RisCura, the investment advisors specialising in Africa and emerging markets, today advised that, in contrast to more developed nations, the returns possible from private equity investment in Africa come from positive growth and not debt leveraging.
Rory Ord, Head of RisCura Fundamentals, commented: “The returns from African private equity that have been seen in recent years have come through profit growth and industry expansion, highlighting the continued progression of many nations on the continent. The relative undeveloped nature of African debt markets, with the exception of South Africa, have meant that investors do not source much debt funding in private equity deals.
“African private equity deals have recently used an average of approximately twice the value of EBITDA (Earnings before interest, taxes, depreciation and amortisation) in debt financing, compared to approximately six times in the USA and four times in Asia*. This very low level of debt means that these deals avoid extra risk through leverage and also therefore do not rely on leverage for returns.
Ord continued: “There is still a wide misconception that investing in Africa comes with a great deal of additional risk. However there is a clear trend that, as economies and industries develop, the risks associated with investments in the continent are far outweighed by the positive returns that growth can bring about. This is something that more trusted, developed nations cannot offer investors at the current time.”
*These findings are from the RisCura Fundamentals annual Bright Africa report, which deals with equity investing across the continent. The Report can be accessed online here.
To read more on debt in Africa, visit Debt a small portion of African Private Equity deals.