Private Equity and Africa are not often associated with one another. Most notable private equity firms stick to established and stable markets such as the U.S. & Europe, where there are ample opportunities to invest in mature and steady companies. However, times change, and this is apparent in Africa, where the opportunity to connect the continent like never before is drawing in unprecedented amounts of capital.
The new found relationship between private equity and Africa shares a common thread of exceptional growth. Private equity firms, in simplistic terms, invest in large portions of companies or even buyout companies completely. They then manage the company and improve efficiency and market share. The end goal is to sell the investment at the end of an investment horizon usually spanning 5 to 7 years, and to make a return on their investment. In the past 15 years, both Africa and private equity have experienced out-sized growth. The number of private equity firms worldwide has increased by almost 105% in the past 13 years, and during that same time span, Africa’s average economic growth has never dipped below 3% and has routinely topped 5%. Untapped potential on both sides amounts to great potential for an economic revolution in Africa.
All is not rosy on the African continent, however. Between war, famine, poverty, and corrupt governments, many private equity firms looking to invest in Africa are finding a dearth of suitable opportunities. To this point in time, private equity investment in Africa is at a high since its financial crisis lows ($4 Billion in 2014). Still, while Africa presents an opportunity to reach over 1.1 billion new consumers, many existing African countries are too corrupt or localized to present the scalability and stability that private firms from the west and oil states desire. On the same token, African countries are very welcoming to private equity firms and often offer lucrative tax and legal benefits. Taking all of the positives and negatives into consideration, most private equity investors seek scalable companies who can operate not only within one country, but across the continent, providing serious growth capability.
The connections between private equity and Africa are becoming increasingly relevant not only to the continent, but to Western investors, offering new opportunities for wealth generation. This is a very intertwined and deep topic that warrants additional coverage. Stay tuned for the continuation of this topic in weeks to come.