Sandeep Khanna

In this week’s newsletter Q&A feature SAVCA speaks to Sandeep Khanna (SK), Managing Director at The Abraaj Group:

Tell us about your deal activity and /or investment strategy over the past year.

SK: The Abraaj group, over a 25-year history of investing in the continent, has developed an investment approach that is purpose-built for investing in global growth markets and particularly Sub-Saharan Africa (SSA). Abraaj has helped pioneer the growth and development of the private equity industry in this region. To date we have deployed circa US$ 1bn across 59 investments and nine sectors, including consumer goods and services, finance and healthcare. 
 
Over the past year we continued to build on our thesis of consumer-driven African markets with expanding and rapidly urbanising populations, and in October finalised our acquisition of a minority stake in Indorama Fertilizers B.V. in Nigeria, the largest urea fertiliser manufacturer in SSA. It operates a world-class, 1.4 million metric tonnes per annum urea manufacturing facility, which has been developed to global environmental, social and construction standards. It plays a key role in supporting the agricultural sector in Nigeria by providing a reliable supply of fertilisers for local farmers, thereby enabling import substitution and supporting the diversification needs of the Nigerian economy.

The fertiliser industry is expected to experience long-term demand growth as increases in populations and incomes drive demand for food. Abraaj will use its expertise and networks to support Indorama’s market penetration and future expansion plans, as well as help ensure best-in-class corporate governance.

What opportunities do you see in emerging markets?
 
SK: We find that certain trends that are driving investment opportunities are largely common across growth markets and hence across all of Abraaj’s core markets. For example, the SSA economy doubled from 2005 to 2015; the driving dynamics such as continued urbanisation, the growing middle class and technological advances, are expected to continue until 2025.
 
It follows then that investment opportunities in these markets are characterised by private investment in consumer sectors. Over the next five years, consumer sectors are expected to nearly double in Abraaj’s core SSA countries. Nigeria, South Africa and Kenya alone are projected to increase by over US$450 billion from 2015-2020.

If we look more specifically, sectors such as education, household goods and services, healthcare goods and services, transport and catering/food are all expected to grow at CAGRs north of 11% in USD terms to 2020, significantly outpacing overall GDP growth of around 5%. We see these as attractive sectors in which to invest and with which to build pan-regional platforms through a combination of organic and acquisitive growth. With the infrastructure backlog in both South Africa and most other growth markets, the industrials space is also a sector which offers significant potential.

What industries within emerging markets are you aiming to transform with your investments?
 
SK: We see opportunities to build regional, if not global, champions across a number of sectors.
 
Healthcare is a prime example of how Abraaj aims to transform the investment landscape, while attempting something that hasn’t been done before: building a global network of hospitals across markets, including Nigeria, Ethiopia, Kenya and India.

With a circa US$1 billion healthcare fund to deploy, we have recently bought a fast-growing hospital in India and we are now working to export its business model to Africa, with a belief that the demographic and other similarities offer a significant opportunity to build on our already sizeable healthcare portfolio in Africa, in order to create a regional and global network of affordable and high-quality hospitals.