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The evolving relationship between Asia, Africa and MENA

Growing economic ties between Asia, Africa and MENA are creating new opportunities for investors active in these markets;

Trade between Asia, MENA (Middle East and North Africa) and Africa is growing as companies in the regions expand and investors look for risk diversification, SuperReturn Asia heard.

Anand Kumar, partner at Gateway Partners, said: “Limited Partners have compartmentalised these markets into different buckets and they find it hard to co-mingle investments that straddle these regions.

“The reality is that these markets are getting increasingly integrated and the opportunities that exist are pan-regional.”

He said the typical thesis was that the West would be funding a lot of the investments going into emerging markets across Southeast Asia and Africa, but the reality was that the majority of foreign direct investment going into these markets was coming from within these markets.

China has taken the lead in driving a lot of these flows. Other Asian markets and the Middle East are trying to catch up to extend their influence,” he said.

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He said Africa was seen as a big frontier market, and China’s trade with Africa had gone from USD10bn 15 years ago to USD200bn today, while India’s trade with Africa looked set to double in the next four years, and the Middle East’s trade with Africa had gone up 700% in the last 10 years.

"The Middle East’s trade with Africa had gone up 700% in the last 10 years."

“Everyone is looking for a piece of the next big growth opportunity,” he said.

Ravi Chidambaram, co-founder and president of TC Capital, said there was still more investment from the Middle East into Asia than the other way around.

He said in past two-and-a-half years the value of investment from Asia into the Middle East, excluding Turkey and Israel, was USD6.5bn, while it was growing at a rate of 15% per annum.

Market similarities

Chidambaram said the Middle East had similar demographics and similar GDP per capital to Asia, so it was very natural for Asian companies to expand there.

But the value of investment from the Middle East to Asia was higher at USD15bn during the same period, with growth of 25% per annum.

He added that the growth rate had accelerated since the oil downturn as investors in the Middle East looked for risk diversification.

“Asia represents a very logical diversification because of the similarities, as well as the growth profile and the return you can achieve,” he said.

He added that in some cases, in sectors such as energy and logistics, clients had been driven by a horizontal scale story, serving fairly similar customers across different geographies.

Chidambaram said in the infrastructure sector, China and Japan were very advanced in areas of transport, renewable energy, water treatment and waste management, and these companies were looking to export some of this expertise to similar markets.

He added that there was also huge demand from the Middle East in some areas, such as food services, and that had also played a role.

The Middle East currently imports 85% of its food, with food exports from Asia to the Middle East approaching USD3bn.

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Rodney Muse, co-founder and managing partner of Nevis Capital Partners, which has a strong focus on Southeast Asia, said his firm had invested in protein and the agrarian economy.

He said: “The Middle East and Africa are often not serviced by industry champions in their markets and that creates an opportunity for us to come in with food, oil and gas services and consumer goods.”

He added that M&A had not been Navis’ preferred approach in expanding outside of its core geographies.

“We have often been able to build successfully into these markets and that is lower risk and often offers a higher return.”

He also pointed out that sometimes there was not a logical acquisition target in the markets they were expanding into.

A more integrated India

Harjit Bhatia, chairman and CEO of Asia Growth Capital Association, said there was growing trade from the Middle East to India, while Indian enterprises were also investing in the Middle East and Africa.

“India is making a concerted effort to get more integrated with ASEAN countries,” he said.

“India is now not only a large market in itself, but also an interesting market in terms of its integration with other markets, particularly in the healthcare and education sectors.”

He said many entrepreneurs were starting small companies in India and building them up very rapidly.

“They are all now looking globally, especially in the IT sector, or IT related services, such as social media and e-commerce,” he said.

But he added that many of these companies lacked expertise in the new markets into which they were expanding, creating an opportunity for private equity firms to add value.

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