69% Drop in Private Equity Investment in Africa

Private Equity Investment in Africa

The value of private equity deals in Africa has suffered a severe setback, sources say. Recently published reports reveal that equity values dropped from $8.1 billion to $2.5 billion in the last year alone. This is the lowest figure that the continent has seen invested since 2012, sparking fears that such slow economic growth is going to start a ripple effect, harming weak investments. Amid rising concern, the International Monetary Fund (IMF) warns of the lowest Gross Domestic Product (GDP) levels per annum across Sub-Saharan Africa since 1999, with Middle East and North African GDP only faring marginally better.

So what’s going on?

Analysts claim the drop is due largely to the fact that weak deal flow on the south of Sahara has been pushing funds and investors to look to North Africa for lucrative opportunities. The trend seems to be that Pan-­African newcomers who are looking to invest are repeatedly finding that the South ­African climate is no longer conducive to investment, and, if one takes a glance at the markets, it seems they have a point. In the Sub-­Saharan markets, the volume of investments has been severely restricted in the last year, and the precarious currency and commodity situations are not helping matters. However, in the face of apparently overwhelmingly negative odds, the African Private Equity and Venture Capitalist Association (AVCA), which announced the drop in investment figures in the first place, seem still to be positive about the situation, claiming that the fall is due almost entirely to a sharp fall in deals made above the value of $250 million. On the other hand, they suggest that deals below this number remain stable despite the challenges African economies are currently facing, such as drastic currency devaluation, and collapsing oil and commodities prices.

Falling short

In November, it was reported that the IMF had (perhaps naively) predicted Africa’s GDP growth would be around 5.5% in the medium term, a figure far above that of the developed world. Its grounds for doing so were that the continent is seeking marked urbanisation as well as increased consumer spending, in the face of the expectations of a demanding young population. Given that the population of Africa currently stands at over one billion – with that figure set to double by 2050 – food security and housing have emerged as the most important sectors of investment for the continent. Africa as a whole depends on expanding food and housing markets, and yet the AVCA’s announcement has come at exactly the wrong time. With such pressure on Africa’s economies from both internal and external factors, the fall in equity values is a major setback on the road to the continent fulfilling its new generation’s needs. And, no matter what the AVCA claims, the situation is certainly worrying.

Recommended for you