What are the key themes that are shaping African private equity? Eyes are on East Africa, accelerated growth in tech, and the power of SMEs.
1. East Africa sparks investment interest
Encouraged by recent macroeconomic growth and a greater level of financial and regulatory stability in East African market, local and foreign institutional investors are starting to show an increasing interest in the region.
East African currencies are much more stable than those in some other geographies, offering better risk-adjusted returns and promoting a more favorable environment for investment. The PE market in East Africa is advancing at a reasonably steady rate, attracting more investment activity and seeing a greater number of deals. The number of East African firms has doubled in the past two years, and there has been a notable increase in funds raised as well as exits made. Secondaries market in East Africa is maturing quickly, and the market for financial services is becoming more innovative. There is also a growing interest in investing in East African stock markets.
Kenya is perceived as the fastest growing consumer market today. Ethiopia and Tanzania are also set to outperform in regards to FDI flows into Africa. East Africa is certainly the one to watch!
2. Africa’s tech ecosystem shows remarkable growth
Fintech is one of the hottest sectors for investment in Africa with payments, mobile money, banking and remittances key battle grounds, providing a multitude of opportunities for investors, disruptors and corporates. Blockchain technology is being used to create new business models in Africa. As Investors and funds from across Africa strive to scale up the technology businesses, they focus on the critical elements of strategy, promotion and partnerships.
"Blockchain technology is being used to create new business models in Africa."
With the continent’s ICT landscape evolving quickly, a significant number of new “tech hubs” are starting to emerge sparking excitement about the future of African tech scene. It is, however, important to think long-term by addressing issues such as sustainable funding, consistent revenue generation and operating costs, in order to produce real success stories.
3. Small and mid-cap PE players drive growth of PE & VC
The focus of PE investors and fund managers on small and mid-sized businesses is becoming more important as they recognise the challenges that growing companies in Africa face when raising long-term growth capital. African SMEs coming in their own as important drivers of growth, employment and innovation. Together, the local SMEs and investors are capable of mobilising their joint expertise to act as a catalyst for achieving smart, sustainable and inclusive growth.
"Should their expansion be supported, SMEs will be able to battle poverty, generate employment and create a sizable, much needed middle class."
In Sub-Saharan Africa, SMEs play an important part in the economic development. Should their expansion be supported, SMEs will be able to battle poverty, generate employment and create a sizable, much needed middle class. However, the number of challenges remain, such as a weak business environment, lack of access to financing and poor infrastructure. A combination of these make it extremely hard for striving entrepreneurs to enter the market. By addressing these issues and by relaxing entry regulations, increasing investments and providing better access to financing, SMEs can truly become the key to Africa’s economic growth.