Private capital venturing into perceived risky markets

Advancing Africa’s economic status is dependent on attracting investment and private capital. However, your board is likely subconsciously influenced by the perceived risks of funding infrastructure projects in Africa.  

Luckily according to two reports, the market perception is changing for the better. The reports, released this quarter by the African Private Equity and Venture Capital Association (AVCA), show investor confidence in Africa’s economic recovery and Africa’s Private Capital industry maturing. 

While funding mechanisms will be discussed by industry experts at Enlit Africa on 7-9 June at the CTICC in Cape Town, these reports indicate that Africa is already attracting investment. 

Enlit Africa (the unifying brand for African Utility Week and POWERGEN Africa) invites you to join the conversation 7-9 June 2022 in Cape Town, South Africa.

According to AVCA’s 2021 Annual African Private Capital Activity Report, the total value of private capital deals reported in Africa reached a record high of $7.4bn, representing a 118% increase compared to $3.4bn registered in 2020 – surpassing the annual average deal value of $4bn between 2016 and 2020 (+85%).  

This signifies the gradual maturation of private investment in Africa, which rose at 13% (CAGR 2016-2021). Further, the findings are a testament to the success and visionary work of firms whose pioneering missions encourage the growth of African economies through digital transformation, innovation with finance, climate-smart agriculture – and attract local and global investments.  

The report emphasises that in 2021, the total volume of private capital deals reported in Africa was 429, a 66% increase compared to 258 deals recorded in 2020. This growth is a milestone achievement – exceeding the annual average deal volume of 215 experienced between 2016 and 2020 (+100%). Overall, the industry’s deal activity rose to 19% (CAGR 2016-2021). The growth in deals demonstrates a private capital industry maturing as businesses and economies across the continent transition from resilience to recovery. 

Market showing YoY improvement states AVCA

Over the last two decades, Africa’s private capital landscape has established itself as an increasingly attractive and progressive region for private investment. As such, private capital fundraising has mirrored the trend of private capital deals – reaching a record level of $4.4bn in 2021, a 4x year-on-year increase, which also exceeds the annual average over the past five years by 63%. The report states that $18bn was the total value of final closed private capital funds between 2016 and 2021. 

By providing a detailed overview of the market, the AVCA report includes critical insight into doing business in West, Southern, East, and North Africa, with insight into the deal sizes, economic landscape, and regulatory environment across multiple jurisdictions. 

The report finds that in 2021, West Africa attracted the largest share of deals at 33%, followed by Southern Africa (20%) and North Africa (17%). The report also found that large multi-regional deals across the continent accounted for the largest share by value at 40% in the same year. 

Financials was the most active sector by volume (30%) and attracted the largest share of deal value (39%) during the last year. The rise of fintech contributes to the sector receiving the largest share of deals. With several traditional banks closed during the pandemic, many people turned to mobile money, digital banking applications and remittances to help support their families’ livelihoods and financing needs – data from the World Bank revealed that remittance inflows to sub-Saharan Africa rose in 2021 by 6.2% to $45 billion. The trend supports the sector’s growth in Africa as Financials’ share of deal volume and value climbed to 24% and 29% in 2019-2021, from 13% and 7% respectively in 2016-2018. 

Between 2016 and 2021, Financials (20%), Consumer Discretionary (15%), Industrials (12%), and Information Technology (12%) were the most active sectors by volume. Overall, Financials and Utilities were the largest sectors by value, attracting 19% and 18% respectively from 2016 to 2021. 

In total, 36 African PE exits were reported between 2021, a 13% increase compared with 2020. This increase reflects the resilience of the industry returning to onward growth. In line with trends found in 2020 by AVCA, exit to Trade Buyers was the preferred exit route (50%) in 2021 on the continent. Sale to PE and other financial institutions, the second exit mean, represented 31% of the total number of exits reported in 2021 – with exits by public offering accounting for 3% of the total volume of exits reported in Africa over the course of 2021. 

Venture Capital in Africa has shown strong growth 

The latest VC report by AVCA shows that Africa’s venture ecosystem has experienced accelerated growth in the last few years. As was noted in 2020, 2021 has reported an increase in VC deals in Africa – more than doubling, to reach a new high of 650 deals. This corresponds to a 104% YoY increase, outperforming the past eight years’ CAGR of 32%. 

2021 was also a standout year by deal value for VC deals across the continent. The cumulative value of VC deals reported in Africa reached $5.2 billion in 2021 – this equates to a 4.9x YoY rise from 2020 and comprises 51% of the total value of VC deals recorded on the continent throughout the past eight years, between 2014 and 2021. The annual increase is a positive upward trend, considering the downward funding slope experienced in 2021, which saw a marginal tightening of investor funds due to the economic fallout brought on by the COVID-19 pandemic.  

Africa’s Private Capital industry continues to display growth as it unlocks potential and innovation in breakthrough companies reinforced by the ingenuity and agility of the entrepreneurs, leaders in business and capital allocators that navigate uncertainty to propel Africa into its bright future. 

Africa’s economy continues to be fertile ground with attractive investment opportunities for investors in search of yields, states Abi Mustapha-Maduakor, Chief Executive Officer at AVCA. He adds that innovation across Financials, Technology, Energy, Healthcare enables the pace and scale of pioneering companies – new alliances with local and international investors continue to progress our industry and Africa’s growth story.  

His sentiment rings true as Africa’s key stakeholders are set to meet with international players to discuss this topic and more in Cape Town this coming June. Register now to secure your seat at the strategic and knowledge hub sessions at the Enlit Africa conference & exhibition taking place on 7-9 June at the CTICC in Cape Town. It really is a “not to be missed” occasion.  

Until next week. 
Nicolette 
Editor: ESI Africa  

Enlit Africa (the unifying brand for African Utility Week and POWERGEN Africa) invites you to join the conversation 7-9 June 2022 in Cape Town, South Africa.