African fund managers continue to capture opportunities amidst rising currency and geopolitical risk

07 Dec 2017

The African Private Equity and Venture Capital Association (AVCA) has launched the inaugural edition of its special research reports, Volatility and Uncertainty: How private equity in Africa navigates through turbulent times, which explores how the African private equity (PE) industry remains resilient amidst currency volatility and unpredictable political environments.

Investors typically cite concerns over political unrest and macroeconomic instability, such as FX volatility, as major factors deterring their investment in emerging markets generally, and Africa specifically. The report therefore examines the strategies adopted by fund managers (GPs) active on the continent to address the risks and take advantage of the opportunities involved, despite the hurdles presented by challenging macroeconomic conditions.

According to the report, 63% of GPs view currency and commodity price volatility as having been the most important macro factors in Africa over the past three years, while 45% consider geopolitical risk to be the biggest macro risk over the next three years. As a result, two thirds of GPs will factor in political risk management when constructing their portfolios, combining diversification and the avoidance of risky locations to mitigate potential challenges. This is in the context of relatively low GP interest in purchasing political risk insurance. AVCA’s research also highlights that currency volatility can be addressed by investing in market-leaders in resilient sectors, such as Consumer Staples and Healthcare, and adopting expansionary strategies. These tactics contribute to the industry’s overall health and growing reputation as robust even when faced with sustained headwinds.

By showcasing case studies that illustrate the various ways in which GPs have planned for and reacted to currency volatility in Africa, the report further demonstrates that FX volatility can be weathered by focusing on the quality of business operations, expanding revenue streams, passing increased costs on to consumers, and reducing the need for hard currency by sourcing inputs locally.

Sitting alongside the Association’s other recent independent research, Volatility and Uncertainty chimes with the AVCA 2017 Annual Limited Partner (LP) Survey, which concluded that 69% of LPs cite currency risk as the biggest challenge faced when investing in African PE, while 42% cite political risk. Nonetheless, overall, 88% of LPs plan to increase or maintain their allocation to PE in Africa over the next three years.

Commenting on the new research report, Antoine Delaporte, Founder and Managing Director of Adenia Partners, and Member of the AVCA Board, said: “We are delighted to provide crucial insights at a time when the private equity industry continues to prove its adaptability in the face of sometimes challenging conditions. No doubt, Africa is on a long-term upward trajectory in its development of business environments that are more favourable to investment. It is important for us to highlight the opportunities present in the current environment and showcase strategies that produce outsize returns for investors while delivering significant impact.”

Enitan Obasanjo-Adeleye, Head of Research at AVCA, added:By launching this new research initiative, we hope to provide further enlightenment on investing in Africa and ultimately encourage greater capital inflow to the continent. The report sets out AVCA’s stall for the next 12 months, which are set to be an exciting time for the Association. As we work to strengthen and diversify our membership, this research reinforces the extent of AVCA’s ambition to facilitate greater private investment in Africa. We look forward to developing new ways to deliver exceptional value to our members and the wider investment community.”

To view the full report, download it here.

ENDS

Notes to editors:

AVCA: Enabling private investment in Africa

The African Private Equity and Venture Capital Association is the pan-African industry body which promotes and enables private investment in Africa.

AVCA plays a significant role as a champion and effective change agent for the industry, educating, equipping and connecting members and stakeholders with independent industry research, best practice training programmes, and exceptional networking opportunities.

With a global and growing member base, AVCA members span private equity and venture capital firms, institutional investors, foundations and endowments, pension funds, international development finance institutions, professional service firms, academia, and other associations.

This diverse membership is united by a common purpose: to be part of the Africa growth story.

www.avca-africa.org | www.avcaconference.com

For further information, please visit the AVCA website or contact AVCA at: avca@avca-africa.org or +44 (0)20 3874 7008

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