Investors pumped record amounts of private equity and venture capital into Africa last year, according to a new report by the African Private Equity and Venture Capital Association (AVCA.)
The ‘African Private Capital Activity Report’(pdf), released on 19 Mar., found that the total value of private capital deals in Africa reached a record high of $7.4 billion in 2021, representing a 118% increase compared to the $3.4 billion registered in 2020.
The record amount was almost double the $4 billion that was invested on an annual average basis in Africa between 2016 and 2020.
“The report highlights how Africa’s economy continues to be fertile ground with attractive investment opportunities for investors in search of yields,” said Abi Mustapha-Maduakor, CEO at AVCA.
Breakdown of private investment into Africa
There were 429 private capital deals across a range of sectors and geographies – demonstrating that African assets remained attractive throughout the covid-19 pandemic. Private capital is the umbrella term for investments in assets not available on public markets, including private equity, venture capital, private debt, real estate, and infrastructure.
The report attributed the growth to fund managers’ increased appetite to deploy capital in Africa after sitting on ‘dry powder’ for more than one year.
Financials were the most funded sector by volume in 2021 accounting for 30% of the total, followed by consumer discretionary (16%), information technology (14%) and industrials (13%). West Africa accounted for the largest share of deals, followed by southern Africa, north Africa, and east Africa.
The greatest share of money was plowed into venture capital assets followed by infrastructure and then private equity. Private debt, loans that are issued by non-bank financial institutions, and which are not traded on public markets, also featured as an asset class that has been growing over the last three years in Africa.
Venture capital accounts for the lion’s share of private funding in Africa
The report found that 54% of the total deal value reported in 2021 were venture capital investments. AVCA’s ‘Venture Capital in Africa Report’, released alongside the private capital report, found that 604 African startups had raised a total of $5.2 billion in Africa last year.
Some of the biggest deals included a $400 million Series C investment round by the Nigeria-based payments company OPay and a $200 million Series A round by the Senegal-based mobile money company Wave. Most of the value came from 16 “super-sized deals” that raised a total of $2.6 billion.
However, 32% of the share of venture capital deals by volume were deals that were below $1 million – showing that a large portion of African startups are either too small to merit large ticket sizes or struggle to access funding.
Nigeria dominates VC funding with fintech as a funder favorite
Nigeria positioned itself as the top VC destination by value in 2021 followed by South Africa, Egypt, Kenya, Senegal, Ghana, and Algeria. Africa’s most populous country produced five of Africa’s seven unicorns: three of these in 2021 alone, in fairly rapid succession.
Egypt, as the third most VC-funded country in 2021, has made steady gains over the years – outpacing Kenya as its closest rival. The AVCA venture capital report found that 98 deals took place in Egypt in 2021, with a total reported value of $484 million.
“Egypt is carving a niche for itself as a new VC hub on the continent” the report said.
Egypt also boasts the first special purpose acquisition company (SPAC) deal that African tech has witnessed thus far. In July 2021, Egyptian ride-sharing startup Swvl announced its intention to go public on the NASDAQ via SPAC at a valuation of $1.5 billion.
Kenya made a slight retreat during 2021 – drawing only 13% of total deal volume in Africa and just 4% of total deal value. The report attributed the slowdown to increasing competition in east Africa from neighboring Rwanda and Uganda.
Overcoming the exit hump in Africa for private investors
A big problem for investors in Africa has always been how to liquidate investments in assets, to cash in on profits or escape further losses. The number of exits reported in Africa has been on a downward trend since 2017, largely due to sluggish growth and macroeconomic uncertainty in South Africa which used to account for the greatest portion of exits across the rest of the continent.
However, 2021 marked a 13% year-on-year increase with the total number of exits reported in Africa increasing to 36.
Helios Investment Partners, a London-based private equity firm, sold a 49% stake in GBfoods Africa to its partner and co-shareholder, The GBfoods SA – one of the largest deals in 2021.
One notable example was Amethis, the Paris-based fund manager, and its exit from Velogic, a leading transport and logistics company based in Mauritius, through an IPO on the Development & Enterprise Market of the Stock Exchange of Mauritius.
Private debt a new form of finance in Africa
Private debt has also been making waves in Africa over the last few years as a new asset class for investors and innovative funding option for businesses. The asset class has come into its own globally during Covid-19, driven by a slowdown in corporate lending from banks and businesses that are seeking alternative forms of credit.
Many founders prefer debt to equity as they do not have to cede large portions of their company to investors.
Several new private debt and mezzanine funds have also recently been created to pump debt into mid-sized African businesses. One example is London-based BluePeak Private Capital, an Africa-focused investment firm which raised $100 million last year for its inaugural fund and is looking to increase this amount to $200 million.
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