Private Equity Investing in Africa
Private equity in Africa dates back to the mid 1980s, with the emergence of the first South African based and South African focused funds. The footprint of private equity funds has evolved over time—from starting out in South Africa to now being located across most of Africa.
Economic growth projections for Africa are expected to remain relatively high, sparking intense interest among global investors. Investors are chasing the few available deals in Africa and expecting double-digit growth rates and super-returns on their investments.
A growing middle class, greater disposable income and lower oil prices are spurring the corporate and retail sectors. This, together with the need to invest in infrastructure—including transport, electricity, telecommunications as well as social and welfare infrastructure on the Government’s side—is where investors or private equity funds see opportunities for real growth and sustainable returns.
Africa is definitely on the map and on the minds of many investors. Nevertheless, South Africa, which according to the World Bank is currently the continent’s second largest economy, is expected to face a number of tough economic challenges going forward.
Some of the factors hindering the potential GDP growth of the South African economy are commodity prices, labour policies, electricity, rail infrastructure and the lack of a technologically advanced manufacturing sector.
Also, uncertainty in Nigeria—the largest economy in Africa—in the run-up to the pending elections as well as threats by Boko Haram, leakages in the economy and falling oil prices could have a major, negative impact on economic growth.
As governance structures and the regulatory environment improve, there will be a big push for private equity to plug the infrastructure gap in Africa. Infrastructure is seen as a high-quality asset for diversifying the risk and return profiles of funds.
Performance magazine issue 17, May 2015
Performance is a triannual digest, dedicated to investment management professionals, which brings you the latest articles, news and market developments from Deloitte’s professionals and clients.