Africa Rising. Still?

LAOLU ALABI ssociate Investment Director, Private Equity

ssociate Investment Director, Private Equity

In private equity, Africa as an investment destination is a fairly recent development. According to Bloomberg, African private equity fundraising was still much in its infancy back in 1997 and really picked up circa 2005 when USD 2 billion was raised by Fund managers for private equity investments on the continent.

The peak of the fundraising was in 2007 when USD 5 billion was raised in that single year. Over the last 10 years, an estimated combined USD 20 billion has been raised by Funds for different strategies focused on the continent.

There are many factors responsible for the pick-up in asset allocation; strategy and region, the most pertinent of which is the much touted ‘emerging middle class’ growing demographics, improving macro framework since the turn of the century as well as the development finance led private capital flows into the region.

Since then, investors who have allocated assets to the region have come out with varying levels of success with their return on investment. However, the general wave of uncertainty in global macro, the currents of which are also being felt on the continent both in the form of capital flight and portfolio rebalancing, we find that questions are being asked about the strength of the business case. Is Africa still rising?

The short answer is yes, Africa is still rising, although the macroeconomic performance in recent years (in line with the global economy) make it not entirely apparent. It is evident in the volume of deals that are still being executed, combined with country and regional expansion, which is poised to pivot the continent to being a challenger in the services and manufacturing sectors in the coming years.

Having said that, there is a point to be made about how the market is viewed and how it impacts perception. A continent. A big homogenous land mass of immense opportunity. All true except for that adjective – homogenous.

The Africa story has long ceased being a top-down bet on markets. Each country within the assembly presents its own unique set of opportunities and risks and our experience in working on the continent has sharpened our senses in understanding the meaning of market trends (the almighty local intelligence) and sourcing value companies. As a company, we are leaning in, because the story is still developing based on what we see on the ground. The deal market has become a lot more competitive in recent years and there are no easy pickings. Being attuned to local customs in order to successfully navigate regulation is also quite essential.

In closing, what is, in my opinion, central to the story of the opportunity is the people. It would seem that the recent economic progress of the last decade and a half has what the entrepreneurial appetite. They’ve had a taste of growth and embraced it. Short term speed bumps notwithstanding, when you are in town, you cannot miss the desire and resilient spirit.

Baldwin Berges