Business
Africa continues to be most attractive for Private Equity investment
In the last decade, Africa has experienced an unprecedented influx of private equity investments. The Emerging Markets Private Equity Association (EMPEA) estimates that private equity investments in Africa rose from US$151 million in 2002 to US$3 billion in 2011.
Nearly two thirds of private equity firms are eyeing investments in emerging markets in order to tap into the growing demand for goods and services.
The third quarter survey by the EMPEA released last week indicates that about 76 percent of private equity firms surveyed showed interest in investing in emerging market funds, compared with 26 percent who were interested in developed economies-focused funds.
The survey further revealed equity managers expected Africa-focused funds to return an average of 16 percent per year, well ahead of other emerging markets like the Middle East and Central and Eastern Europe.
The new findings are expected to fuel optimism in Africa-focused funds, which have enjoyed unprecedented growth and interest from investors, on the back of strong economic growth.
Data compiled by Economist shows Africa is home to seven of the world’s fastest growing economies.
The EMPEA survey ranks sub-Sahara Africa as one of the most attractive markets for private equity in 2012 along with Latin America. The region climbed into the number five slot from seventh place in 2011 and eighth in 2010.
For the fourth year in a row, Brazil leads among markets gaining new entrants, with 28 percent of investors planning to begin investing there in the next two years, followed by sub- Saharan Africa with 21 percent of investor interest.
The shift in private equity allocations towards emerging markets reflects persistent investor optimism about emerging markets’ ability to outperform developed markets, noted the survey.
However, the survey found that the year-on-year analysis shows that while private equity fundraising and deal volume are in fact down in the emerging markets, the 13 percent decline in emerging market fundraising is in the broader context of a continuing slowdown in private equity globally.
Emerging markets accounted for 17 percent of the total capital invested globally, up from 11 percent in 2011 and 13 percent in 2010.
Political risk emerged as the single greatest market-specific deterrent to investors in six of the 10 markets evaluated, and is most pronounced in the case of Russia, where 73 percent of investors ranked it as high risk, followed by sub-Saharan Africa, with 66 percent of investors ranking it as risky. – (The East African)