Private equity in Africa


Financier Worldwide Magazine

May 2014 Issue

May 2014 Issue

Since the financial crisis hit in 2007 the world’s emerging markets have stepped out of the shadows and made their claim as the totems for the next phase of global economic development. Nowhere has this been more evident than in Africa.

Traditionally Africa has been viewed with scepticism by investors; its enormous potential has been countered by the ongoing battle with conflict, corruption and its own economic crises. Yet, in recent years Africa has enjoyed something of a renaissance.

Although there is much still to be done, Africa has embarked on a significant program of reform, with concerted efforts under way to promote stronger regional integration, particularly through transformative infrastructure initiatives. The continent has also renewed and strengthened its resolve to overhaul regulatory and legal systems with the aim of providing greater levels of transparency and accountability.

The renewed sense of optimism around the continent’s financial outlook has been reflected in the latest private equity (PE) fundraising figures released by EY. African ventures raised $3.3bn in PE funding in 2013, the highest annual amount accrued in the region since 2007 and a year by year increase of 136 percent on 2012.

The continent has gone from the fifth most popular destination for PE investment in 2012 to first place in 2013.

Africa is experiencing its largest period of growth for well over 50 years. Economic output has more than quadrupled in the last 13 years, swelling to over $2 trillion in 2013. There are currently more nations in Africa with economies growing above 7 percent per annum than on any other continent globally. The International Monetary Fund (IMF) has forecast that African nations are significantly more likely to record relatively higher economic growth rates going forward than a number of developed economies. According to the IMF’s predictions, between 2011 and 2015, seven of the 10 fastest growing economies globally will be African; by 2017 that number will grow to 11 out of 20.

Such has been the interest in Africa from PE firms that the continent has gone from the fifth most popular destination for PE investment in 2012 to first place in 2013. This reversal of fortunes over a 12 month period saw Africa placed ahead of the BRIC nations for the first time in nine years.

Although the investment outlook in Africa is still dominated by smaller domestic investors, a number of larger global PE players are now beginning to actively seek out more lucrative investment opportunities in the region. The banking and telecoms sectors present some of the most promising prospects for PE. Media and telecommunications is another burgeoning area, accounting for 9 percent of all PE investments in Africa since 2010. In 2013 the sector raised more than $1.23bn in the sub-Sahara region alone.

From a fundraising perspective, PE firms such as Helios Investment Partners and Actis Capital have been able to raise noteworthy levels of funding for African ventures. They also have a history of being able to complete significant transactions in the region. However, the continent’s wider economic strength has now precipitated a fresh wave of PE activity, much of it from new actors in the region. Many of these new participants are focusing on areas such infrastructure development, green energy and impact investing.

Many firms have been attracted by the evolution of the continent’s economy. Africa’s recent prosperity has not only fostered high growth rates; it has also brought about a sea-change in the nature of many African economies. A consumer middle class is emerging across the continent as certain African states move away from commodity and agrarian-based economies. This shift has placed a greater emphasis on infrastructure development, crucial to continued economic development. Transport and energy infrastructure projects are desperately needed to maintain the rapid urbanisation of Africa’s nascent middle classes.

Investment values are rising across the wider African continent. South Africa, as it has done historically, continues to offer the largest PE market within the region. Fundraising by South Africa based PE fund managers in 2013 increased the total asset base in the industry by at least 10 percent over 2012.

However, despite the obvious allure of South Africa, other areas of the continent are proving increasingly popular with investors. The wider Sub-Saharan region attracted $1.6bn in PE investment in 2013 – its highest investment level for five years.

As the development and urbanisation of Africa continues at pace, the investment outlook remains positive. For small local investors and PE powerhouses alike, opportunities are abundant in one of the world’s most promising investment destinations.

© Financier Worldwide 


Richard Summerfield

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