By Admassu Tadesse |
LONDON, Uk – Last year, Africa became the most popular destination for private equity according to the Emerging Markets Private Equity Association.
Africa came ahead of Brazil, Russia, India and China and in 2012, Africa was ranked the fifth most popular. Transaction values have doubled year-on-year, rising to $3.2 billion in 2013 from $1.6 billion in 2012.
Apart from the volumes, the number of deals has also increased significantly, as has the spread of deals, with more deals in the faster growing economies of the continent.
The share of deal value in Africa’s single largest and dominant market for private equity has come down from 57% to 20%, when comparing the past three years, to the earlier three years.
According to Deloitte and Touche, the largest number of deals was in East Africa with 26. West Africa followed with 24 the Southern Africa with 19 deals.
Notably, Kenya has more deals than Africa’s two largest economies, Nigeria and South Africa.
All this shows opportunities are there to be exploited.
Fund raising has also shot up, with amounts raised doubling to $3.3 billion. It helps that P/E (price/earnings) rations are high, about double the return levels of listed equity in Africa, which in its own right is very attractive.
The momentum is such that now even major global firms, based in New York City, such as Warburg Pincus, Carlyle and Blackstone are coming and looking for exposure.
The industry has continued to grow steadily since the global financial crisis and global recession, with values estimated to be between $25 billion and $30 billion.
All indications are that this trend is set to continue. A recent survey by the Africa Captial Association of 48 fund managers with $150 billion in global private equity assets under management, revealed that 85% of the fund managerts expect anincrease in their exposure to Africa private equity in the next two years.
Of these 70% said they expect returns from Africa to outperform other emerging markets, with nearly a quarter believing African investments to have a five percent or more return premium.
Such elements as increased investment, both private and public, a fast growing middle class, increased consumer spending, rapid urbanisation, improving infrastructure, healthy macroeconomics and an improving investment, have all contributed to making the continent more attractive for investors.
Those who have been following the wider financial and economic developments in Africa will not find the private equity trends to be a surprise.
External financial flows to Africa as a whole have quadrupled since 2000. In 2014, total flows are expected to exceed the record level of $200 billion. It is not only the growth in volume that is significant. It is the composition of the growing volumes.
Foreign investment and remittances have continued to outgrow traditional flows such as official development assistance.
Foreign investment in particular–both direct and portofolio– has now fully recovered from the 2009 economic crisis and is projected to surpass a record $80 billion in 2014, making it the largest single financial flow to Africa, higher than remittances, which has also grown fast and higher than ODA, now down to the third largest flow.
In 2013, Africa grew about one-third higher than the rest of the world, with 4% compared to 3%. NotablyEast and West Africa stand out as the fastest growing sub-regions. But Africa still has a long way to go in terms of increasing its overall investments levels. Nevertheless, there is a huge opportunity for private equity.
These days, there is a heightened sense of urgency among policy makers in Africa to create sustainable jobs, especially for young people.
There is increased awareness that one key to job growth is enterprise growth and development, where private equity plays an important role.