“Diamonds in the Rough – Missed Opportunity in the Race to Get to China?”

Even before Marco Polo wrote Il Milone, China and exotic locales seemingly on the edge of the world have beguiled investors and entrepreneurs alike, with promises of riches, wealth, and success beyond measure. For a select few, the successful return of a caravan or the safe docking of an inbound spice ship brought incredible returns to stakeholders. A captain fortunate enough to be on that sole surviving vessel would have a bountiful estate that would last him 3 lifetimes, with more than enough left over to pay tribute to the Crown. However, for many others this trek would often end in violent confrontations with local inhabitants, lost ships resting peacefully at the bottom of the ocean, and mutiny. It would not be until several centuries later that those same entrepreneurs in search of a shortcut to the treasures of the fabled “East Indies” would discover a “New World,” The Americas. How would the history of the world have been different if these risk-takers had taken advantage of the opportunity that was right in front of them sooner? Did those businessmen of yesterday miss opportunity in their haste to reach the Far East? Are our modern day equivalents doing the same thing with markets such as Africa?

Recent news of The Carlyle Group opening offices in Lagos and Johannesburg in anticipation of investments in a fast growing sub-Saharan African market has investors asking the question. The vote of confidence from one of the world’s leading buyout firms highlights the growing success story of the African continent.  In the sub-Saharan region, the years of 2002-2008 have seen substantial growth, fueled by a strong flow of commodities, political stability, and maturing capital markets. And this growth and success was by no means confined to the sub-Saharan region – by 2008 the entire African continent had a GDP of 1.6 trillion dollars, which made it equal to the GDP of Russia or Brazil. In 2020, that same GDP is projected to have almost doubled – 2.6 trillion dollars.

"Africa is in a take-off phase, with foreign direct investment (FDI) increasing from 15 billion dollars to 80 billion dollars in eight years. And the per capita GDP of the top performing economies - Algeria, Botswana, South Africa, Libya, Mauritius, Morocco and Tunisia - exceed that of BRIC (Brazil, Russia, India and China), the traditional emerging countries," stated Nozipho January-Bardill, group executive for corporate affairs at Mobile Telecoms Network (MTN), a South African company that has invested in 21 countries, both in Africa and in the Middle East. In addressing a gathering of executives at the 4^th Annual Swiss-African Business Exchange, January-Bardill pointed out that Africa’s recent success is very much the international business community’s most understated coming of age story. “Africa is the last frontier of growth. In the past, investment opportunities were mainly in oil, diamonds and property. But today resources are diversifying, with 60 percent of growth coming from non-traditional sectors, such as retail, manufacturing, financial services, telecoms, real estate and tourism."

However, China is still seen as private equity’s new frontier. The Beijing Private Equity Association has grown to more than 100 members. Similar organizations in Shanghai and Tianjin have over 100 members between them, and are growing. The expectation is that China is on its way to becoming one of the world’s top private equity centers, despite geopolitical tensions that permeate discussions between Beijing and The West. There is also the often mentioned tale of PE firms looking to enter the Chinese markets having to work harder than any other market they participate in. At a recent conference, a VP of a PE firm building a presence in China stated, “We have to have five times the number of people on a deal than we do if it were done here.” The imagery of a spice galleon fleet comes to mind…