James Tounkara champions chasing opportunities that others overlook. While many investors are deterred by what they perceive to be too great a risk in certain African investment projects, the Guinean-born businessman aims to take advantage. Dubai-based private equity firm Gajah Investment Group, established by Mr Tounkara and his team of specialists in Africa and further afield in 2015, advises African companies and provides them with seed capital to generate competition and growth. Key components of Gajah’s vision, he says, include a commitment to de-risking projects, being hands-on, and keeping assets light.
“What we do is focus on de-risking transactions through our own equity by first inserting seed capital. Once we’ve made a project ripe for additional investment, then we raise capital on a per-project basis,” says Mr Tounkara. “We focus on getting rid of country risk, execution risk, management risk, and we’re much more of a promoter of the projects.”
A hands-on approach
Gajah Group specialises in private equity across asset classes, including natural resources, agriculture, infrastructure and oil and gas. It operates in five countries: Burkina Faso, Guinea, Nigeria, Niger and Zimbabwe. Gajah is currently involved in a number of mining projects, and in March 2016 signed an agreement with the Guinean government and its state mining company to develop the Baffa South block mine, which contains 9 billion tonnes of bauxite and has a net present value of $7.95bn.
Mr Tounkara believes his team’s hands-on approach to researching and devising investment strategies is central to its mission. “More than a private equity firm that simply invests in projects, we wanted to be a promoter, be really hands-on in African projects by finding all the missed opportunities and de-risking them,” he says. “There is a lot of value in Africa that is not capitalised on, because many firms just look at figures in making investment decisions and aren’t on the ground. Often a little seed capital can de-risk a transaction where it would then rank much higher on those profiles.”
With regard to the commodities downturn, Gajah Group sees this as yet another opportunity in disguise. “The commodities cycle increases our opportunities,” says Mr Tounkara. “This is where the smaller guys can take the opportunities that the big guys would be afraid of. The cycle affects the big companies with a large overhead, because as soon as there is a dip, the companies have to start cutting corners to survive.”
“We’re much more surgical in the way we approach projects, and many of our projects would stand these stress tests,” adds Mr Tounkara.
On the company’s bauxite project in Guinea, Gajah did not have the billion-dollar overhead expenditures larger companies have. “We don’t carry a big staff, we contract everything out, so in a downturn there is much more flexibility,” says Mr Tounkara. “We also keep our assets light. We prefer to have smaller profit but a viable project rather than looking only at maximising profit and having more assets but a more difficult project to attain. We are most focused on getting the job done, creating employment and developing the local economy. We invest our time and capital in restructuring, and it’s worth it, because these projects create so much value.”
Beyond the majors
One way that Africa can weather the commodities cycle is by looking beyond the major mining companies, according to Mr Tounkara. “The smaller mining companies are much more likely to weather the storm without impacting their activities on the ground,” he says. “In Guinea, where bigger companies have been leaving the region, smaller ones such as Alufer have been setting up shop and starting production. The smaller and asset-like companies do much better when there’s a downturn; they are much more flexible than the behemoths.”
Navigating a new market in a time of downturn is daunting to many investors, but the nature of the game is such that risk takers are often well rewarded. With African private equity funds alone producing deals exceeding $21bn in total value since 2010, it seems that a well-researched approach with solid on the ground knowledge – as well as a fair bit of commitment – can produce creditable returns.