Monday, March 30, 2015

Rock Star Bob Geldof Spearheads U.S. Private-Equity Push Into Ethiopia

KKR, Blackstone, Paul Tudor Jones help drive investment as Africa makes historic shift from aid to trade

 ADDIS ABABA, Ethiopia—A generation ago, this African nation was a magnet for Western charity. Today, some of America’s richest deal makers are delivering something new: investment.
A number of high-profile investors have recently shown up here. KKR & Co., the New York-based private-equity firm, last summer bought control of a rose farm, Afriflora, for about $200 million, its first investment in Africa. Blackstone Group plans to build a $1.35 billion pipeline to bring gasoline to the capital, Addis Ababa. Hedge-fund manager Paul Tudor Jones is backing a $2 billion geothermal power project.
The investors are following in the footsteps of Irish punk rock singer turned activist Bob Geldof, whose Live Aid concerts 30 years ago this summer raised about $145 million for the victims of a devastating Ethiopian famine. Mr. Geldof now chairs 8 Miles LLP, a London-based private-equity firm that invests in Ethiopia. 8 Miles raised a $200 million fund in 2012; Mr. Geldof put in a few hundred thousand dollars.

“They don’t have to die in vast numbers before we pay attention,” Mr. Geldof said in an interview. “The potential rewards in Africa are far greater than anywhere else.”

8 Miles, named after the shortest distance between Europe and Africa, made its first investments in Ethiopia in 2013, including state-owned Awash Winery. 8 Miles plans to double production at the company, add nonalcoholic drinks such as grape juice and increase exports, said partner Doug Agble. The firm also backed Ethiopian entrepreneur Eleni Gabre-Madhin in 2013 to build commodity exchanges across Africa.
The private-equity firms are part of a historic shift: Global foreign direct investment has overtaken Western aid on the world’s poorest continent. Private-equity fundraising for sub-Saharan Africa hit $4 billion last year—more than triple what it was in 2013. 8 Miles plans to start raising a larger second fund next year, Mr. Agble said.
In Ethiopia, Western aid in 2013 was $3.83 billion, still far higher than the value of inbound investment at $953 million. But investors say more investment is sure to follow.
Colin Coleman,Goldman Sachs Group Inc.’s top Africa banker, visited Ethiopia for the first time in January. At an investment conference, he was clutching a booklet of profiles of people to meet. Consumer-goods companies, sovereign-wealth funds and private-equity groups are showing growing interest in Ethiopia, Mr. Coleman said in an interview. Ethiopia is “relatively undeveloped and therefore with significant upside,” he said.
Investors in Ethiopia must strike a delicate balance between profits and pitfalls. Many of the country’s 94 million people still live in extreme poverty. Human-rights groups say the government of Hailemariam Desalegn has focused on expanding the economy at the expense of civil liberties and political freedom. Ethiopia has just one opposition member of parliament, and he doesn’t intend to stand at the general election in May.
“There is no space for free speech, for opposition,” said Yemi Hailemariam, whose partner, opposition leader Andargachew Tsege, a British citizen of Ethiopian origin, was detained in Yemen last year and is now held in an Ethiopian jail.
The Ethiopian government said in a statement that Mr. Tsege was found guilty of conspiring to overthrow the government through terrorist acts. A government spokesman declined to comment. Earlier this year, a spokesman told The Wall Street Journal that actions have been taken against certain politicians or journalists because they have tried to instigate violence.
Investors say the potential risks are offset by rapid economic growth. Brian Herlihy, chief executive of Blackstone’s African infrastructure unit, BlackRhino, said that the 550-kilometer (340 miles) pipeline he is planning in Ethiopia will make money by helping to supply the country’s energy needs, rather than sucking resources out of the continent.
David Petraeus, the former general who resigned as Central Intelligence Agency chief in 2012 and who now advises on geopolitical risks at KKR, said that Ethiopia has good land and water, improving roads and very good air links, as well as stable politics.
KKR director Kayode Akinola said “a key dimension of the investment” in the rose farm is a social program that includes permanent contracts for 9,000 workers, pensions, paid maternity leave, a hospital and a school for about 5,000 children.
Afriflora was founded by Dutch farmers 10 years ago and grew 730 million flowers in 2013 for export to Europe, where there is strong demand for low-cost roses in large supermarkets. KKR plans to add almost 5,000 workers and 60% more land by 2019.
Flower packer Basha Kadir, 20 years old, said she works late into the night, often for six days a week, and hopes to earn $600 a year at the farm. The average annual income in Ethiopia is just $470, according to the World Bank.
Ms. Kadir’s mother looks after the rose worker’s daughter. Her husband is a fisherman on the lake that provides water to irrigate the flowers. Other local women work carrying heavy loads of wood on their backs or laboring on other farms. Another option is leaving to work as a maid in the Persian Gulf.
“This is a better opportunity than any other job I could do locally,” Ms. Kadir said.
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