BCG advises on strategy for African private equity sector

22 March 2018 3 min. read

As the African start-up environment thrives, growth in the continent’s private equity sector is being driven primarily by international firms, hoping to capitalise on the budding market. According to the Boston Consulting Group (BCG), the arrival of these firms has driven the funds under management for the sector beyond $30 billion.

The collective economy of Africa has come to be regarded as a major hub for investment over the next few years. The region is aided by cumulatively favourable economic and demographic conditions, including the youngest population in the world on the threshold of entering the productive age, and a rapid increase in digital access, among a number of others.

While commodity-reliant segments in the economy fluctuate, the business environment continues to thrive due to the favourable conditions. One sector that continues to see a steadily upward trajectory in such a scenario is that of private equity. Investment in the private equity sector offers relatively small, unlisted firms the opportunity to prove their worth.

Such firms are commonplace across the developing African economy, and have successfully attracted the attention of investors, from across the continent and, most significantly, from across the world. As a result, the funds under management for the African private equity sector have pushed past $30 billion, placing it among the most attractive emerging markets in the world, behind India, Southeast Asia, and South America.

BCG advises on strategy for African private equity sector

South Africa and Nigeria are the biggest markets, which comes as no surprise as they represent the two highest GDPs in Africa. Other major markets include Kenya in East Africa, and a number of Northern African countries including Egypt, Tunisia, Cote d’Ivoire and Morocco.

According to management consultancy BCG, the growth of these markets has been driven, to a large extent, by foreign investment, particularly from some key international firms. Firms listed by BCG include Helios Investment Partners from the UK, which runs  $110 million Modern Africa Fund, and has invested substantially in the energy sector in Western Africa; currently undergoing major restructuring.

Another major investor is US Caryle through its Sub-Saharan Africa Fund, which has raised $698 million for more than nine deals since its establishment in 2012. Helios Towers from the George Soros Fund, Black Rhino, Emerging Capital Partners, Actis Capital, Abraaj Group, Development Partners International, and the CDC Group all feature amongst the top investors on the list.

Going forth, BCG offers a number of suggestions to strengthen the dividends from PE investments. Flexibility in investment is the primary recommendation, alongside fresh target profiles. Regarding the latter, BCG calls for investors to look beyond their traditional targets that generate more than $100 million, trying their hand at minority investments and partnerships with lower tier firms.

Nevertheless, investors must be prepared to engage in extra groundwork in the market, given the early stages of development across the African economy. As elucidated by Seddik El-Fihri, principal at BCG; “Africa’s underdeveloped investment environment means that PE firms need to build significant on-the-ground capabilities that they normally do not require in more developed markets.”