatly improve access to funding for small and medium scale enterprises (SMEs), and as such, offer an important means of stimulating economic growth and sustainability. Mozambique seeks to benefit from precisely those growth enabling qualities.
The Mozambique Investment Summit, held for the first time, in November 2013 in London, is indicative of Mozambique’s arrival on the international investment community’s radar. Described as “an opportunity for Mozambican companies seeking investment and finance to meet with UK and international investors”, the conference focussed attention on mining companies, gas producers, and real estate firms seeking to benefit from access to Mozambique’s coal and gas extractive sectors, as well as other sectors such as real estate and infrastructure.
Rising consumer spending and natural resource discoveries attract the international investment community to East Africa
A survey by the Emerging Markets Private Equity Association (EMPEA) showed that sub-Saharan Africa attracted some $1.6 billion of private equity investment in 2013 – the highest in five years. The amount of capital invested by private equity funds in sub-Saharan Africa in 2013 represented a 43 percent increase from 2012. (For comparison, emerging markets as a whole, saw a 7 percent decline in capital flow in the same period).
As one of the world’s fastest growing regions, sub-Saharan Africa has caught the attention of private equity investors who have been encouraged by rising consumer spending and natural resource discoveries in countries like Kenya, Uganda, and Mozambique. Importantly, the survey showed that the East Africa region experiencing the biggest increase in deal activity, accounting for just over a third of the 74 deals completed in 2013. The region has become an investment hotspot after gas discoveries in Tanzania and Mozambique and other hydrocarbon finds in Uganda and Kenya. The sectors which lured the most capital were energy and natural resources, and banking and financial services.
However, the same survey showed private equity funds focused on sub-Saharan Africa raised less money in that period, down 46 percent from 2012. This discrepancy was explained by the EMPEA to be the result of previously raised investments now being deployed. Robert van Zwieten, EMPEA’s chief executive offered the following insight: “In Sub-Saharan Africa, 2013 was the beginning of a big deployment phase for private equity capital, resulting in a drop in fundraising for the region but a five-year high for investment… A large amount of capital was raised for the region in previous years, and now that capital is being put to work.” The EMPEA expects 2014 to be a year of further private equity growth in the region.
In Mozambique, one notable deal has already been made this year: Carlyle Group, along with the asset management arm of South Africa’s Investec, has bought out 50 percent of J&J Africa, a Mozambique-based transport firm. Other such major investments are likely to follow, and bode well for Mozambique’s private equity market. These investments offer a means for Mozambique to benefit from small and medium business sector development, but also to finance the much needed infrastructural development necessary to sustain its economic growth rate.
For more, see:
- ‘Mozambique Economic Outlook’, African Development Bank Group. Available at: http://www.afdb.org/en/countries/southern-africa/mozambique/mozambique-economic-outlook/
- Sulaiman, T., ‘Africa private equity deals reach five-year high of $1.6 bln in 2013-report’, Reuters, 5 February 2014. Available at: http://www.reuters.com/article/2014/02/05/africa-privateequity-idUSL5N0LA41U20140205
- ‘Carlyle & Investec in $100m J&J buyout’, Private Equity Africa, 28 January 2014. Available at: http://www.privateequityafrica.com/wp/deals/carlyle-investec-in-100m-jj-buyout/