For several years, Africa benefited from a steady influx of fresh capital. But now international investors are less interested in Africa. The continent has wrongly moved out of investors’ focus. 5 suggestions how the turning point can be achieved.
For several years international investors were full of hope for Africa. In 2014, private equity in Africa attracted USD 3 bn. This record was only exceeded in 2015 reaching USD 3.3 bn. Since then, international investors are much less interested to invest in Africa. In the following years, Africa never attracted again these inflows from international funds. Today, international investors are less interested in Africa.
In 2020, only a handful of transactions made a name for themselves. Mediterrania Capital Partners completed the USD 100 million acquisition of Meta Med in Egypt, the largest platform of diagnostic imaging centres in Egypt, Jordan and Saudi Arabia. The South African private equity firm Ethos Private Equity led the second large transaction last year when it started to restructure the investment manager Brait for a volume of USD 73 million. According the association for private capital in emergins markets EMPEA private equity firms completed few large deals in Africa, causing an overall drop in disclosed capital invested from second half of the year 2019.
Less interest in Africa
What went wrong? Why did the “Africa Rising” story stop convincing international investors? The basis of this story is still correct. Africa is politically stable like never before in the last 100 years. A new middle class is emerging. Young people benefit from an improving education. A rising welfare is strongly visible anywhere on the continent. Especially East Africa, led by the Kenyan economy, became a hot stop for international investors. However, South Africa and Nigeria fell behind, due to economic and political underperformance.
Our conviction is: Africa has wrongly moved out of the focus of international investors. The story behind “Africa Rising” is still intact. However, conditions on African capital markets have to be improved for making the continent more attractive for international capital.
Here are five findings and five suggestions we submit for opening the next chapter of the “Africa Rising” story:
- In the golden years of private equity in Africa, investors fought fierce competition for the same projects over and over again. Financial market participants should stop following the others in the herd. They should instead open their eyes and also finance smaller companies and discover new industries. There are so many companies in Africa offering tremendous investment opportunities.
- Governments failed to use international interest to implement urgent reforms and strengthen institutions in their countries. It is not too late. Governments should start improving the legal framework and make it more appealing for investors and entrepreneurs.
- Financial authorities did not use the dynamic of massive inflows for improving capital markets in their countries. The activity on African stock exchange and financial markets is largely behind their potential. African financial markets need a Big Bang.
- There is a tremendous mismatch between investors wanting to invest in Africa and companies looking for growth capital. African entrepreneurs are struggling raising funds for financing their projects. Transparency and visibility should be improved on both sides. Investors should make it clearer what their requirements are for an Investment. Entrepreneurs should get more support on how to prepare their company for welcoming outside investors.
- Most investors want to get out of their investment one day. However, selling a stake in a company is still too difficult. Therefore, governments and financial market authorities should strengthen the IPO activities on their stock exchanges and making a listing there more attractive. Africa needs a strong IPO offensive.
Pushing forward the integration
Our business at Africa Partners is to bring international finance and investment projects in Africa together. Our conviction is that Africa and Europe should cooperate strongly and work on the integration of these two continents. Investments between the two continents will be the strongest driver of this integration. Especially, concerning financial markets Africa and Europe should push cooperation and integration.
We are ready to discuss and refine our proposals and to support their implementation.