ON EQUITABLE TERMS

Tanzania 2015 | ECONOMY | FOCUS: PRIVATE EQUITY

The high potential of private equity deals in Sub-Saharan Africa has been translating into real investments in recent years.

The first half of 2013 alone witnessed 36 deals with a value of over $800 million—and Tanzania is well-positioned to be a leader in this trend. Boasting annual growth rates of over 7% and perhaps the greatest political stability in the region, Tanzania totaled $284 million in private equity deals in 2013 and attracted the attention of top private equity firms such as the Carlyle Group and Blackstone.

Other aspects adding to the appeal of the Tanzanian market include the development of its significant natural gas reserves, an expanding middle class, a burgeoning consumer base and its role as a gateway into the larger East African Community market. With a domestic market already at an impressive 45 million, Tanzania's membership in the EAC and geographic position on the Indian Ocean provides access to 150 million people, many of whom are in landlocked countries.

In 2014, Tanzania also became the headquarters of the recently established Mkoba Private Equity Fund, the first private equity fund in the country. The $300 million—which is officially inaugurated by President Jakaya Kikwete in April of this year—was established with the purpose of providing growth capital in Africa, especially to SMEs requiring million-dollar investments. Specifically, the fund is targeting countries like Tanzania that feature an economy that is both rapidly growing and undergoing liberalization, such as Mozambique, Rwanda and the Ivory Coast, among others. Frannie Lautier, CEO and Partner of the Mkoba fund, cited the country's diversified economy, stability in its business environment, and geographical access to landlocked EAC member countries as part of the reasons behind the fund's decision to base themselves out of Tanzania. Thus far, the main sectors attracting private equity attention have been in manufacturing, agribusiness, financial services, real estate and construction.

In February 2014, Kenya-based firm Catalyst Principal Partners increased its presence in Tanzania by acquiring a share of local logistics company EFFCO Tanzania. This deal, worth between $5 million and $20 million, was the third deal from Catalyst Principal Partners in Tanzania in the past three years. Previously, it had invested in ChemiCotex, a manufacturer of oral care products, and acquired a 95% share of Chai Bora, Tanzania's largest packager of tea. These acquisitions are part of a $125 million fund of Catalyst Principal Partners specifically targeting East Africa.

In June 2013, South Africa's Agri-Vie Private Equity Fund announced a $6 million investment in the Tanzania Food Corporation. Much of the latter entity's activities are part of the Southern Agricultural Growth Corridor of Tanzania project, an initiative to bolster agribusiness developments through a combination of both public and private investments.

In November 2012, the Pembani Remgro Infrastructure Fund, the Carlyle Group and Standard Chartered Private Equity invested $210 million in Export Trading Group (ETG). ETG is a global supply chain manager for the agriculture sector, based in Dar es Salaam. Leveraging the new investors' global platforms, this strategic partnership has helped to hasten the growth of ETG's business throughout its markets in Sub-Saharan Africa, India, China, and Southeast Asia.

While the penetration rate of private equity deals in Tanzania remains relatively low, such recent deals are promising signals for the country's future. With a natural-gas based economy waiting in the wings, longstanding political stability and strong economic growth forecasts, Tanzania is well positioned to take center stage in Sub-Saharan Africa's incoming private equity boom.