28 November 2017

East Africa: Region on the Radar of Private Equity Funds

East Africa remains an attractive investment destination for multinational corporations looking to pump millions of dollars into Africa, despite its rising currency and political risks that have sent shivers down the spines of foreign investors.

The African Private Equity and Venture Capital Association (AVCA) said though West and South Africa continued to attract the greatest share of private equity deals from 2011 to the first half of 2017, PE activity in East Africa has been quite robust in recent years.

Most attractive

"East Africa is increasingly on the radar of institutional investors. The region has been identified as the most attractive for PE investments over the next three years, followed by West Africa," AVCA's director of research Dr Enitan Obasanjo-Adeleye told The EastAfrican.

According to AVCA, PE activity in East Africa has been focused on small and medium-sized enterprises that constitute the lifeline of local companies.

"We expect to see the value of deals to continue rising over the years as more and more PE fund managers with a regional or country-specific focus within East Africa are looking to deploy capital in the region," said Ms Obasanjo-Adeleye.

So far PE deals valued at $2 billion have been completed in East Africa from 2011 to the first half of this year.

The majority of these deals have been in sectors associated with the region's emerging middle class, growing consumer demand and increasing urbanisation.

These sectors include fast moving consumer goods, financial, real estate and the energy sector.

Among the major PE deals in East Africa between 2011 and 2017 are a $300 million oil pipeline construction project from Djibouti to Ethiopia backed by Black Rhino Group last year; and this year, investment firm Convergence Partners signed an agreement with Google, International Finance Corporation and Mitsui group to invest up to $100 million in C Squared, a broadband infrastructure company headquartered in Nairobi, Kenya.

Data from AVCA shows that between 2011 and the first half of this year, East Africa accounted for 18 per cent of the total number of PE deals in Africa, and eight per cent of the total value.

In the six months to June 30 this year, East Africa attracted 28 per cent of the total number of PE deals.

Rapid economic growth

East Africa is one of the fastest growing regions within Africa, and is experiencing some of the most rapid economic growth in the world.

Ethiopia, Kenya and Tanzania all achieved GDP growth in excess of five per cent in 2016.

Ms Obasanjo-Adeleye said the region's emerging middle class, increasing levels of urbanisation, and the integration process have all contributed to a strong PE environment but the instability of EA's currencies and political risks are major impediments to investments.

According to AVCA, Kenya is East Africa's single largest market and the overall performance of the region depends heavily on developments in the country.

Kenya accounted for over half (55 per cent) of PE deals in East Africa between 2011 and 2017 (January-June), followed by Uganda (19 per cent) and Tanzania (11 per cent).

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