Private equity and other investors who haven’t spent time on the ground are making the fundamental mistake of trying to segment the African continent by region.

For instance, at the inaugural Super Returns Africa 2010 conference (29th November to 3rd December 2010), held in Fairmont Nile City, Cairo, Egypt, while delegates agreed that Africa is the last investment destination capable of delivering exceptional returns, they were still thinking in terms of segmentation into north, south, east, and west Africa.

Bear in mind that the conference was attended by Limited Partners, including international institutional investors (pension plans, funds of funds, etc), Middle Eastern family offices and sovereign wealth funds, direct foreign investors, a wide spectrum of General Partners active on the continent (including pan-African and pan-emerging markets funds based in Europe, North America, and the Middle East), Africa-based specialist General Partners with a regional, country or sector focus, and South African buyout funds. So, no slouches in the investment world.

Historically, of course, because of the way the continent was colonized, regions of Africa became distinguishable not only by geographic and cultural differences but also European economic traditions and political alignments. Parts of West Africa, for instance, developed economically under French influence while East Africa was more British.

It was probably inevitable, then, that conference delegates were discussing South Africa as a developed country with sophisticated financial markets, a well developed infrastructure, and an active, vibrant private equity environment with substantial dry powder. (The Johannesburg Stock Exchange (JSE) is ranked 16th in the world in terms of market capitalization.)

North Africa was also considered slightly more developed than the rest of the continent.

However, an approach based on segmentation is misleading. While South Africa is indeed a good springboard into Africa in terms of financial infrastructure and has the highest proliferation of GPs and also a good number of LPs compared to the rest of the continent, it’s not a mature market in Western terms.

As far as the majority of the population is concerned, it is a third world economy - still in need of substantial investment. And its middle market – in which enterprises are too big to be of interest to donor organizations but still too small to attract large investors – still offers phenomenal returns.

In fact, it’s the middle market throughout Africa that offers extraordinary returns. All investors have to do is look for businesses that supply their markets with the basics of life. The basics are still in extremely short supply in Africa and, therefore, there is plenty of room for entrepreneurs to turn social development into wealth.

Some of our portfolio companies proved this point during the recession – by flourishing.

With our financial support, a company called African Frontier purchased three supermarkets in small towns in the rural eastern areas of South Africa. Their turnover was reliant on providing the basic necessities to their customers but, because of the towns’ sustained economic growth and the management teams’ focus on efficiency and value enhancement, store sales increased by 35% for the year.

In another example, Mafori Finance, an indigenously-owned micro-lending financial institution, saw collection rates go from 80% to 90% on loans originated during the recession because we not only invested in the company but assisted in system development, staff training, and establishing a robust reporting paradigm.

So, rather than segment markets, we do a robust political and economic market analysis prior to all investments to ensure that our investment team is properly informed and equipped to identify, cultivate, and extract value that is related directly to the investee’s business model.

There are risks associated with all investments, but ours is actually a very smart way of doing business - because we help to build businesses and plug holes so that a return can be realized no matter what the market segment.