Morocco has emerged as the top investment destination for private equity in North Africa, attracting 51% of all deals and 43% of total capital invested in the sub-region between 2010 and 2014, according to a report by the Emerging Markets Private Equity Association (EMPEA).

The vast majority of these deals (70%) came in three sectors—the industrials sector (which includes manufacturing and industrial transportation providers), consumer goods and consumer services.

Brahim El Jaî, Managing Director of AfricInvest Morocco, said: “In Morocco, the business environment is open. The rules of foreign investment are transparent and efficient, and general administration and procedures are quite easy.”

“If you want to take a majority or a minority stake in a company, and even if you want to take the whole capital structure, you are free to do almost anything that you want to do. This gives Morocco a real advantage when compared to other markets in the region,” he said.

Private equity financing for Moroccan companies has involved primarily growth and buyout transactions, but venture capital is also increasingly a financing option for early-stage companies, said EMPEA.

Driven by MITC Capital—the most active venture capital firm in North Africa since 2010—Moroccan start-ups operating mainly in the consumer services and technology sectors have received 14 investments over the last five years, according to the EMPEA’s Special Report: Private Equity in the Middle East and North Africa.

Egypt, the largest economy in North Africa, has historically been a private equity hub in the sub-region; many of the largest disclosed investments in North Africa between 2010 and 2014 took place in Egypt.

Like Morocco, Egypt is also home to a nascent start-up ecosystem, with venture capital players like Sawari Ventures and a number of accelerator programs instigating an important dialogue around filling early-stage financing gaps, although growth capital deals continue to account for the majority of deal flow.

Unlike Morocco, however, where the opportunity tends to be concentrated in manufacturing and consumer-focused companies, a singular sector theme is not as apparent in Egypt.

More recently, Tunisia has attracted an increasing share of deal activity, up from 15% of the total number of investments in North Africa in 2010 to 21% in 2014, with the opportunity set concentrated in industrials and consumer goods; together, industrials and consumer goods accounted for 65% of all deals during this period.

The number of managers investing in Tunisia, however, remains limited: AfricInvest accounted for more than half of all known deals in Tunisia between 2010 and 2014, with the remainder coming from just six other firms.

Notably, the four most active private equity dealmakers in North Africa between 2010 and 2014 all focus on the region at large, and utilize an approach toward regional expansion in many of their portfolio companies.

Andrew Brown, Managing Director and CIO of Emerging Capital Partners, said: “Our presence in North Africa opens up substantial opportunities to build businesses of scale across the entire region. In the case of our investment in the Tunisian producer of absorbent hygiene products Société d’Articles Hygiéniques (SAH), operations closed for two weeks following the Tunisian revolution leading to a 40% drop in Tunisian sales that month; however, the business was able to benefit from regional sales in Algeria, Libya and Morocco."

"The impact on demand was shortlived and by April 2011, sales had recovered above pre-revolution levels. Tunisia remains an example of a successful political governance transition, which should help to drive economic growth,” he added.

The progress and prospects for regional expansion within North Africa, and toward Sub-Saharan Africa and Europe, are a key component of the private equity opportunity set in North Africa.

According to Nabil Triki, Managing Director and Head of Private Equity at Swicorp, North Africa is interesting because it is a significant market, and there are lots of interesting plays to be made in sectors like consumer goods, food and beverage, and pharmaceuticals.

“We have never been as active and as bullish about investing in North Africa as we are today. In some sectors, North Africa can be an interesting base to export to Europe because of the proximity, while it can also be a hub to cover Sub-Saharan Africa because a number of sectors that will grow in the sub-continent in the coming years are ones in which there are already established players in North Africa. Private equity investors are well suited to accompany these companies,” he said.