Can Africa prevent a mass exodus of Private Equity companies?

Can Africa prevent a mass exodus of Private Equity companies?

The last 6 months have dramatically reduced the level of confidence and belief in the potential of Africa, with the predictions made in 2015 of significant growth, becoming increasingly unlikely.

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Background

Whilst the stability of parts of Africa are still someway away from being ideal, its appeal to investors has grown hugely over the last few years as armed conflicts decreased and the continent became more stable.

In the year 2000 Africa was ranked 8th in a list of destinations most likely to attract investment however the continent moved up the list, and in 2015 was considered to be the 4th most appealing location for investment. In fact, interest in investing in Africa in 2015 was at an all time high, increasing by 24% to 4.1 billion US dollars, this is however all beginning to change.

Private Equity firms

The rapid expansion of Private equity firms across the region were a major part of this growth especially as a number of other emerging markets were reaching their saturation point.

These private equity firms ventured into new areas, no longer just focusing on infrastructure projects and commodities.

The last 6 months have however dramatically reduced the level of confidence and belief in the potential of Africa, with the predictions made in 2015 of significant growth, becoming increasingly unlikely. The predicted “exciting time” for Africa over the next decade, including what was expected to be both economic growth and development is now at serious risk, with a number of private equity firms preparing to exit.

Planned exits

South Africa has been a major focus for foreign direct investments for a number of years now, and interest has recently also been moving into both Kenya and Nigeria, as well as other parts of the continent.

South Africa is one of the first African countries to feel the impact of this ”exiting “of private equity firms, as confidence in the country’s currency continues to falter and its economy edges towards a recession.

Intra-African investments

The foreign direct investments (FDI) made not only came from other parts of the world but a large number also came from other African nations. In fact, investments from other parts of Africa, known as intra-African investments are now the 2nd largest source of all foreign direct investments.
This growth in investments, from both foreign and local investors helped to not only drive the economy of the region but also increase the size of the middle class, however the recent currency challenges and growing political unrest are now putting all of this at risk.

Whilst the current volatility of the continent is increasing the risks to any investments made in Africa, and a number of Private Equity firms are preparing to exit the market, the fact that a significant amount of the money invested came from other parts of Africa, is ensuring that there is still some optimism.

It is believed that these PE companies with be able to minimize their risks by using their local connections and networks, as well as their expert knowledge of the local market. In turn it is hoped that this will then ensure their continued success and as a result discourage them from exiting the market.

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