Long-term game: PE investment in Africa

Emerging markets and developing economies (EMDE) have long presented myriad opportunities for private equity (PE) investment. They are natural and popular targets for those looking to diversify their portfolios and maximise value.

A particular EMDE hotspot for PE investment is Africa, with the pace of dealmaking activity on the continent gaining substantial momentum in recent years. Indeed, according to the African Private Equity and Venture Capital Association’s (AVCA’s) ‘2020 Annual Private Equity Data Tracker’, 255 PE deals were struck on the continent in 2020, compared to 189 in 2015.

And while the value of PE deals has fluctuated, general patterns of investment activity have remained stable throughout the COVID-19 pandemic (which led to a brief drop in fundraising for EMDE-focused PE funds), underlining the overall attractiveness of and enthusiasm for private investment in Africa, particularly sub-Saharan Africa.

“The current appetite for PE investment in sub-Saharan Africa remains strong,” says Nadia Kouassi Coulibaly, head of research at the AVCA. “Although the COVID-19 pandemic lowered investor expectations of the continent somewhat, ushering a period of subdued investment activity, this lull in dealmaking was short lived. Overall, the pandemic did not dampen investor interest in Africa.”

Furthermore, the AVCA’s ‘2021 Annual Private Equity Industry Survey’ reveals that a majority of both limited and general partners believe the attractiveness of African PE remains unchanged following the global pandemic, with 86 percent of limited partners (LPs) indicating they plan to increase or maintain their allocation to PE in Africa over the next three years.

“LPs investing in Africa are unique in that most seek to achieve financial returns alongside impact, and as such tend to view Africa as a long-term game,” affirms Ms Coulibaly. “COVID-19, thus, was not a deterrent for Africa’s investor base, most of whom view Africa as a cornerstone of their investment mandate. Given that their interest in the continent’s investment opportunities largely preceded the healthcare crisis, current interest in and appetite for PE in Africa remains strong, buoyed by the continent’s promising economic recovery.”


Despite the PE confidence on the continent, investing in EMDEs is still associated with higher degrees of macroeconomic uncertainty relative to more developed, established markets – a reality that can prove to be an obstacle for some PE practitioners.

“Despite the macroeconomic instability that characterised much of 2020, the appetite for PE investment in Africa, and emerging markets more generally, is positive and promising.”

“As the ‘last frontier’, the general investment risk intrinsic to PE is amplified by the higher degrees of geopolitical and currency volatility that exist in some parts of the continent,” opines Ms Coulibaly. “Accordingly, fund managers active on the continent have cultivated strategies to address these risks while capturing the opportunities present in the African PE industry, and global investors looking to diversify to African markets ought to follow suit.”

According to the AVCA study ‘Volatility and Uncertainty: How Private Equity in Africa Navigates Through Turbulent Times’, adapting to the demands of doing business in sub-Saharan Africa requires investors to consider political risk management when constructing their portfolios, with fund managers favouring diversification and the avoidance of risky locations as the main ways of managing political risk.

The study also notes that while it is not yet common practice in Africa, political risk insurance is another medium that may embolden hesitant investors to take advantage of commercially attractive opportunities while protecting their investments, thereby reducing some of the risks associated with investing in emerging economies.

An additional obstacle for PE practitioners unfamiliar with the unique facets of doing business on the continent is navigating Africa’s complex regulatory environment. “One way to adapt to this would be to prioritise having a physical presence in markets of interest,” suggests Ms Coulibaly. “Risk is managed by establishing regional offices across Africa with local teams that have experience navigating the unique and varied requirements of doing business in Africa’s PE landscape.

“Not only does having a local presence afford closer proximity to your portfolio, but having local management teams with an understanding of the terrain and its associated risks ensures that these risks are accounted for in deal sourcing and due diligence processes,” she adds.


Despite the macroeconomic instability that characterised much of 2020, the appetite for PE investment in Africa, and emerging markets more generally, is positive and promising.

Testifying to this is a steady annual increase in the proportion of LPs that plan to increase their PE allocation in Africa over the next three years – standing at 65 percent this year, up from 58 percent in 2020, 53 percent in 2018 and 54 percent in 2017, according to the AVCA. Moreover, 50 percent of LPs are looking to increase their PE allocation in emerging and frontier markets in the next three years.

“The increasing accessibility of professional services firms catering to the needs of PE professionals on the continent expedites the process between deal sourcing and deal execution,” concludes Ms Coulibaly. “As Africa’s PE industry matures and more national governments introduce supportive public policy to improve the ease of doing business, we can be confident in the industry’s ability to overcome challenges related to completing deals.”

Read original story on Frontier Worldwide

LEAVE A REPLYYour email address will not be published. Required fields are marked *Your Name

Copyright © 2022 Africa Investment Consortium. All Rights Reserved.