Private Equity in Africa: The Myth of the Weak Exit Environment

LAGOS (Capital Markets in Africa) – Africa’s steady rise continues to attract a growing number of private equity (PE) investors who believe that African markets offer an exciting growth and investment opportunity. Some of the key drivers underpinning this growing perception among investors include improvement in the business environment, fiscal reform and sound economic policies, technological advancement, regional integration, and improved cooperation between the public and private sector.

From an external perspective, the improving global economic outlook and China’s ongoing demand for African resources provide a foundation for robust medium-term growth. Combined, these drivers could stimulate the private sector, resulting in job creation, a higher tax base, and a growing African middle class in the long-term.

In the context of Africa’s positive outlook, PE activity on the continent remains robust. According to a report by the African Venture Capital and Private Equity Association (AVCA), the total value of African PE fundraising increased to US$2.7bn in 2018, up from US$2.4bn in 2017. The total deal volume reached 186 deals in 2018, up from 171 deals in 2017.

Africa’s PE activity clearly demonstrates the growing appetite to invest in the continent. However, significant challenges remain, particularly regarding the perceived risks of deploying large scale capital in frontier markets. A key concern, particularly among limited partners (LPs), is the perceived weak exit environment. A perception often shared by investors is that the shallow nature of African capital markets makes exiting investments difficult to execute.

An extract from the INTO AFRICA May 2019 Edition: Private Equity: Nurturing Africa. The article is written by Adam Bennot (Senior Associate, Unlisted Investment Services, RisCura) and to read the full article, please download by clicking: INTO AFRICA PUBLICATION: MAY 2019 EDITION.