Private equity deals totalled $8.1 billion last year; middle-class homes in 11 key sub-Saharan countries to triple to 22 m by 2030
JOHANNESBURG, JULY 27: From milk churning in Zimbabwe to rose growing in Ethiopia, private equity investments in Africa have returned to pre-crisis levels and should keep rising as funds seek bumper returns in far-flung markets. Private equity deals in Africa totalled $8.1 billion last year, the second highest on record after the $8.3 billion posted in 2007, according to the African Private Equity and Venture Capital Association (AVCA).This year could be even bigger as investors tired of low returns in developed markets look to cash in on the rapidly emerging middle-class consumers in Africa — home to many of the fastest growing economies in the world.
Private equity deals in Africa between 2007 and 2013 earned 60 per cent more than the MSCI emerging market index, AVCA says. Traditionally, private equity buyouts in Africa have been supported by development organisations but there are signs over the last year that global funds are taking more aggressive steps to tap into a continent of one billion people.” The growth story in Africa is compelling,” said John van Wyk, head of Africa at Actis, an emerging-market focused fund with around $4.6 billion under management.
“Global funds are realising they need to have some sort of Africa strategy and that hasn’t always been the case.” Large US private equity firms, including TPG and Kohlberg Kravis Roberts (KKR), have made their first investments in Africa over the last year. The New York State Common Retirement Fund, one of the largest US pension funds and worth around $180 billion, said in April it could invest up to $5 billion in Africa over the next five years to boost returns and diversify its portfolio. TPG said in June it will invest up to $1 billion in African companies under a tie-up with Sudanese billionaire Mo Ibrahim’s Satya Capital, which has interests ranging from healthcare in Nigeria to manufacturing in Tanzania.
Investments are focused on fast-moving consumer goods, financial services, healthcare and telecommunications. Bigger funds are looking at infrastructure projects, including filling massive unmet electricity demand across Africa. KKR last year invested $200 million in Afriflora, a rose farm in Ethiopia, one of the fastest growing economies in Africa and home to the continent’s second largest population.
Though interest in Africa is rising it comes off a very low base with even large funds raising only around $1 billion, a meagre sum compared with developed markets. More money was raised in India last year than in all the 55 countries in Africa.” While there has been more capital raised, it’s low compared to other geographies,” said Marlon Chigwende, Managing Director of Carlyle’s sub-Saharan African business.
High returns are also far from guaranteed. Food and drinks giant Nestle offered a dose of reality last month, saying it was cutting 15 per cent of its workforce in Africa because it had over-estimated the growth of the middle-class.Still, middle-class households in 11 key sub-Saharan African countries, excluding South Africa, are set to triple to 22 million by 2030, according to Standard Bank.