Growth of private equity in Africa

Private equity investments in Africa experienced a significant decline in 2023, with a 22% decrease in deal value, leaving many wondering about the future of investment in the continent. Nouss Bih from Sahel Capital shed light on the factors contributing to this trend and shared insights on whether this trend is likely to continue amidst currency stabilization and easing interest rates. The year 2023 presented a challenging economic landscape globally, and Africa was no exception. Economic uncertainty, rising inflation, and depreciating currencies have impacted consumer purchasing power and investor confidence. Countries like Nigeria faced significant currency depreciation, leading to a ripple effect on deal-making and expansion projects for companies seeking private equity investments. However, there is a glimmer of hope on the horizon as interest rates stabilize and central banks implement measures to bolster currency stability. These improvements are expected to create a more favorable macroeconomic environment for deal-making in 2024, with a potential increase in private equity and venture capital activity. Despite the overall decline in private equity growth, certain key African countries continue to attract a large portion of investment capital. South Africa, Kenya, Nigeria, Egypt, and occasionally Morocco or Ghana have historically been favored destinations for investors due to their established track records in deploying capital effectively. While these countries remain prominent, there is a growing emphasis on diversification and exploring emerging markets within Africa for fresh opportunities. One such area of interest is West Africa, which has garnered recent attention from private equity funds. Countries in this region, particularly those using the CFA franc currency tied to the euro, offer relative currency stability and lower inflation rates, making them attractive investment destinations. Diversifying investments geographically can mitigate risks associated with political instability and high inflation rates in more established markets. Private equity investors are adapting their strategies to navigate the challenges posed by high inflation, interest rates, and political instability in certain African markets. Emphasis is being placed on investment instruments like private debt as a complementary option to equity, tailored to support companies' expansion plans. Additionally, strategies to attract local capital and promote patient capital investment are being prioritized to enhance sustainability and resilience in the face of market fluctuations. Amidst fewer initial public offerings (IPOs), private equity investors are increasingly turning to selling to other private equity funds as an exit strategy. This shift is creating a positive cycle within the industry, fostering growth and sustainability. Looking ahead, there is a concerted effort to enhance transparency, implement better regulations, and maintain market vitality and liquidity. While challenges persist, there is optimism for continued growth and innovation in Africa's private equity landscape, driven by strategic adaptation and a focus on emerging opportunities. Keeping a watchful eye on global market trends, such as the potential for a U.S. recession, will be crucial in navigating the evolving investment landscape in Africa.