The African continent presents robust opportunities for private equity investors and return on investments can be significant compared to other emerging markets. Not only are PE players set to achieve returns on their investments, African Governments are also likely to benefit from the capital influx into the region thus positively impacting the overall commercial ecosystem.
According to a new study commissioned by Baker McKenzie with The Economist Corporate Network, from 2010 to 2016, private equity firms invested around $25.6 billion in Africa. The top five sectors by investment in the period were telecoms, media, and communications ($5.5bn), business services ($3.7bn), energy and utilities ($2.2bn), materials ($2bn), and consumer discretionary ($1.6bn). Therefore, the role of private equity is undoubtedly set to become an even more important partner for African economic development.
Below are some of the key trends that we will witness in the private equity space during 2017.
The primary shift has been from public to private financing, largely due to the dramatic fall in oil and commodity revenues and the inherently weak financial markets across the continent. Private equity has become inextricably entwined with Africa’s economic fortunes. What the outside world may perceive as challenges in doing business in Africa, are actually opportunities in the making for African investors.
Macroeconomic stability must underpin the entire system, particularly borrowing rates and inflation. In 2017, it is likely that Africa’s fundamentals will remain settled. Even in nations that have suffered extensive financial damage from the slump in oil and commodity prices, stability has been ensured through central banks use of currency controls, interest rates and fiscal restraint (Angola is a good example of this).
Balanced, low-risk and long-term
Nigeria Government’s strategy for infrastructure financing in 2016 and beyond is diversifying the revenue base of the country through agriculture, agro-processing, manufacturing, solid minerals and petrochemicals. The objective is to strengthen Nigeria’s external economy’s balance sheet and improve foreign exchange earnings.
The private sector has a key role to play in this regard and we can expect to see many multiplier effects from this strategic diversification program over the coming years, particularly in terms of food self-sufficiency and increased export.