Private equity in Africa

Market conditions

In this section the market conditions that influence private equity pricing in African markets are discussed. First, we cover the theoretical cost of equity, which reflects the risk and reward profile of the markets. Secondly the supply and demand of capital in the private market is reviewed by examining fundraising for private equity funds. Lastly, we discuss the pricing of the listed market. Improved market conditions are evident in Africa’s reduced cost of equity, which bodes well for investors into Africa.

Cost of equity

Risk versus reward is a key determinant of investment activity. Cost of equity is representative of the investor’s evaluation of the risk that the enterprise is exposed to. We estimate that the GDP weighted cost of equity for the continent is 21% and has decreased in the current year by 0.35%.

Reduction in perceived risk on the continent

Change in cost of equity in 2017 by region

Maghreb region
Southern Africa
Francophone West Africa
East Africa
Central Africa
Egypt AND Sudan
Other West Africa
South Africa
Source – RisCura, Moody’s, BMI Research


Most regions showed a decrease with Egypt & Sudan; Nigeria and Other West Africa being the only regions to record increases. Sudan’s current political instability and hyper-inflation drives the increase in that region, while Nigeria’s relatively small increase represents the final negative impact of the commodity cycle and the resulting currency devaluation.

Reduction in perceived risk on the continent

Change in cost of equity in 2017 by country

Source – RisCura, Moody’s, BMI Research

The remainder of the continent showed reductions in cost of equity reflecting the lowering of investment risk and supporting the increase in asset prices over the period. East Africa has shown a 1% decrease in cost of equity. Kenya, the largest economy in the region’s risk profile, has remained steady over the year, with Tanzania, Rwanda and Ethiopia all recording decreases in risk. This is the second year in which this region has recorded a decrease in cost of equity, lending some support to the increased asset prices in the region.