Private equity in Sub-Saharan Africa
The private equity industry in Sub-Saharan Africa is climbing to unprecedented levels. The core reason for this is rapid economic growth in many African nations, but also of significance are the facts that there is presently little or no commercial and consumer lending markets in the subcontinent, banks perceiving the risks as too high, and interest rates from lending institutions tend to be cripplingly inflated.
Private equity (PE) funders are consequently jumping into the gap, eager to capitalise on new, untapped opportunities. Their funds, particularly the sizeable ones coming from international corporations, are enabling the business environment and so generating even more promising socioeconomic growth.
The maturing private equity market
A decade ago African PE funds were few in number, generalised in focus, and limited in clout. Today, they are rapidly multiplying, becoming more niche by targeting specific industries or regions, and are capable of supplying greater injections of capital, largely because the continent is now attracting wealthy global players interested in investing in fields as diverse as the extractive sector and telecoms. All indicators point to this trend continuing to gain strength over ensuing decades.
Ensuring sustained PE investment into Africa
While PE firms are currently doing well in Sub-Saharan Africa on the whole, their continued success (and success in benefitting economies) is not a guarantee. Some of the keys to safeguarding the future of the PE sector are as follows:
- Agricultural growth is the most important factor to poverty reduction – it outweighs the impact of other sectors by 3:1 – so for African markets to continue growing, the issue of food security needs to be solved.
- Public sector investments and the commercial financial environment have to develop if PE investments are to flourish in the long-term.
- PE investors must engage, and sometimes collaborate, with local, key stakeholders in relevant industries to ensure the longevity of growth in those industries.
- Far better liquidity is required for greater economic growth.
- PE firms need to remain flexible and innovative, moulding themselves to shifting marketplace, social and political trends within their specific industries and regions.
The good news is that pioneering PE firms are truly playing a role in developing Sub-Saharan African economies, and, encouragingly, are starting to see tangible returns on their investments. If role players heed the above advice, they will remain relevant and continue to be industry catalysts.