The overarching driving factor for the increase in cost of equity for the different African regions is the potential shift in investor sentiment, away from emerging and frontier markets to safer, developed markets.
Risk versus reward is a key determinant of investment activity. Cost of equity represents an 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 21.35% and has increased in the current year by 0.33%.
Most regions showed an increase in the cost of equity except Egypt and Sudan, which were the only countries to show a decrease.
There are several driving forces for the increase in cost of equity for the different African regions. The overarching factor is the potential shift in investor sentiment away from emerging and frontier markets to safer developed markets. This shift tends to occur during global economic downturns.
Source: RisCura, Moody’s, BMI Research
*Note: The following countries are commonly excluded from the analysis due to insufficient data. When included, the impact is immaterial: Eritrea, Somalia. The zones in Western Sahara controlled by Sahrawi Arab Democratic Republic (SADR) are shown separately and the rest of the territory is shown as part of Morocco
Source: RisCura, Moody’s, BMI Research
Note: The zones in Western Sahara controlled by Sahrawi Arab Democratic Republic (SADR) are shown separately and the rest of the territory is shown as part of Morocco
Fundraising activity on the continent remained relatively stable, most regions showed an increase in cost of equity, transaction activity is up since 2017, the upward trend in multiples continues and Information Technology and Consumer Discretionary remain the two sectors with the highest investment activity.
learn moreIn this section, the market conditions that influence private equity pricing in Africa are covered.
learn moreThe overarching driving factor for the increase in cost of equity for the different African regions is the potential shift in investor sentiment, away from emerging and frontier markets to safer, developed markets.
learn moreThe continent’s growing population and middle class drives sector investment activity and in 2018, East Africa surpasses South Africa as the region with the highest level of PE transactions.
learn moreAfrican countries experienced a decline in EV/EBITDA multiples reflecting the challenging investment and growth outlook as the commodity cycle starts to turn again.
learn moreThere was a convergence of private equity and listed equity multiples at around 8x EV/EBITDA in 2018.
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