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Private equity opportunities in emerging markets: Private Equity in Africa - EY - Global

Private equity opportunities in emerging markets

Private equity in Africa

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Sub–Saharan fundraising has grown significantly as a proportion of total Africa commitments (US$b)

Source: EMPEA industry Statistics, Q3 2011 release; 2011 figures to Q3 2011 and annualized

As the PE industry undergoes its own expansion, diversification and maturation, Africa will play an important role.

Strong growth, a rising middle class and limited competition for deals are driving increased interest

Africa has long been a continent with enormous promise overshadowed by a legacy of conflict, corruption and economic crises. However, the region has seen a broad range of reforms in recent years. Infrastructure initiatives are opening new avenues of commerce, and new efforts towards regional integration and strengthened regulatory and legal systems are providing greater levels of transparency and accountability.

Far-reaching progress combined with increasingly favorable demographic and economic trends has created an environment that is ripe for investment. Despite the economic downturn, foreign direct investment (FDI) has been robust, it is changing shape — expanding from its historical focus on the extractive industries to an increasingly diversified range of sectors and industries poised to benefit from the region’s growth.

In our latest report, we look at some of the factors that are driving PE’s rapidly increasing interest in Africa — from the already established and growing market of South Africa, to the frontier markets such as Nigeria, Ghana and Kenya.

Private equity (PE) investors have long been a part of Africa’s economic landscape, with firms like Helios Investment Partners and Actis Capital raising funds and executing significant transactions in the region.

But broader recognition of Africa’s growing economic strength is prompting a new wave of activity, as general partners (GPs) and limited partners (LPs) alike take a closer look at the region’s wide array of opportunities. Africa has stepped into the limelight as a more prominent emerging market player.

PE firms are attracted to the region’s high growth rates and nascent shift from commodities and agrarian-based economies to consumer economies, driven by a growing middle class. As the PE industry undergoes its own expansion, diversification and maturation, Africa will play an important role.

Sub–Saharan fundraising

Investment values are on the rise. And while South Africa remains the region's largest PE market,opportunities beyond its borders are starting to attract more interest. The value of investments in sub-Saharan Africa increased by 38% in the first half of 2011 compared to US$1.7 billion in first six months of 2010 according to the Emerging Markets Private Equity Association. The range of deals available to PE investors is also expanding into financial services, technology, telecommunications, agriculture, consumer products and infrastructure.

Fund-raising is also up as new players are entering the market. Historically, fund-raising for the region was largely focused on South Africa. The last five years have seen a higher proportion of capital directed towards sub-Saharan Africa's frontier markets, including Nigeria, Ghana and Kenya. Through Q3 2011, African PE funds outside South Africa were set to raise more than US$1.7 billion for the calendar year - with South African funds representing only 10% of that total.

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