Actis: African recovery could whet LP appetites

Continued spending and economic growth in Africa could hint at a return for private equity fundraising in 2018, according to Sherif Elkholy, partner at Actis.

Limited partners could flock to African private equity in 2018 amid growing evidence of economic recovery in the continent.

Private equity deal activity levelled out in 2017 following several years of volatility for transaction volumes and values. Firms deployed $3.8 billion across 149 deals in 2017, compared with $3.9 billion through 150 transactions in 2016, according to the African Private Equity and Venture Capital Association’s annual data tracker.

“In addition to the usual-suspect local players you increasingly have large-scale trade players looking at transactions in the African markets, as well as increasing competition from regional funds,” Sherif Elkholy, partner at Actis, told Private Equity International. “In the last year, people who were only notionally present in Africa have started becoming interested in actual deals because of the rapid improvement in the macroeconomic situation.”

Egypt is among those countries enjoying something of a market resurgence, Elkholy noted. Its government is “off to a good start” on a programme to restore the stability of its finances and promote growth and employment in November 2016, according to a statement from the International Monetary Fund in September.

Morocco is recovering from a severe drought in 2016. Its economic growth reached 4.3 percent in Q1 2017, having stood at 1.6 percent during the same period in 2016, according to an October statement from the World Bank.

Although dealmaking has remained constant, fundraising declined from a peak in 2015. Private equity firms raised just $2.3 billion for the continent last year, down from $3.4 billion in 2016 and $4.3 billion the previous year, AVCA data show.

African funds that held a close in 2017 include sub-Saharan focused Adenia Capital IV on €230 million and Sahel Capital’s West Africa-focused Fund for Agricultural Finance in Nigeria on $65.9 million, according to AVCA’s report.

North Africa’s continued recovery could help to reverse this trend. Fully 50 percent of LPs now view the region as an attractive destination for private equity, up from just 11 percent in 2016, according to an AVCA limited partner survey in October. East Africa narrowly overtook West Africa as the most attractive private equity market among LPs.

“I would expect there to be a step up in LP appetite for Africa in 2018, based on the size of the market opportunity and recovery in key markets, as well as the view that currency volatility is improving due to macroeconomic reform,” Elkholy said, pointing to European sovereign wealth funds, pensions and family offices as among those driving this shift.

“We expect to see a number of Africa-focused funds coming to market in the next 18 months.”