Richard Arlove is CEO of Abax Corporate Services, a Mauritius-based international provider of integrated corporate, business and advisory services for private equity funds.
Knowledge@Wharton: I understand that Abax helps companies do business with Africa. Could you explain what you do and how you started doing it?
Richard Arlove: Abax is a company that has 22 years of experience in helping corporates, private equity funds, entrepreneurs and high net-worth individuals that are doing business with Africa or in Africa to look at how to optimize their enterprise value and their shareholder value when they do cross-border investments and cross-border trade or business. Basically, if you take a company that wants to invest in Africa, often that investment would take place in a number of countries and not in a single country. Then comes the question about where the headquarters should be? Where should my holding company be? It could be in one of the countries or it could be in a financial center.
The advantage of using a financial center — now I’m going to talk of the Mauritius financial center — is that it has an ecosystem which you may not find in any of the business hubs or countries in which the actual business is carried out. This ecosystem in Mauritius would include financial, economic and political stability, a rule of law and a system of legislation. This provides you with a first-class environment where as an investor you feel at ease to lead your company there, to deliver profits there and, basically, for that company to manage your assets on the continent. This is what our business is: to advise companies and individuals how the Mauritius financial center can help to do that and then, if they’re interested, form a company in Mauritius to do that.
Knowledge@Wharton: Can you give me one or two examples of deals that Abax may have assisted with that led to investments in Africa?
“In a sense, the world financial crisis in 2008 has turned the attention of many investors away from the traditional places of investment and towards Africa.”
Arlove: I’m not sure whether I can give the names of these companies because the name is sometimes confidential. I’ll just think about the few names which I know I’m authorized to talk about. Abax administers about $22 billion dollars of client assets, so there’s a lot we can talk about. Not all of it is in relation to Africa. There’s Asia as well because Mauritius is a financial center. It is very popular for structuring investments into Asia.
Knowledge@Wharton: Roughly how much deal flow do you see going into Africa right now?
Arlove: It’s difficult to say for sure. But what I can tell you is as a financial center, about 55% of the new companies that are being registered in Mauritius are in relation to Africa. Five years ago, it was probably less than 10%. These days, the Mauritius financial center is recognized as the premier financial center by the developmental and finance institutions such as the African Development Bank and the IFC in Washington. They would need to domicile their private equity funds in a country. Normally they would choose an African country. The most popular jurisdiction that they would use would be Mauritius. There is a lot of governance here.
I’d like to share the story of a Nigerian client who told us a few months ago how he was grateful that we have, in a sense, forced him to have governance in his companies. That has allowed the valuation of his shares to climb because the governance in and of itself has made him more attractive to big guys like big banks. He sold these shares at a value of, let’s say, 100 two years ago and now he’s being offered 175 because of the actual governance that exists.
I think it’s very interesting that once someone wants to go across borders he needs to do things in a certain way. Maybe if he was doing it as a small business within his own country he would not feel obliged to do that. But this is where people like us in financial centers can help. For example, the PTA (Preferential Trade Area) Bank has put up a $1 billion fund for infrastructure in Africa. They chose Mauritius as domicile for the fund, because of the governance.
Taxation is relatively low in Mauritius and many people feel that people use Mauritius because of its tax. One of the reasons is tax but that’s not the only reason. There are many other reasons as I mentioned — the ecosystem, the fact that there’s a bilingual, educated workforce. [Knowing both] English and French is very helpful when owning a business across the continent. We are increasingly seeing Mauritius as a place where a lot of businesses in relation to Africa are structured. This is becoming like an investment banking center. People who need finance and have projects can get finance from the banks and from the private equity firms who are looking for projects to invest in.
Knowledge@Wharton: You mentioned that the volume of investment has gone up from 10% to more than 50% now. What accounts for this tremendous increase in interest in Africa as an investment destination?
Arlove: I think in a sense the world financial crisis in 2008 has turned the attention of many investors away from the traditional places of investment and towards Africa. I also think that Africans made an effort to become more visible as an investment destination. I must also say that there’s a lot of intra-Africa business. A number of businesses from South Africa, Kenya, Nigeria, Ghana and Cote d’Ivoire have grown their markets within their own country to the point that they feel that it makes sense for them to go beyond their own borders.
“The Western world would think, “How do I structure this? How do I get my legal agreements in? Who do I put on my board?” The Chinese will just go and do the transaction straightaway.”
What attracts people as well is the sheer market size of Africa — the numbers, the number of people, and also the fact that Africa can leapfrog in certain cases learning from the mistakes that have happened in other countries. You see that in mobile payments, in technology, in banking. There are a number of innovative ways of doing business in Africa that you may not see in other continents. The realities of the place are such that entrepreneurs — African entrepreneurs — are coming up with new ways of doing things. There are a lot of new ideas, a lot of intellectual property that is being developed in Africa.
Knowledge@Wharton: Which are some of the regions that are getting most of the investments and why?
Arlove: There’s a lot of change that has happened over the past year or so because of the fall in the prices of oil and of commodities. Places which used to be attractive are getting less investment. However, we are seeing some mergers and acquisitions because of this. There are many deals because prices are going down. Some people are interested in buying these companies that are not doing well. But, generally speaking, what we see is that the places with a large number of people with spending power attract investment. Nigeria, definitely. We are seeing Cote d’Ivoire as well coming out of a bad period. Ethiopia, because it’s opened up. Kenya; I would say the usual suspects are attracting a lot of investment. Mozambique used to attract a lot because of its resources; now less so. South Africa; we don’t see so much going into South Africa but we see a lot out of South Africa on to the continent.
Knowledge@Wharton: China has in recent years been a big investor in Africa but the country has recently started having some economic difficulties. Have you experienced any slowdown in Chinese investment?
Arlove: We have not seen much of the Chinese investment using intermediaries like us. I’m saying that for Abax, but I could be saying that for many banks as well or the big four accounting firms and lawyers. Many Chinese companies will not use
intermediaries to do business in Africa. Very often the deals that the Chinese do are “G to G” — government to government. The Chinese move fast when they have a deal and transaction. The Western world would think, “How do I structure this? How do I get my legal agreements in? Who do I put on my board?” The Chinese will just go and do the transaction straightaway. That said, we have seen over the years a number of Chinese companies having difficulties. And they come to people like us to say, “What do I do now?” So we have seen a lot of Chinese; we know a lot of Chinese investments. It is true that some Chinese investments are going to be down because of the problems that China faces. But I do not think it’s significant. We see China very much interested still.
Knowledge@Wharton: When new companies consider investing in Africa, what do you think are the biggest misconceptions they have?
Arlove: The big misconception is that Africa is one country, is very homogeneous. Africa is huge. I don’t know whether you’ve seen that map of Africa where you can fit in all of Europe, the U.S., China, India and so on. It’s huge in terms of size. It is also very diverse. And the link to that misconception is the fact that Africa is seen as a continent where there is only poverty, war and crime. These two things are probably the biggest misconceptions. Therefore, from a business perspective, this means that people may not be seeing the actual opportunities of Africa. It’s really an emerging market where there’s space to grow almost any type of business.