As 2016 gets under way, amid growing concerns over a slowdown in China and a wider global economic malaise, the long-term growth trajectory for Sub-Saharan Africa seems to be as strong as ever.
Private equity fundraising for Africa has been robust and there is now a significant level of dry powder within a small number of competing GPs. From 2014 to date, $7.6 billion of funds have closed, more than 80% of which is held by just eight funds, with an average size more than $700 million. Yet during the same period, only 10 of 138 transactions completed have had ticket sizes of more than $75 million, suggesting that a lot of money is chasing scarce assets in Africa and that there is a risk of a private equity related ‘bubble’.*
However, the numbers would suggest this risk is overplayed; even Sub-Saharan Africa’s record fundraising year of 2014 saw a significantly smaller amount raised as a proportion of GDP than that seen in Europe. In addition, while larger operators may have struggled to put big funds to work, opportunities for those in smaller and mid-market segments are far more widespread in what remain in the main smaller countries with highly fragmented business landscapes.
Supporting this, in October it was reported that international private equity had become the fastest growing source of investment in Sub-Saharan Africa**. However, better risk management tools are needed, as is a continuing maturation of the market, in order to ensure the benefits of this capital are realised.
Most importantly, Sub Saharan Africa’s growth looks to be sustainable, driven by a shift in the population to cities coupled with an increase in discretionary spending from a growing middle class that will fuel domestic demand for local products. The young, growing population also serves as a source of competitive labour and boosts the consumer market as a whole. By 2040, Africa will have a larger working-age population than China or India and ƒby 2050 the number of people living in urban areas is set to reach well over a billion***. Consumer-facing industries such as FMCG, Financial Services, Healthcare and Telecoms, will naturally account for the majority of growth, providing a strong platform for success.
http://www.syntaxis-capital.com/ and http://www.awf.org/
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