Investment activity tends to lag the fundraising cycle, as investors need to deploy cash shortly after it has been raised. Private equity transaction activity recovered in 2016, from a dip in 2015. Following a record amount of fundraising in 2015, funds were well placed to deploy capital going into 2016.
Activity in 2016 remained concentrated in South Africa and the rest of Southern Africa, with over 50% of the total number of transactions. South Africa alone made up approximately 38% of the 2016 total, slightly up from 35% in 2015. Other regions with significant activity include East Africa and Nigeria with 14% and 11% of the total, respectively.
Activity in Southern Africa excl. South Africa has grown by over 70% since 2015 and includes some of the largest transactions recorded in 2016. Activity remains low in Ghana and Other West African countries, comprising Sierra Leone, Liberia, Gambia and Guinea-Bissau.
It is expected that South Africa will continue to attract the most private equity investment for the foreseeable future. However, more negative sentiment towards South Africa and optimism surrounding other regions may contribute to a shift in regional focus going forward.
Nigeria and Angola were the countries hardest hit by the drop in the oil price. Other commodity exporters affected include Zambia and Ghana. Although a slight recovery in oil and commodity prices has restored some economic stability, growth in the affected countries will still be hindered in the near future. High growth rates are expected in countries that are net resource importers, such as Kenya, Cote d’Ivoire and Senegal.
As fund managers obtain greater knowledge of the state of countries affected by economic difficulties and are able to manage risks, activity is likely to be distributed further across Africa.