Total private equity (PE*) transaction activity has increased by 7% from 2016 to 2017 as fund managers continue to deploy the significant amount of dry powder created in the market during the 2013 and 2015 fundraising years.
*Note: In this chart the definition of private equity includes transactions in venture capital, real estate and private equity sectors.
This shift in investor focus away from South Africa is attributable the increase in opportunities to capture growth in the rest of the continent, coupled with sluggish GDP growth, political uncertainty and increasing unemployment which have been prevalent in the South African economy.
South Africa makes up a large proportion of PE transaction activity in the current year, however this concentration has reduced significantly from 50% in 2009 to 31% in 2017.
We have seen increases in deal activity in Nigeria and East Africa over the past year. The increase in Nigeria is driven by improved investor sentiment, which results from higher than expected GDP growth, recovery of the oil price, government incentives and improved foreign exchange liquidity. Deal activity in East Africa in 2017 has mostly been driven by Kenya and Uganda, with the former contributing 61% to East Africa’s total deal activity.
South Africa makes up a large proportion of PE transaction activity in the current year, however this concentration has reduced significantly from 50% in 2009 to 31% in 2017. The country has continued to grow at 5% annually in real terms over the past five years.
Deal activity in Egypt has increased to 9% of total transactions in 2017 (2016: 6%). The increase has been driven by the rise in investor confidence following the devaluation of the Egyptian Pound in September 2016 and a series of regulatory reforms instituted in June 2017 that provide various investment incentives. Egypt was ranked as the No. 1 investment destination in Africa by RMB’s “Where to invest in Africa” 2018 report and has seen a significant increase in foreign direct investment (FDI) inflows in recent years.
Kenya continues to dominate the East African PE investment landscape because of the country’s large and diversified economy, pro-business government policies and relatively low dependence on extractive commodities.
As it becomes clear how the countries affected by economic difficulties will fare during the recovery, activity is likely to increase in several key markets.