KKR, Blackstone, Paul Tudor Jones help drive investment as Africa makes historic shift from aid to trade
Three decades have passed since news reports of a devastating famine in Ethiopia inspired Irish singer Bob Geldof to stage the Live Aid concerts that raised millions of dollars in aid. Now he’s leading a $200 million private-equity fund into the country. Photo: Getty Images
By Simon Clark
Updated March 30, 2015 11:48 a.m. ET
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.
More
• Why Private Equity Is Moving Into Ethiopia
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.
From Aid to Trade
Rock star Bob Geldof and U.S. investors KKR, Blackstone Group and Paul Tudor Jones are helping to drive private-equity investment into Ethiopia as Africa makes a historic shift from aid to trade.
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.
Bob Geldof performing on stage with The Boomtown Rats in 1977. Mr. Geldof is now the chairman of 8 Miles, a private-equity firm that invests in Ethiopia.
‘They don’t have to die in vast numbers before we pay attention.’
—8 Miles Chairman Bob Geldof
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.
For a Dollar a Day
Some of America’s biggest private equity investors such as KKR and Blackstone Group are planning to plow billions of dollars into projects in Ethiopia. How will this affect ordinary Ethiopians who earn on average $470 a year? Photo: Simon Clark/The Wall Street Journal
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.
Basha Kadir wraps flowers on a rose farm in southern Ethiopia that is owned by New York-based private equity firm KKR.
Three decades have passed since news reports of a devastating famine in Ethiopia inspired Irish singer Bob Geldof to stage the Live Aid concerts that raised millions of dollars in aid. Now he’s leading a $200 million private-equity fund into the country. Photo: Getty Images
By Simon Clark
Updated March 30, 2015 11:48 a.m. ET
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.
More
• Why Private Equity Is Moving Into Ethiopia
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.
From Aid to Trade
Rock star Bob Geldof and U.S. investors KKR, Blackstone Group and Paul Tudor Jones are helping to drive private-equity investment into Ethiopia as Africa makes a historic shift from aid to trade.
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.
Bob Geldof performing on stage with The Boomtown Rats in 1977. Mr. Geldof is now the chairman of 8 Miles, a private-equity firm that invests in Ethiopia.
‘They don’t have to die in vast numbers before we pay attention.’
—8 Miles Chairman Bob Geldof
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.
For a Dollar a Day
Some of America’s biggest private equity investors such as KKR and Blackstone Group are planning to plow billions of dollars into projects in Ethiopia. How will this affect ordinary Ethiopians who earn on average $470 a year? Photo: Simon Clark/The Wall Street Journal
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.
Basha Kadir wraps flowers on a rose farm in southern Ethiopia that is owned by New York-based private equity firm KKR.
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.
Still, some human-rights activists are critical.
“How do you justify shipping out fancy roses when people are hungry?” said Anuradha Mittal, executive director of the Oakland Institute, a California-based nonprofit that has investigated Ethiopian land rights. “How do you justify using Ethiopia’s land and water resources to satisfy our rose needs? What’s so sweet about it?”
A recent report by the International Finance Corp., a World Bank unit that is considering a €90 million loan to the farm, listed criticisms including too much overtime, a lack of formal process for handling workers’ complaints and inadequate places to eat or areas for working mothers to breast-feed. The IFC noted that pregnancy testing before employment will be discontinued and verification that new hires are aged 18 or older has begun.
KKR said the flower industry plays a “major part” in poverty reduction by providing jobs and that there is potential to grow both more flowers and food in the region. The private-equity firm said Afriflora is addressing the points raised by the IFC.
“This is a better opportunity than any other job I could do locally,” Ms. Kadir said.
Still, some human-rights activists are critical.
“How do you justify shipping out fancy roses when people are hungry?” said Anuradha Mittal, executive director of the Oakland Institute, a California-based nonprofit that has investigated Ethiopian land rights. “How do you justify using Ethiopia’s land and water resources to satisfy our rose needs? What’s so sweet about it?”
A recent report by the International Finance Corp., a World Bank unit that is considering a €90 million loan to the farm, listed criticisms including too much overtime, a lack of formal process for handling workers’ complaints and inadequate places to eat or areas for working mothers to breast-feed. The IFC noted that pregnancy testing before employment will be discontinued and verification that new hires are aged 18 or older has begun.
KKR said the flower industry plays a “major part” in poverty reduction by providing jobs and that there is potential to grow both more flowers and food in the region. The private-equity firm said Afriflora is addressing the points raised by the IFC.
Source: wsj.com
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