Wednesday, October 05, 2016 7.29AM / EY
Over the last several years, the emerging markets have evolved into a critical pillar of global investors’ strategies. As growth rates declined across most of the developed world in the aftermath of the credit crunch, private equity (PE) firms turned to emerging markets as an engine of growth. In 2008, Africa accounted for less than 4% of emerging markets fundraising. Now it accounts for over 9%. While global investor interest has begun shifting back in favor of the growing developed economies in recent months and away from some of the emerging economies that have weaker economic or political environments, Africa's strong long-term growth fundamentals continue to drive the development of the PE industry on the continent.
2015 in Review
Rapid expansion across the emerging markets is perhaps the most important development for the PE industry. Interest in Africa has never been higher and it continues to see strong interest from investors. Fundraising trended higher in 2014, and the value of transactions nearly doubled during the year. PE’s impact in the region is only beginning to be felt. The next decade promises to be an exciting time for PE in the region.
Since the end of the Cold War and apartheid, Africa has embarked on a series of long-term reforms and reduced armed conflicts, resulting in increased stability, which has opened the door to economic growth and development.
The increase in Africa’s quality of life is leading to a shift in focus for foreign direct investment (FDI), from extractive to consumer-facing industries. Also, the share of FDI projects in Africa with other African countries as their source is increasing markedly, making intra-African investment the second-largest source of FDI.
Africa's perceived attractiveness has risen dramatically over the last several years, according to our latest Africa Attractiveness Survey. Africa is currently the world's fourth most attractive destination for investment, while just five years ago Africa ranked near the bottom of the list, at number eight.
Fundraising for the region remained strong in 2014, increasing 24% to US$4.1b. This rise came amid a shifted back to developed markets, which showed that investors continue to believe in Africa’s potential.
Africa should remain high on the radar screens as the PE industry there continues to grow and mature, compared to other emerging markets which are reaching saturation.
The aggregate deal value of completed African transactions in 2014 rose nearly 90% to US$8.1b, spread across a range of deal types.
As currency appreciation and rapid wage increases occur in other countries, Africa is well positioned to step in for the manufacturing needs of other countries and see a wave of industrial migration go its way.
Investor interest continues to expand well beyond the borders of South Africa. PE firms are looking at and increasingly investing in Nigeria, Kenya and many other countries in the region.
The availability of effective exit routes remains a critical issue for PE in Africa. Sub-Saharan Africa saw 40 disclosed PE exits, an increase of 38%, and an eight-year high for exits in the region. See the Infographic below for more details.
Increased investment from both local and foreign investors is now driving modern Africa’s story, resulting in a rapidly growing middle class and rising consumer power.
PE is becoming an increasingly important part of this. Once focused on commodities and infrastructure, PE firms are investing in an everwidening array of businesses.
While volatility will remain a feature of the African investment landscape, those firms with local market expertise, broad networks and market connections, and an ability to add value through operational discipline, will be well-positioned to benefit from one of the most exciting opportunities in the global economy.
Download Private equity roundup for Africa 2015 as a printable document
1. Summary of Trends in Private Equity in Africa, 2010 – 2015
2. EY - Private equity roundup for Africa 2015 - EY - Global
3. the africa special 2015 - Private Equity International – Sept 1, 2015
4. Private equity roundup for Africa 2013
5. Africa attractiveness survey 2015
6. Broadening horizons: How do private equity investors create value?
7. The Venture Capital Industry in Nigeria: DFIs have a Role to Play
8. Mainstream Renewable Power Signs Landmark Africa Clean Energy Equity Funding
9. Private Equity seeks Investment Opportunities in Nigeria
10. Quantum Global acquires InterContinental Hotel in Lusaka
11. Nigerian insurance to benefit from Prudential Financial and LeapFrog Partnership