Private Equity Lifts Half Of African Countries To Middle-Income Status

Written by Kevin Mwanza

Written by Brendan Peacock | From Sunday Times via BDlive

BURIED at the back of a recent study on private equity is a significant statistic. Half of African countries (27) are now classified by the World Bank as middle-income countries.

Private equity has enabled businesses in Africa to grow by servicing rapidly gentrifying populations and is providing returns for investors that outstrip public markets.

The second annual study of private equity exits across Africa, a joint effort between the African Private Equity and Venture Capital Association and global advisory firm EY, also said that private equity players that had local offices scored better returns than those that managed their investments by remote.

West and East Africa are popular investment destinations. “Contrary to popular opinion, African private equity is not entirely focused on the South African market,” the report said.

Among the most promising sectors is financial services, which has “long been popular with the region’s private equity houses, particularly as technological innovations, such as mobile payments, have made financial services products more accessible for the remotest of communities and as banking reforms in many markets have led to consolidation”.

The report said in line with the economic trends of a growing middle class, increasing disposable incomes and high GDP growth apparent in most African nations, the sector with the highest proportion of exits was financial services, accounting for 19% of exits from 2007-13.

Other sectors that are attractive for private equity investments include consumer industries, infrastructure, telecoms, agriculture and forestry, business services and industrial goods.

The returns in private equity come down in part to how easily an investment, which is typically held for between five and seven years, can be exited.

In a comparison with the inaugural report, the researchers noted that private equity investors were making excellent progress in exiting portfolio companies as the industry matured.

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