Over the past three periods, South Africa represented a relatively consistent share of transaction activity (approximately 25%). Despite South Africa’s limited growth prospects and increased risk profile, transaction activity continues to increase along with the rest of the continent, growing 13% between 2020 and 2021. The South African economy continues to face significant challenges in 2022 and beyond, following sluggish GDP growth, mismanaged state-owned enterprises, increasing unemployment, and policy uncertainty. This has resulted in the country’s sovereign credit rating being affirmed at sub-investment grade.
As a continuation of the historic trend, there was a significant uptick of 104% in deal activity in Egypt between 2019 and 2021. Egypt maintained its ranking in RMB’s Where to Invest in Africa 2021 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 resulted in improved investor sentiment. Furthermore, Egypt was praised by the IMF for implementing one of the most successful economic turnaround programmes, which commenced in 2016. 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 between 2018 and 2020.
Another notable country is Morocco. Despite being ranked second to Egypt in investment attractiveness, it has not attracted significantly more investment to the region. This may be partially due to reluctance to invest in tourism-sensitive economies such as Morocco, whose economy has taken a hit from the pandemic and may take longer to recover. According to the World Bank, tourism contributes 11% of the country’s GDP and accounts for 17% of the workforce. Morocco will remain dependent on Europe for tourism, foreign direct investment (FDI) and remittance inflows.
According to EY’s Africa Attractiveness Report 2021, North Africa was one of the regions the pandemic affected the most, with Morocco registering the second-highest Covid-19 cases in Africa. It saw a sharp contraction in GDP of 7.1% in 2020 — its first recession in over two decades. The dual shock of the pandemic and recent severe droughts drove this.
The East African portion of investment activity has remained relatively stable over the past three years at around 20% of African investment activity. Kenya accounts for 64%, the largest portion of East Africa’s investment activity for the period ended June 2021, representing an increase from a 52% share as at June 2020. 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. East African countries hold a third of RMB’s top 10 investment attractiveness rankings, with Kenya expected to be one of Africa’s fastest-growing economies over the next five years.
Deal activity in Nigeria followed the continent average and increased by 18% for the period ended June 2021, compared to the 50% and 13% increases experienced for the periods ended June 2019 and June 2020 respectively. Currently, Nigeria has the third most significant proportion of Africa’s investment activity, with information technology (IT) investments dominating sector allocations.
As Africa’s largest economy, Nigeria accounted for 17% of total transaction activity in 2021, increasing steadily over the previous few years. Improved investor sentiment drives the increase in activity in Nigeria. The improvement is the result of large consumer demand, government incentives, and improved foreign exchange liquidity. According to RMB, the efforts made to support small and medium enterprises through monetary policy reform will be fundamental to Nigeria’s development. This should aid the country’s efforts as it continues to expand into sectors such as IT and shifts away from being a predominantly commodity-reliant economy.