South Africa and Kenya have both experienced decreases in investment activity of late.
While South Africa historically has made up a large proportion of PE transaction activity, its contribution has reduced significantly from 49% as at June 2010 to 26% as at June 2020. Over the past three years, its share of transaction activity has settled into a relatively consistent average of 27%, despite the country’s limited growth prospects and increasing risk profile.
Kenya accounted for 52% of East Africa’s investment activity for the period ended June 2020, a decrease from a 59% share as of June 2019. However, the country continues to dominate the region’s PE investment landscape because of its large and diversified economy, pro-business government policies, and relatively low dependence on extractive commodities.
As a continuation of the trend in 2018, there was a significant uptick of 63% in deal activity in Egypt from 2019. In 2020 Egypt maintains its ranking in RMB’s Where to Invest in Africa report as the number one investment destination in Africa. Egypt has a large and diversified economy; and an improved business environment stemming from recent investment-related legal reforms that have resulted in improved investor sentiment. The improvement in Egypt’s business environment is evident in the country’s eight-place jump in the World Bank’s Ease of Doing Business rankings.
Deal activity in Nigeria increased moderately by 13% for the period ended June 2020, compared to the 50% increase experienced for the period ended June 2019. The largest economy in Africa, in nominal terms, accounted for 17% of total transaction activity in 2020, marginally up from 16% in 2019. The increase in activity in Nigeria is driven by improved investor sentiment, which results from large consumer demand, government incentives, and improved foreign exchange liquidity.
However, following the oil price collapse because of the pandemic, Nigeria’s outlook has altered considerably. As a result of social distancing measures disrupting consumer activity, coupled with a significant fall in oil prices and production cuts, Fitch Solutions expects that the Nigerian economy will remain below pre-COVID-19 levels until 2022. Unless major new investment arises, Fitch Solutions expects oil production to remain structurally below levels seen in previous years, which will weigh heavily on exports, fiscal revenues, and public investment, resulting in constrained growth.
[*Note: The definition of PE when looking at the number of transactions taking place includes transactions in venture capital, limited real estate transactions reported by private equity funds and the private equity sector.]