54 Capital Plans Ethiopian Pharma Factory After Deal

  • Ethiopia's $400 million drugs market growing at 25% a year
  • Foreign private-equity investments are increasing in Ethiopia

54 Capital, a London-based private-equity company, plans to build a new plant for Addis Pharmaceutical Factory within two years after investing $30 million in its seventh deal in Ethiopia, an executive said.

The asset manager will also “quickly” increase the number of drugs produced in Adigrat in the northern Tigray region to 150 from 90, Chief Investment Officer Saad Aouad said in an interview. 54 Capital bought a 40.7 percent stake in APF last month and has an option to invest a further $12 million to acquire 49 percent of the company, which is co-owned by a conglomerate with ties to Ethiopia’s ruling coalition.

“We are backing here the largest player in the country with a very strong and motivated management team that we want to help,” Aouad said Jan. 18 in the capital, Addis Ababa.

Ethiopia, sub-Saharan Africa’s second-most populous nation with 97 million people, is forecast to be the continent’s fastest-growing economy this year, after Mozambique, expanding an estimated 8.1 percent, according to the International Monetary Fund. APF, which mainly manufactures antibiotics and painkillers, has revenue of 500 million birr ($24 million) and a share of about half the locally produced pharmaceutical market, according to Aouad.

KKR, Geldof

Several foreign private-equity companies are active in Ethiopia. Schulze Global Investment, based in Singapore, has a $100 million Ethiopia fund, London-based Duet Group and Vasari Global Ltd. bought into Dashen Brewery in 2012 and Bob Geldof’s 8-Miles LLP fund has a stake in a privatized winery. KKR & Co.,run by billionaires Henry Kravis and George Roberts, bought a stake in Afriflora, an Ethiopian flower farm, in 2014.

Since 2014, Africa-focused 54 Capital has made other Ethiopian investments worth $35 million, including a soap factory, edible-oil plant, two pasta producers and a dairy.

APF plans to increase existing capacity usage from 30 percent and start to produce injectable treatments, said Aouad. Therapeutic medicines will be introduced, while 54 Capital is trying to improve efficiency by centralizing some operations of its Ethiopian businesses. The products will supply a market estimated at more than $400 million that’s growing at 25 percent a year, the government said in a July report.

Patchy Power

The largest challenge in Ethiopia is a worsening electricity supply caused primarily by patchy distribution, Aouad said.

“In one of the factories, we lost three weeks of production because the fluctuation of power destroyed a component,” he said. Sluggish bureaucracy and complex regulations that can mean a three-month importing process are also a challenge, he said.

APF is a unit of the investment arm of the Endowment Fund for the Rehabilitation of Tigray, which was founded in 1995 using assets acquired during a 17-year rebellion against the central government by the Tigray People’s Liberation Front. Ethiopia’s government bars foreign investment in industries including financial services and telecommunications.

(Corrects Saad Aouad's title to Chief Investment Officer in 2nd paragraph.)
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