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Analysis > Interviews

African PE: investor appetite improves

Anna Lyudvig
March 11, 2019, 10:21 p.m.
963

Word count: 639

EMPEA this week released its year-end Industry Statistics, which outlines the bottom line for private investment in emerging markets across the globe. AGF speaks with Jeff Schlapinski, Senior Director, Research, EMPEA, about African private capital fundraising in 2018, deal activity, fund strategies and more.

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EMPEA this week released its year-end Industry Statistics, which outlines the bottom line for private investment in emerging markets across the globe. AGF speaks with Jeff Schlapinski, Senior Director, Research, EMPEA, about African private capital fundraising in 2018, deal activity, fund strategies and more.

Africa Global Funds (AGF): Can you comment on your Africa findings, please?
Jeff Schlapinski (JS):
There are some signs of a recovery in investor appetite for private capital opportunities in Africa. Capital raised for Africa-focused private capital vehicles increased 22%, year over year, to $2.8bn in 2018. Emerging Capital Partners (ECP) raised the largest private equity fund for the continent since 2015 with $640m in commitments. Thanks in part to ECP’s close, 16 growth equity funds collectively raised $1.6bn this past year, the highest total for the strategy since 2015. At the same time, disclosed private capital invested in African companies and projects in 2018 was below the pace of recent years. I think that as economies recover within the region and as new governments stabilize and gain momentum, investors will feel more comfortable deploying capital and activity numbers could pick up.
 
AGF: In which countries have you seen the most deal activity? 
JS:
South Africa and Nigeria typically account for the most activity across the continent, but the number of deals completed in Nigeria has fallen off in recent years. One of the things we noticed in the year-end data was the growth of deal activity in North Africa (Morocco, Egypt) and the increasingly prevalence of regional platforms and buy-and-build strategies that encompass multiple countries.

AGF: Which sectors in Africa have seen the biggest growth? 
JS:
Deal activity has been pretty balanced at the level of industry verticals (consumer, energy, industrials, agriculture, etc.). Where we have seen growth is more at the company stage level. Early-stage venture capital (VC) investors are increasingly active across Africa, backing companies with technology-enabled business models that are aiming to solve basic problems for people—health care, electric power and fuel, education, financial services, etc. VC funds invested $211m in disclosed transactions across the continent last year, which represents a compound annual growth rate of 91% since 2010.
 
AGF: What fund strategies are favoured by investors? 
JS:
Regional growth equity strategies still account for the biggest fund pool in Africa. However, as I mentioned, venture has grown rapidly from a small base. Beyond that, I would note that infrastructure funds continue to amass capital. A.P. Moller Capital’s Africa Infrastructure Fund has raised $865m so far and represents the largest pool of capital recorded by EMPEA for investments in African infrastructure.
 
AGF: From which type of investors (and from which countries) do you see the most appetite for Africa? 
JS:
Beyond the development finance institutions—which have long had mandates to support funds and remain crucial partners and promoters of private investment in the region—foundations and endowments from developed markets, some with an impact mandate, are also active investors. Beyond that, European insurers and asset managers and local African pension funds have also supported some of the more recent fundraising efforts.
 
AGF: What’s your outlook for African PE and VC going forward? 
JS:
We are confident that the industry will continue to recover from some of the challenges encountered in recent years. The landscape is less competitive than in developed markets (meaning more attractive valuations in many cases), and there’s ample white space in which great businesses can be built. New models (evergreen funds) and strategies (early-stage VC) are being tested and will inject new energy into the scene. The external environment will be less supportive than in the “Africa Rising” years, however, so the onus is on fund managers to take an active role in creating value, take advantage of structural dynamics in local markets and generate resilient returns across the cycle.

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