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patient geneva; font-size: small;”>The proposed share increase will be used by the company to reach 51-100% ownership in most of its platform companies, in its five core industries: energy, transportation, agrifoods, mining and cement.
If successful, it would see Citadel Capital’s total paid-in capital rise to (US$ 1.15 billion) from around (US$ 625 million) through the issuance of over 728 million new shares.
This is a major development because it indicates a dramatic shift in the company’s business strategy to long-term investments from short-to-medium-term, a move very welcome in a continent which though growing very rapidly, lacks the long term investments necessary to foster sustainable development.
In its current state as a private equity firm, Citadel Capital is an investment manager making investments in the private equity of companies over periods ranging from five to seven years using a variety of investment strategies, the aim being to get a reasonable return to its investors in a relatively short time thus minimising the risk of long term exposure.
This approach, while generally beneficial to the investors, presents many drawbacks to the countries where the capital is directed, first; the volume of investment in real terms can never be very large, second; systems/governance structures are normally developed specifically for the investment period, lastly; the eventual exit of the Private Equity partner can lead to a loss of confidence in the company or the entry of undesirable shareholders who may lack knowledge or motivation to run the company effectively.
It is true that Africa as a continent cannot afford to look at investment “gift horses in the mouth” by dictating the duration of time companies should maintain their investments.
It is imperative at this critical period in our history where large scale investments in infrastructure will be necessary to improve Africa’s competitive advantage in the global economy that we find collective ways of attracting long term investors such as Citadel Capital who are able to bring in the massive amounts of capital both from the private and public sector needed to modernise the African economy.
Giving long term tax breaks to these companies would be an obvious part of this strategy; however, African Governments must become a lot more innovative by stimulating more Africa to Africa economic activity through trade pacts and through the introduction of policy and legal frameworks that fast track the existence of national funds like large pensions or sovereign wealth funds.
Such funds catalyse long term investments because the investors come in with money and expertise at structuring and operating, the locally domiciled funds provide the local currency hedging option (particularly where all or part of the revenue is in local currency) and generally act as a buffer against unfavorable local sentiment that could negatively affect the operating environment of a purely foreign investment.
This is a model that has been perfected by the Scandinavians and many of the Oil producing countries in the Middle East and one we must look at replicating across Africa now that a number of countries have discovered commercially viable Oil to go with their large natural mineral deposits.
To do this, African Governments need to enact legislation now that determines how much of our mineral revenue goes into the recurrent budget and how much is put into these funds.
The Norwegians for example, spend only 10% of the oil revenues while the rest goes to their sovereign fund which now stands at over $ 780 Billion and acts as both an internal and external investment vehicle helping to spread Norway’s level of financial risk.
This is very important when one considers the example Citadel Capital which has managed to remain profitable despite the turmoil brewing back home because of a clever strategy of spreading its investments to a number of African and Middle Eastern countries.
Attracting long term capital investments to Africa will not be easy or happen overnight, given Africa’s long history of political instability and economic uncertainty, however, now that the continent is the fastest growing region in the world, it is imperative that African Governments and companies seize the moment and introduce the necessary measures to ensure the gains we are making now last well into the future.
This will only be possible if likeminded investors can be completely convinced that Africa is a sound and viable long terms investment destination.
The author is a CEO of Asset Business Solutions Limited