AFRICA NEEDS A MATURE FINANCIAL INDUSTRY

What prompted you to launch Amethis Finance?

Amethis Finance was born out of more than twenty years of experience in long-term responsible investing on the African continent. Africa is today undergoing profound transformation. We are witnessing a historic turning point: the continent is being driven by structural reforms initiated in the late 1990s and by major demographic shifts. From what was a “sparse and rural” space thirty years ago, Africa is becoming a dense and urban continent that will be home to 20% of the world’s population by 2040. Its middle class, estimated at more than 250 million people, will alone represent a market worth USD 2 trillion. These demographic, urban and economic transformations create considerable investment opportunities.
Over the past ten years, Africa has become one of the most dynamic growth regions in the world, with average annual growth of 6.5% excluding South Africa. Together with Laurent Demey, and in partnership with Compagnie Benjamin de Rothschild, we created Amethis Finance to take part in this momentum and, at our own level, contribute to Africa’s emergence. Today, Africa is demonstrating strong attractiveness for assets such as foreign direct investment and private equity. Contrary to a perception that still persists in Europe and the United States, the best return prospects are not found in extractive industries, but rather in sectors delivering goods and services to Africans themselves. African growth is endogenous and, driven by demographics, the continent has become one of the last frontiers of global growth.

How much capital do you intend to raise and what is your investment strategy?

We have just completed an initial equity fundraising of €120 million and obtained approval from the board of the U.S. OPIC for a credit line of more than USD 150 million. Amethis therefore begins operations with an equity and debt investment capacity exceeding USD 300 million across the continent. We will continue capital mobilization efforts in 2013 to double these amounts.

Amethis follows a conservative model: we raise capital to make equity investments and borrow in a limited manner to provide debt financing. We aim for a high level of diversification, both geographically and sectorally, which we believe is essential on a continent where certain countries and sectors remain subject to significant volatility.
Our strategy is to partner over the long term with high-growth African companies that have proven business models and long-term capital needs. We support them in a new phase of their development, first nationally and then regionally. Selectivity lies at the heart of our business. We adopt a rigorous approach in choosing our investments, taking minority stakes in companies that we hope will become regional or continental champions. Prior to investing, we conduct thorough due diligence across financial, ethical, social and environmental dimensions.

How do you operate when entering the capital of an African company, and what are your objectives?

Beyond providing capital, we support companies in defining their strategy and help them build strategic and financial partnerships, thereby creating value for both our partners and our investors. When we enter a company’s capital, we become an active investor supporting its growth. Our team’s expertise and network facilitate access to new markets and partners.

Over time, we also aim to build a coherent portfolio that allows for synergies between partner companies. Our long-term investment horizon aligns with the needs of African businesses. We also assess the impacts of financed projects. Experience has shown us that high standards in social and environmental responsibility are a prerequisite for long-term value creation in Africa, as elsewhere. This approach simply reflects our values.

There is not just one Africa, but several Africas, with countries that differ widely, particularly in terms of natural resources. Which countries or regions do you prioritize, and which sectors of activity are of particular interest to you?

Indeed, Africa’s 54 economies face very different realities. Amethis Finance is a pan-African fund, but we focus on a limited number of countries with diversified economies that are not solely dependent on a single commodity. These countries have strong economic and industrial bases and growth rates exceeding 7%. Our presence there will be significant and our approach comprehensive.
A second group consists of countries with strong potential that are in the process of diversification. Our approach there will be more opportunistic and sector-specific. Finally, in a third group of countries, we will pursue a deal-by-deal approach alongside known clients and partners.
From a sectoral perspective, we prioritize high-growth sectors serving the middle-class consumer. We have identified three priority areas that currently represent major bottlenecks to Africa’s development: financial services; services to individuals (healthcare, pharmaceuticals, education); agro-industry, distribution, and energy supply. Ultimately, these sectors will represent around 80% of Amethis Finance’s portfolio.

One billion Africans today, two billion by 2050. In light of macroeconomic indicators, which countries are expected to matter most in terms of growth?

Africa’s population will double over the next forty years. The continent’s growth began around 2000, when Africa started benefiting from the same demographic dividend China experienced thirty years earlier—a high ratio of working-age population to dependents.
However, this will not occur at the same pace across all countries. Economies that are diversified will lead growth, including Ivory Cost, Kenya, Nigeria and Zambia, as well as oil-producing countries such as Angola and Gabon that manage to diversify. Transition economies such as Senegal, Mozambique and Cameroon will follow, with some—like Ghana—already among the world’s fastest-growing economies. Pre-transition countries such as Ethiopia will then follow the continent’s broader growth trajectory.

Will the rise of the middle class allow African companies to scale up?

This is already happening. Most of Africa’s recent private fortunes have been built in consumer-oriented sectors such as telecommunications, beverages, cement, food, banking and insurance. To meet growing demand, leading national companies must adopt regional and pan-African strategies. Today, a Ugandan cement producer, a Kenyan oilseed processor or a Tanzanian banker designs long-term strategies across East Africa.
The continent is gradually consolidating into five economic zones—North, West, East, Central and Southern Africa—creating pathways for companies to build regional scale before expanding further. Although hurdles remain, notably in infrastructure, regulatory harmonization and cross-border mobility, steady progress continues.

A key challenge for African countries is the lack of a strong local industrial base. Is this set to evolve, and what role do you expect to play in this shift?

Historically, Africa’s domestic market was too small to support industrial emergence. Thirty years ago, Sub-Saharan Africa had fewer than 300 million people, less than 100 million urban residents, and fewer than 30 million consumers with meaningful purchasing power. As a result, Africa exported raw materials and imported finished goods.
This model is disappearing. The rise of an urban middle class is fundamentally changing the equation. In countries growing at over 8%, the most dynamic sectors exceed 10% growth. Serving African consumers locally has become more profitable than exporting. Logistical constraints that once hindered exports now provide natural protection for local import-substitution industries.
Despite shortcomings in education systems, many African countries benefit from a skilled and cost-competitive workforce, supporting accelerating industrialization across multiple sectors. While structural constraints persist—such as limited access to energy, scarce long-term capital and high logistics costs—these very constraints also create opportunities for long-term investors to generate attractive returns. Scarcity, in this context, carries a premium. By helping to expand the supply of long-term capital, investors like Amethis can reasonably expect strong performance.

Financial services offerings are becoming increasingly diverse, including growth capital, investment funds and IPOs led by investment banks. How do these instruments support companies’ financing needs?

Financial services are an industry like any other, provided they retain their core function of supplying capital to dynamic sectors and companies. Past debt crises and banking restructurings have left Africa’s financial industry fragmented and underdeveloped, constraining growth.

In a context of strong economic growth, companies require long-term capital that retail banking systems and still-developing capital markets are unable to fully supply. Africa therefore needs a more mature and diversified financial ecosystem. Private equity plays a threefold role by mobilizing long-term savings, providing critical equity capital to high-growth businesses, and narrowing the gap between developed and emerging markets through expertise and networks.
This is the essence of Amethis Finance: enabling convergence between worlds that remain too siloed—allowing “old” Europe to invest in “young” Africa, and African companies to access long-term capital and strategic partners—creating sustainable value for investors and African partners alike on a continent that will welcome another billion people in the decades ahead.

Interview conducted by Hichem Ben Yaïche for African Banker, June 2013

The printed version of this article is available in African Banker France