African Telecoms, Media and Technology Fund to invest US$75 million in its chosen sectors plus an SME fund

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US Government investment agency OPIC recently agreed to put US$50 million into the African Telecoms, Media and Technology Fund, the first of its kind on the continent. This funding will be joined by US$25 million from private American and African investors. Within the Fund, some of the money will be allocated to an SME investment fund to encourage entrepreneurs. The Fund is talking boldly of creating the first non-Telco Triple Play offer and of creating a carriers’ carrier within the wider East African region. Russell Southwood spoke to Richard Essex, Chief Financial Officer, African Telecoms, Media and Technology Fund about its plans.

Q: How did the idea for a Fund of this kind come about?

The original idea was to create an alternative telecoms operation and because of our experience at UPC (now Liberty Media) and NTL (now Virgin Media), the whole idea of Triple Play in emerging markets was something were interested in looking at.

Q: So what will the fund own?

We’ve acquired a number assets in the last year including Wananchi Online, the Simbanet companies in Kenya and Tanzania, Mitsuminet Cablevision and Trunking Systems. Wananchi is a well-known ISP in Kenya. Simbanet is the largest data services provider in Tanzania. Mitsuminet is a fibre optic cable TV company. Lastly, we’ve agreed to invest in a 10% shareholding in the TEAMS cable.

We will use the TEAMS stake as part of our strategy for developing a long-haul carriers’ carrier throughout the region and this is separate from the broadband services at the local loop. We have a strategy in place to connect inland using different cables that will go to all neighbouring countries and as close to South Africa as possible.

In terms of the broadband project delivery, we’re already working on Kenya and Tanzania with a view to a mid-year roll-out and have four other countries in our sights if everything is on target. There will be a pilot service in the next few weeks with double play and triple in some areas some time after that. Real triple play will be available more widely in Q3 of this year.

Q: So where’s the money coming from?

OPIC is putting in US$50 million. It is a US Government agency that provides medium to long term funding through loans and loan guarantees to eligible investment projects in emerging markets. It complements the private sector by providing financing where conventional financing institutions are reluctant or unable to lend.

In addition to the OPIC funding, we’ve raised US$25 million from American and African investors. The people involved are myself, Richard Bell (who is well known in East Africa) and Mark Schneider, the former CEO of Liberty Global, the largest pan-European cable company. At the local level, we have the involvement of a respected, long-standing investor in Kenya, James Gacui of Transcentury.

Despite this being a huge commitment of cash from a US government agency, this is all about Africa and Africans. There are a total of two Americans involved in management - Mark and myself. Our staff and the people who are making this happen on the ground are African. We are investing with the local community, big and small, to unleash new ideas and the strong entrepreneurial talent that is already there. This isn't just about us making a buck but about being part of the on-going effort to build stable economies that reach even deeper into the wider population.

Q: What types of investment will you be looking at?

This is the first sector-focused fund of its kind in Africa, covering telecoms, media and technology and it is aimed at all the East African countries and some COMESA members outside of the sub-region.

It’s unlikely that we’ll do public-private deals but we’re looking for similar investment opportunities to those we’ve already found in Kenya and Tanzania, elsewhere in the region. We’d like to find opportunities in the media sector where we can develop local content.

One important part of the Fund’s activities will be an SPV, a mini VC fund, which will provide real VC funding for SMEs with strategies for technology, media and telecoms. It will be investing between US$10,000-250,000 in equity. We’ll be investing with investment clubs to help seed entrepreneurs in the telecoms, media and technology sectors.

At the SME level, we’re talking about enabling people to take their ideas and grow them. We want to be able to provide them with the kit that will enable them to become their own engineers. We want to set up one to two retail opportunities as models that we can create franchises from. We will provide the capital to make the business happen. We’ve been impressed by the entrepreneurial spirit in East Africa, particularly in Kenya.

Q: What size of deals will you be looking at?

At the big end, it will be deals of between US$10-15 million and at the low end around US$500,000.

Q: At what stage will the companies you’re looking be at?

In general we’re trying to fund companies that have entrepreneurial spirit where we can help with management to take their companies to the next level. We’re also looking at how we can integrate investments with other assets we already have. Our underlying plan is to grow our assets to create employment opportunities and to be in for the long-term.

Q: How will you overcome past pitfalls? There have been funds that have sunk without trace in the past.

These industries are poised for growth and the team has a lot of experience, both globally and specifically in Africa. Having worked in and managed publicly created companies, we are very aware of the need for policies and procedures in managing our investments.

Q: What’s the timescale for getting going?

We plan to be fully invested in Fund One in three years and are looking at a five to ten year horizon to hold those investments.

Q: What are the interesting areas that you’re looking at?

What’s exciting is that cellular providers showed that Africa could both have its own business models and leapfrog in terms of technologies over what might have been seen as obstacles. So the opportunity for us to be part of the next stage of that revolution is very exciting. There’s more going on in Africa with all its energy than there is elsewhere in the world.

Q: What do you see as the second phase of the revolution?

Broadband both gives you access and the ability to contribute to global media. It allows African countries to play a much more formidable role in the global economy. It’s not just an economic but also a social impact that it will have in these countries, allowing for a more creative dialogue between citizens.

With Nollywood the third largest producer of content in the world, there’s terrific potential to create local content, particularly in East Africa. It’s not only that it should be done but it’s also a good business opportunity. There’s enormous potential for fiction output that in time will have a global potential.