Africa PE and venture capital funding dips
Monday October 02 2023
Traditionally, private credit accounts for less than five percent of the market for private investment in Africa. PHOTO | SHUTTERSTOCK
Africa’s private investments declined by three percent to $6.3 billion in 2022 as global risk aversion severely affected private equity and venture capital fundraising in the continent.
A new report by the European Investment Bank titled Finance in Africa: Uncertain times, resilient banks: African finance at a crossroads shows that the total fundraising in the continent fell by 35 percent to $2.1 billion, the lowest figure for the continent in nine years.
“Despite the challenging fundraising environment, private investment in Africa remained robust,” says report.
“This resilience was attributed to the deployment of pre-existing capital, indicating the continued strong appetite for deals in the region.”
Across the continent a considerable portion of private capital investment is concentrated in four major markets – South Africa, Kenya, Egypt and Nigeria – which together account for almost two-thirds of all private capital investment on the continent.
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The financial services sector continued to attract the largest share of private capital, accounting for almost 40 percent of all investments in 2022.
The resilience in investment volumes is at least partly explained by a continued appetite for fintech deals in Africa.
While venture capital still accounts for the largest share of private capital investment in Africa, following a surge in activity in 2021, the level of investment fell by 13 percent to $2.8 billion, while private equity investment increased by 30 percent to $2 billion.
Traditionally, private credit accounts for less than five percent of the market for private investment in Africa.
However, the private credit market increased to $993 million from $280 million in 2021, accounting for 16 percent of private capital investment, against a backdrop of an 89 percent increase in private credit globally in 2022.
The sharp increase might be linked to the rising interest rate environment, which made this activity more profitable for private capital, and to traditional banks imposing tighter credit standards.
South Africa recorded $1.3 billion in private capital investment in 2022, followed by Kenya with $1.1 billion, a sharp increase from $226 million in 2021.
Egypt also saw record private investment amounting to $897 million, up from $479 million in 2021.
However, a notable exception was Nigeria, which had temporarily held the top spot in 2021 with $1.2 billion in private investment thanks to a surge in fintech-related venture capital activity.
Last year (2022), private capital investment in Nigeria fell to $722 million.
These four markets (South Africa, Kenya, Egypt and Nigeria) accounted for nearly two-thirds of all private capital investment across Africa in 2022, demonstrating that such activity remains highly concentrated in a small number of key markets.\
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Africa is still recovering from the economic effects of the Covid-19 pandemic, while Russia’s invasion of Ukraine is further disrupting the global economy.
These circumstances are making it difficult for African countries to attract investment and create jobs.
Climate change is also being felt across Africa, with the continent becoming more vulnerable to the effects of the changing climate, such as extreme weather events, rising sea levels and desertification.