Private Equity in Africa – An Inside View

Fall 2014, Vol. 14, Number 2
Africa is among the most talked about parts of the world for private equity firms looking to invest in emerging markets. Despite the challenges to investing in the various regions within Africa, many economic indicators are pointing in the right direction and some traditional market barriers are being broken down. The floodgates aren’t fully open, perhaps, but they have certainly been opened more than a crack in some African countries.

Against this backdrop, Geoff Burgess and Ben Collins-Wood from Debevoise’s London office spoke with a number of key market insiders, asking them their views on the private equity trends playing out on the continent. Our panel of experts, for whose input we are most grateful, consisted of:

  • Mark Kenderdine-Davies, General Counsel and Company Secretary, and Jeremy Cleaver, Portfolio Director – Africa Funds, both of CDC Group (CDC).
  • Michelle Kathryn Essomé, Chief Executive Officer, of the African Private Equity and Venture Capital Association (AVCA).
  • J-P Fourie, Investment Relations – Lereko Metier Fund Managers (Metier).
  • Theophilus I Emuwa, Partner, Nigerian law firm ǼLEX.
  • Karim Anjarwalla, Managing Partner, and Rosa Nduati-Mutero, Partner, both of Kenyan law firm Anjarwalla & Khanna (A&K).

An edited Q&A with our panel of experts follows.

What are African private equity funds doing (or what must they do) to attract investors (LPs) from outside Africa?

Mark Kenderdine-Davies and Jeremy Cleaver, CDC: “Local general partners need to continue to change the perception that investing in Africa involves a high degree of risk relative to other parts of the world. The reality is that there have been strong improvements in democracy and in the legal and regulatory environments across Africa, which, combined with a young and growing middle-class population and structural improvements in infrastructure and related industries, have created an ‘enabling environment’ with an attractive private equity profile.”

Michelle Kathryn Essomé, AVCA: “Domestic private equity funds are increasingly attracting global LP investment. Optimism abounds for the asset class, due in part to Africa’s resilience to the global economic growth slow-down, attractive demographics, and the many economic, political and social reforms that have taken place in a number of African nations in recent years. Interestingly, our most recent global LP survey, The search for returns: Investor views on Private Equity in Africa, showed that regional funds are the preferred route to accessing African private equity in the near-term, and that fund of funds are the preferred route of first-time investors in Africa. Development finance institutions (DFIs) continue to actively support domestic private equity funds that source local deals and promote real development impact.”

What is the current dynamic between private equity firms and African pension plans and other African institutions (LPs) seeking to invest in private equity?

J-P Fourie, Metier: “Given that listed equity markets in many regions in Africa have been buoyant, there is a heightened awareness of portfolio diversification. Local LPs are looking to further understand private equity as an asset class as the industry matures. Additionally, very often private equity investments offer environmental, societal and governmental (ESG) factors that are not easily accessible for investors via listed or other structures. I would argue the DFI involvement in African private equity as LPs and co-investors has driven ESG extensively, and Africa has the advantage that this is built into the way of doing business and not an additional item to comply with.”

Theophilus I Emuwa, ǼLEX: “Many African pension plans are flush with capital to invest. Recently, governments have begun allowing a percentage of this capital to be invested in private equity. However, there are still significant barriers for private equity funds to be able to attract pension plan investors. First, many local pension fund administrators are new to the private equity industry and lack knowledge of private equity and relationships with those in private equity. Consequently, they have been shy in putting money in private equity. Those that have put their money into private equity have often chosen the wrong partners. Second, regulatory barriers still exist. For example, Nigerian pension funds can only invest with Nigerian general partners.”

What are the main barriers to entry for international private equity looking to do deals in Africa?

TE, ǼLEX: “It is important to find and foster relationships with the right local partners. Building relationships and developing trust with the right partners will open local doors into countries and industries.”

MK-D and JC, CDC: “One of the biggest barriers to entry is finding the right team. It is critical to have an investment team that has deep African expertise in the private equity space. These should be people from Africa or with significant long-term, on-the-ground experience in Africa so that they know and understand the local context and have strong deal sourcing networks across the continent. However, it is not always easy to find such professionals.”

MKE, AVCA: “Perception generally plays an important role in generating interest and commitments. For example, the respondents to our recent global LP survey cited a perceived weak exit environment as a barrier to investing in Africa. This perception is something AVCA, together with Ernst & Young, has been trying to tackle with the launch of the second edition of our annual study of the exit environment for private equity in Africa. The 2014 study uncovered 207 exits during the period from 2007 to 2013, including 89 exits in 2013 alone. The exit market is alive and well.”

With the increase of available capital and investment in many African countries, what are the best ways to attract and retain qualified managers and employees?

Rosa Nduati-Mutero, A&K: “Human capital ranks extremely high, possibly immediately after raising capital, as a constraint when evaluating investment opportunities. While firms can grow talent organically by recruiting graduates fresh from university, it is fairly difficult to find good talent at higher levels of seniority. One source of top talent is African nationals living in the diaspora that are repatriating home in large numbers and are taking up senior positions in large corporations. African professionals who have lived and worked abroad bring home global standards and international expertise.”

J-PF, Metier: “Increasingly there is a strategy/opportunity for intra-regional trade and partnering with local companies in the sub-continent to provide capital, industry expertise, customer relationships and management skills. We prefer to partner with entrepreneurs and management teams to do platform build ups and provide growth capital, often in the development and implementation of in-house investment theses prior to any investment. Skills and experience are key factors, and are integrally linked to the region’s expansion opportunity. You have a completely different deal potential discussion with a management team when you bring to the discussion another team with skills, references, past experience, relationships and networks.”

What is the deal environment for African private equity at the moment?

Karim Anjarwalla, A&K: “We have generally seen foreign private equity investors widen the destination of their investments from the more ‘safe’ countries to include those previously shied away from. For example, Cote d’Ivoire appears to be emerging as a popular destination for private equity due to steady growth in the economy, better political stability and better infrastructure. Ethiopia is also generating high interest due to robust economic growth and the relaxing of strict rules of foreign ownership.”

MK-D and JC, CDC: “We continue to believe that Africa offers an exciting opportunity for investors. Some of the countries that are attractive are Angola, Ethiopia, Ghana, Ivory Coast, Kenya, Senegal, Tanzania and Uganda. We believe that the large-cap space is quite competitive but that growth investments in the small and medium-size enterprises (SMEs)and in the mid-cap space are attractive across a variety of sectors.”

J-PF, Metier: “Top-down investment strategies in Africa revolve around emerging middle-class and affordability imperatives driving consumer growth, infrastructure spending multiplier effects, population growth and urbanisation, and increasing intra-regional trade.”

What are the top current challenges facing private equity in Africa?

TE, ǼLEX: “(1) Private equity funds must have a different sense of time: projects may go slower, but will realize a high return for those willing to wait. (2) Additionally, the lack of fully-developed liquid lending and capital markets make exit windows less predictable.”

MKE, AVCA: “(1) The limited number of established general partners with track records. (2) The perceived weak exit environment. (3) The perception that Africa has political risk in a greater magnitude than may be the reality. Despite these challenges, our recent global LP Survey found that African private equity is perceived to be more attractive than other emerging markets, and African private equity returns are generally expected to compare favorably to listed equity.”

J-PF, Metier: “(1) Slow flow of non-DFI fundraising and too much focus on infrastructure. (2) Not many fund managers have gone full fund cycle and made cash-on-cash returns across vintages. (3) Very slow pace of venture capital and SME funding.”

RN-M, A&K: “(1) Because private equity is still in its nascent stages in Africa, entrepreneurs and businesses can often take a while to understand and appreciate the structure and requirements of private equity firms. (2) There is a limited pool of talent available in many African countries. (3) Political and economic volatility, along with a lack of liquidity of the target companies, can make planned exits difficult to execute on time.”

MK-D and JC, CDC: “(1) African institutions and local businesses need better education about the advantages of investing in private equity and seeking investment from private equity funds. (2) International investors need to be better educated about investment opportunities across Africa and have perceptions and stereotypes about Africa dispelled. (3) Private equity funds should look outside the countries to which private equity capital has traditionally flowed (e.g., Nigeria and South Africa) to African countries with interesting opportunities but less competition.”


Our interviews elicited a variety of interesting perspectives, but perhaps the unifying theme is the dynamic nature of the African market. Optimism reigns, and, despite the challenges that remain, most expect the volume of private equity deals on the continent to increase. We can also expect the economic and regulatory backdrop in Africa to continue to evolve. For those looking to make the most of the opportunities in Africa, it will pay to bear these ongoing changes in mind.