Africa’s private-equity investors made big bets last year, but 2017 looks less certain

Private-equity investors have placed a fifth of their bets in South Africa since 2011.
Private-equity investors have placed a fifth of their bets in South Africa since 2011.
Image: Reuters/Mike Hutchings
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As the numbers for 2016 come trickling in, it’s becoming increasingly clear that while the talk of Africa rising (or not) and commodity downturns continued, investors, operators, and entrepreneurs in Africa kept their heads down and got on with business.

Private-equity players made a good case by investing $3.8 billion in 145 deals across Africa last year within a range of businesses from agriculture and energy to healthcare and financial sectors. That was up more than 50% from $2.5 billion in 2015, according to data from the African Private Equity and Venture Capital Association.

A relatively small number of large transactions in energy and utilities led the overall increase. But it’s worth noting, however, that last year’s $3.8 billion is still less than half of the 2014’s $8.1 billion, the highest investment year in recent record.

While the numbers in Africa pale in comparison with US private-equity investments, they are still significant in most economies on the continent. Private-equity investors tend to focus on more mature businesses and larger projects, and many of such investors in Africa are looking at deals of $50 million and above. In 2016, transactions at $250 million and above accounted for a majority of the total deal value.

Investments went well in 2016—but it is likely such big deals had been in the works for a while. This means there was probably a lag from 2016’s economic worries. You could make a case for investors’ overriding economic concerns by noting the nearly 50% drop in fundraising for new African investment funds to $2.3 billion in 2016 versus $4.3 billion in 2015. This could mean fewer or smaller deals in 2017/18, but that remains to be seen.

West Africa has led the way as an investment favorite since 2011 with the highest share of private-equity deals and share of deal value (27% for both). That region includes Nigeria, the continent’s largest economy, so that helps. But it also includes Côte d’Ivoire and Senegal, part of West Africa’s Francophone sub-region, which think tank Brookings Institution notes are among the most promising investment opportunities.

Africa’s most advanced economy, South Africa, has been home to 22% of the deals with 13% of value since 2011, while the East Africa region has had 18% of the deals and 8% of the value. North Africa has had 14% of deal numbers and 13% of value.

Perhaps the most potential for investors remains in the large Central Africa region, which includes the Central African Economic and Monetary Union (CEMAC) countries and DR Congo. This area accounts for only 5% of deals since 2011 and only accounts for 1% of deal value in that period. It could therefore be the next Francophone region to watch.