Covid-19 could lead to import substitution opportunities for Africa, says fund manager
Every month, African ports receive thousands of containers of imported products that could easily be produced locally. However, possible deglobalisation due to the Covid-19 crisis may present opportunities for African companies to focus on import substitution.
So said Papa Madiaw Ndiaye, CEO of Senegal-based private equity fund manager Advanced Finance & Investment Group (AFIG Funds), during a webinar hosted by Africonomie on 30 April.
“Supply chains are being rethought right now. In Senegal, for instance, we just found out the Vietnamese and Thai have decided they are not shipping out rice … We are in trouble now because, in another couple of weeks, there is going to be a shortage of rice unless some solution is come up with. And that is true across the industries,” he explained.
The coronavirus is a wake-up call for African countries to develop their local industries, according to Ndiaye. “This is the first time African elites cannot travel out of the continent in order to get healthcare. So, everybody is starting to get the memo but we want to accelerate that.”
Commenting on which sectors will benefit from the Covid-19 crisis, Ndiaye identified healthcare, delivery and logistics, and fintech. He said to take advantage of these sectors, investors don’t necessarily have to make fresh investments; they can push their existing portfolio companies to move into these segments.
The virus is likely to pressure regulators in Africa to embrace technology. Ndiaye gave the example of regulations in some countries that require him to be physically present for board meetings. Travelling to these countries often ends up in a “three-day situation … for like a four-hour meeting”. The lockdowns and travel restrictions are, however, forcing regulators to allow virtual board meetings.
In terms of how African private equity firms can engage with their limited partners (LPs) to support portfolio companies from the economic fallout, Ndiaye said LPs want fund managers to devise creative non-financial solutions in addition to asking for money. “They are really looking for ideas from us,” he noted, adding these ideas could include the relaxation of certain items in the legal agreements with LPs which will afford fund managers greater flexibility in responding to the crisis.
Covid-19 will likely require African private equity firms to rethink fundraising, particularly in terms of their fee structures, according to Ndiaye. “[LPs] are not going to go into Africa just like that unless you make it worth their while. We are seeing that in the US guys are saying, ‘If you can give me a little lower fee, I will look into it.’ Beyond the fee structure, fund managers should consider working with development finance institutions to extend partial guarantee facilities to those international LPs hesitant to invest in the continent.
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