Private equity in Africa: context, opportunities, and risks

Energy & Commodities

In many ways private equity - with its combination of capital and management expertise - is a perfect fit for Africa. As the scale of Africa’s potential has become recognised among the investment community, private equity has provided an opportunity for those who want to both contribute to, and benefit from, Africa’s growth story. But on the ground private equity has also helped innovative and dynamic African companies, their ambition limited only by a lack of capital and experience, drive forward some of the most exciting new prospects and business leaders on the continent. 

Africa’s potential is clear, but the ‘Africa Rising’ story will face rigorous testing in 2015. Headline growth remains strong, but African markets are facing arguably the toughest macroeconomic environment since 2008, with falling commodity prices and a strengthening dollar presenting challenges for governments’ fiscal management. Politics too will be scrutinised, with over a third of the continent’s population going to the polls in 2015. While the Nigerian result has provided a resounding boost to democracy in Africa, investors across the continent will continue to watch carefully for the impact of politics on both stability and the business environment. 

The arrival of big international funds is a sign of confidence in private equity in Africa, although obstacles for practitioners remain. These include: weak and evolving regulatory frameworks; shallow capital markets; and a scarcity of big deal opportunities. Overcoming these obstacles, and adapting to the demands of doing business in Africa is at the heart of the challenge. For those with the appetite to take it on, the focus on big markets - Nigeria and South Africa - and traditional sectors - energy and mining – are being bolstered and even overtaken by exciting opportunities in new markets in both West and East Africa, and a focus on telecoms, finance and FMCG as investors look to unlock the opportunity of rapidly rising disposable incomes. 

While the complexities and variety of doing business on the continent is impossible to capture, this short document highlights some of the most important insights and most pressing questions for private equity in Africa.

This report was produced by Global Counsel in collaboration with Allen & Overy.

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