Investor Interest in Africa at All-Time High, But Risks Remain

27 Apr 2022

The Private Equity & Venture Capital Association (AVCA) says Africa attracted a record $7.4 billion in private capital in 2021, more than double the year before. But while the continent provides ample possibilities for investors, it also presents challenges, from instability to climate change. At this year's AVCA conference in Senegal, investors discussed some of the trends.

More than 500 people from some 50 countries filtered in and out of conference rooms at Dakar’s Radisson Hotel Tuesday for Day 2 of AVCA’s annual gathering.

Africa offers a rich environment for local and international investors, attendees say, as it has a growing youth population and consumer market.

Alexia Alexandropoulou is a research manager at AVCA. She said investor interest in the continent has been largely driven by the attraction of financial technology companies. A number of sizable infrastructure deals also contributed to investment growth.

Alexia Alexandropoulou is a research manager with the Private Equity and Venture Capital Association. She posed for a photo, April 26, 2022 at AVCA's annual conference in Dakar, Senegal.
Alexia Alexandropoulou is a research manager with the Private Equity and Venture Capital Association. She posed for a photo, April 26, 2022 at AVCA's annual conference in Dakar, Senegal.

“And these infrastructure investments were focused on renewable energy, transportation and communication services. And they support African governments to fill the infrastructure gap on the continent. We expect to see more of these trends continue in the years to come,” she noted.

Some African governments such as Senegal's have successfully attracted international investment in recent years. In 2019, it became the second African country to pass a “start-up act,” which eases regulations and provides tax breaks to innovative new businesses.

Venture capital activity here comprised 80 percent of total reported deals in 2021, up from 6 percent between 2016 and 2020, according to AVCA. But investing in African companies also comes with challenges, investors say, including currency volatility, small national economies, limited access to finance and banking services and political unrest.

A panel discussion takes place at the annual Private Equity and Venture Capital Association conference in Dakar, Senegal, April 26, 2022.
A panel discussion takes place at the annual Private Equity and Venture Capital Association conference in Dakar, Senegal, April 26, 2022.

"If you have a long-term view, and if you're well diversified, you can obviously overcome those issues," expressed Walid Cherif, the managing director of BluePeak Private Capital, adding “from [the] outside you read the news, or you think it's scary, it's difficult. But at the end of the day, there's so many opportunities on the ground, so many great businesses. As long as you put the tools in them and give them a lot of assistance and support, you can definitely help them become strong businesses.”

Climate change is another major hindrance. Sub-Saharan Africa is expected to suffer disproportionately from extreme weather events such as floods and drought. This is disruptive to businesses, particularly those in the agricultural sector.

Some investors have begun setting climate goals.

Clarisa De Franco is the managing director of British International Investment. Last year, her company set a goal of having 30 percent of their investments dedicated toward addressing climate change.

“They will have to have the specific mandate of addressing climate from a resilience, adaptation or mitigation point of view. How do we achieve that from a new commitment point of view, but also from a portfolio point of view, is something that we need to explore a bit more,” De Franco pointed out.

Potential investments might include the renewable energy and plantation sectors, she said.

The AVCA conference continues in Dakar through Friday.

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