African private equity (“PE”) presents a complex and rapidly evolving picture. Still a nascent industry, particularly when compared to more established emerging markets for private investment, African PE is seeking a toe-hold in an ever-changing continent. Susceptible both to the buffeting effects of global economic headwinds and local challenges such as lumpy pipelines of suitable investment opportunities, to date the one thing that has been predictable about African PE is that metrics can and will vary.
However – despite the variations – one universal pattern is emerging: the growing attractiveness of Africa as an investment destination.
In a survey of limited partner (“LP”) sentiment just published, over two-thirds of the surveyed LPs stated that they believe that Africa is more attractive than other emerging markets as an investment destination. This is borne out by the expanding number of investors – ranging from major international buy-out houses to locally managed firms – who find themselves competing ever more intensely for investment opportunities varying from MBOs to SME growth capital plays across a range of industries. With the last 12 months featuring major players such as Carlyle raising big-ticket maiden sub-Saharan African funds, African PE-specialist Helios recently hitting first close on a billion dollar war-chest, and an ever increasing flow of investments and exits, it is clear that African PE is transitioning from an exciting proposition to an increasingly credible destination to seek out alpha returns.
And right now, East Africa is generating some of the greatest excitement amongst investors.
While the survey presented by AVCA, RisCura and SAVCA illustrates the diversity of views amongst the LP community as to which is the most attractive region within the continent for investment, recent data shows that East Africa is a major hotspot of the African PE market. Indeed, Kenya saw more deals done within its borders in 2013 than the two economic heavy-weights of the continent, South Africa and Nigeria. Even accounting for the fact that both West and Southern Africa far out-weigh the East in terms of aggregated deal size, East Africa is the region that saw the most PE-backed transactions completed last year, with data provided by Deloitte showing that over 30% of all reported deals done on the continent were investments into the region.
Attention is often paid to some of the other news coming out of Kenya such as the ICC prosecutions against its current leadership, uneven efforts to address widespread corruption, and on-going security concerns. However, PE investment is also part of the story of Kenya and its leading role in the rise of East Africa. The Kenyan economy recorded growth of 4.7% last year, which is predicted to rise steadily to 5.3 % by 2016. With its geographical and historic positioning as the natural business centre of the fast growing East African region, rapidly-expanding, consumption-hungry middle class and recent natural resource boom, Kenya is well positioned to build on its economic momentum — providing an ever more enticing prospect for high-return-oriented PE investors.