Earlier this month, I had the opportunity to attend the 3rd Private Capital Conference in Tanzania which was hosted by EAVCA in collaboration with UNDP.
Having been held last in 2019, it was great to reconnect again with my contacts from Dar Es Salaam as well as get to understand and appreciate the growth that they have been able to achieve in the Post COVID era.
What became very apparent to me is that the world is truly interconnected. The previously nascent FINTECH space in Tanzania is starting to see quite some activity and agribusiness has grown in leaps and bounds in the past couple of years. In fact, the government has decided this to be one of the focus points so that they can be the breadbasket for the East African Region in the next three years.
This in turn has made a lot of regional funds turn their lenses towards East Africa as the region is viewed as an entry point into Sub Saharan Africa. If we can look at analysing PE deals in East Africa, the total value of deals in 2018 were worth USD 704 million which were completed, and this was from 53 deals. There was an increase to USD 2.233 billion in 2019 which was from 64 deals. For 2020, there were 59 deals worth USD 1.259 billion and 63 deals worth USD 892 million in 2021. These deals have been in sectors like FMCG, Healthcare, Manufacturing, Energy, Financial services, and Real Estate.*
As it can be understood, most private capital investors focused on portfolio optimisation in 2020 and 2021 as they navigated the changing investment environment due to COVID 19. To do this, they embarked on enhancing the following.
• Increasing product ranges and product mixes to adapt to the new ‘normal’ • Tech driven value enhancers i.e., delivery, logistics • Cost Rationalisation • Sector expertise
Kenya is still leading in most of these transactions but there has been a progressive increase in activity in Ethiopia, Uganda as well as Tanzania. And with the growth of Kigali International Finance Centre in Rwanda as well plans to start the Nairobi International Finance Centre in Kenya, the region is setting the tone to be very vibrant in the next couple of years.
Over the years, we have seen that most of the Funds raise capital for growth, expansion, and development (53.3%) There is a significant that is focused on start-ups/early stage (20%) as well as Impact (16.7%). Impact investing has been growing consistently and we should see a higher proportion of that in the coming years.
Most Funds in the region prefer Equity as the preferred investment instrument but debt as well as Quasi debt is something that is becoming an option to a lot of businesses in the region. This in turn reflects in the method of return funds to Investors as approximately 77% prefer repayment. A small proportion prefer to role over to the next fund (approx.12 %) and a small proportion to Evergreen funds.
The preferred exit mode is through sale to a strategic investor, sale to a financial investor or through an IPO or share buy backs. What is happening on the ground is that most funds exit either to strategic investors or to financial investors. A recent big one in the region was the exit of AMETHIS from Naivas to a consortium with Proparco/IBL group. Exit through IPOs would be a massive boon to the East African exchanges, but this is not something that has been adopted with the regional markets.
Going forward, PE firms expect deal flow performance to bounce back this year after the slow down caused by the pandemic as markets stabilise. It is then expected that there should be slight improvement this year and beyond. And as it been seen, there is a robustness in deal momentum as there has been a growth in consumption levels as well as greater availability for deals financing.
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*All figures and data credits from EY and EAVCA East Africa Private Equity Industry Survey (2019- 2021)