As the first quarter of 2021 is fully underway, there is a widespread hope that this year will mark the beginning of economic recovery and the transition to a smarter future driven by data, technology adoption, cross-country and cross-sector collaboration.
While Africa’s economic growth was estimated to increase to 3.9% in 2020 and 4.1% in 2021, the coronavirus pandemic had an impact on the continent’s progress, disrupting regional supply chains and economic activity. However, Africa’s private equity (PE) industry demonstrated its resilience, as fund managers raised US$1.1bn in 2020 H1 and reported 81 deals worth US$0.7bn. We also saw impressive activity in Information Technology, Financials, Consumer Discretionary and Healthcare, demonstrating investors’ long-term interest in the sectors driving Africa’s growth.
In our view, 2021 will not be without its unique challenges; but with the African Continental Free Trade Area agreement (AfCFTA) in action, the global COVID-19 vaccine rollout, and growing venture capital (VC) activity, there is reason to be optimistic about the investment landscape this year.
1. AfCFTA launching Africa into the global economy
It is now one month since the AfCFTA launched to leverage regional value chains and encourage greater capital flow across Africa by removing trade barriers. This might be the most important development in recent trade history as the AfCFTA opens up opportunities to boost local and regional manufacturing capacity, bridge funding gaps across the continent, and create more value. Over time, we could potentially see an increase in intra-Africa exports as part of the continent’s economic resurgence.
2. Onward and upward for the start-up ecosystem
Between 2014–2019, we saw steady growth in the number of early-stage deals in Africa, reaching a six-year high of 139 reported VC deals in 2019 worth US$1.4bn. In 2021, we can expect to see an increase in the number of VC deals across the continent, building on the success of the past six years. So far this year, Pula, a Kenyan business specialising in agricultural insurance, has closed a Series A round led by TLcom Capital, raising US$6mn to support smallholder farmers. This reflects our findings that Financials and Information Technology make up the bulk of VC deals by volume and value. In addition to Utilities, Healthcare and E-Commerce, we can expect these sectors to continue driving investment opportunities this year and beyond.
3. Greater investor appetite for real assets
Despite the constraints of the past year, we saw accelerated growth in e-commerce businesses, potentially indicating more demand for industrial space. The recent US$38mn fundraise by Daystar Power to expand solar access across West Africa was also welcome news for the industry. Looking forward, real assets which offer consistent returns over extended periods, including data centres, energy and real estate, will attract more investment from African PE and VC players.
4. Strengthening our healthcare systems
Even though African countries initially saw slightly lower rates of COVID-19 infection in 2020, the pandemic revealed gaps in the continent’s healthcare systems. This year, we expect to see more investments in the health ecosystem to improve access to medical equipment and healthcare facilities. 54gene and mPharma, for example, are a testament to the tremendous potential that we see emerging from the vast pool of home-grown talent.
5. Industry collaboration to boost operational capacity
Shared prosperity and inclusive growth are more important than ever. It’s great to see several development finance institutions (DFIs) working with PE firms to provide portfolio companies with operational support and access to short-term liquidity as they bounce back from the economic fallout of the past year. As the largest investor group in the African PE industry, DFIs are expected to continue playing a leading role going forward.
As 12 African countries hold presidential and parliamentary elections this year, the continent’s economic resurgence will be driven by forward-thinking policies that seek to improve the ease of doing business and the regulatory environment, thereby attracting more private capital into key sectors.
We look forward to supporting our members and industry stakeholders to channel further investment into Africa in 2021 and over the next few years.
About the author
Abi is the Chief Executive Officer of the African Private Equity and Venture Capital Association (AVCA). Prior to this role, she was Head of Business Operations and Finance at MedAccess (a subsidiary of CDC Group), which focuses on providing innovative finance to facilitate access to medicines across Africa and Asia. She has held leadership roles in AVCA as Chief Operating Officer and as the Special Adviser to the Minister of Industry, Trade and Investment in Nigeria, where she focused on programs and policies to spur private sector investment and SME growth.
Abi is currently completing the Oxford Executive MBA at Saïd Business School.
