Thursday, October 31, 2013

Ethiopia private equity: where Schulze goes, others follow

When I heard about the US investor, Gabriel Schulze, who’d gone out on a limb and started up Ethiopia’s first private equity fund, I couldn’t wait to meet him.
The feeling wasn’t mutual. Famously reticent, it took me more than a year to convince him to meet me. But when we did, we ending up busting our two-hour time slot over tea and coffee at a private members’ club in London and speaking for six hours. You can now read the interview from that meeting, Portrait of a frontier investor, on FT.com.
Schulze (pictured below) says he prefers to speak only after he’s taken action. It’s clear plenty of others have already noticed, even if he says some thought he was “nuts” at first.

even years after he started looking at investing in Ethiopia, today private equity is queuing up to get into one of the world’s largest untapped markets with only the most nascent of private sectors. Ethiopian authorities restrict foreign investment into the fast-growing economy of 90m people, especially in retail, banking and telecommunications – all critical sectors for investors looking for scale and keen to tap Africa’s galloping growth story. Despite the restrictions, many are keen to find even the tiniest toe-hold in the nation ahead of liberalisation they hope will come one day, some day in the future.
Booze is particularly appealing. In the past two years, Heineken and Diageo have acquired Ethiopia’s three leading state brewers in deals worth $400m. Last year, UK-based asset managers Duet Group and Vasari made the largest private equity investment in Ethiopia to date when it took a controlling stake in Dashen Brewery, an independent brewer, for $90m. In July this year, Bob Geldof’s 8 Miles bought the state-owned Awash wineries through a local investment vehicle, Blue Nile Investment.
Food processing is also open to investment, backed by a government keen to develop agriculture – its biggest employer – and feed its people. South Africa’s largest consumer-foods firm, Tiger Brands, bought a controlling stake in a new Ethiopian pasta, flour and biscuits manufacturer in 2011. Silk Invest, a UK investment manager, took a minority stake in biscuit makers NAS Foods last June, while Schulze Global Investment is also taking a minority stake in another food company.
Several other private equity players are also operating in the country, and many are still plugging away at restricted sectors. The world’s largest store, Walmart, has been in discussion with Ethiopian authorities for several years but has so far failed to secure entry. Kenya’s biggest supermarket chain Nakumatt is hopeful it may get in there ahead.
“Kenya is likely to get preferential treatment,” says Nakumatt managing director Atul Shah, who says Nakumatt accompanied a Kenya government delegation on one of several recent sets of trade talks with Ethiopia.
That won’t stop others trying to follow.