Strong dollar forces firms to exit Africa operations

Kenya is among the four countries accounting for over two-thirds of PE exits over the last two years.

GRAPHIC | DENNIS MAKORI 

In Summary

• Last year saw the Kenyan shilling lose 12 per cent against the greenback hitting a high of 106 against the US dollar in September.
• The shilling has, however, stabilised after the economy factored in the massive exit of capital.
• Last year, Sterling Capital Trader Eric Munywoki said the country had experienced outflows for the better part of the year.

By OTIATO GUGUYU
More by this Author

The impact of depreciating currencies against the dollar and the rising cost of lending in the United States was felt in Africa last year as equity firms cashed out of most companies.

According to a report by Ernst & Young (EY) and the African Private Equity and Venture Capital Association (AVCA), PE firms sold investments in 44 companies in 2015, compared to 39 in the two previous years.

Kenya is among the four countries accounting for over two-thirds of PE exits over the last two years.

The report shows that in the period, 39 per cent of the ship-outs have been from South Africa, 11 per cent from Egypt, 10 per cent for both Nigeria and Kenya and 30 per cent from other countries on the continent.

“The biggest current challenges noted by PE firms included an increasingly tough macro-economic environment, particularly currency fluctuations, valuations trending upwards, and an intermediary landscape that is underdeveloped in a number of countries,” EY said in a statement.

The findings were released late last month at the 13th Annual AVCA Conference in Addis Ababa, Ethiopia.

KENYA SHILLING LOSE

Last year saw the Kenyan shilling lose 12 per cent against the greenback hitting a high of 106 against the US dollar in September.

At the end of the year, the US Federal Reserve Bank raised the benchmark rate from 0.25 per cent to 0.5 per cent, the first time in nine years, despite warnings by economists that emerging markets would face huge capital outflows as money trickled back to the stable economy.

The shilling has, however, stabilised after the economy factored in the massive exit of capital.

Last year, Sterling Capital Trader Eric Munywoki said the country had experienced outflows for the better part of the year.

The new report, How private equity investors create value notes that the firms exits were very profitable to PE companies especially in East Africa.

“The last two years have seen an increase in the number of PE firms making exits in the African markets. While the economic environment still poses challenges, PE firms continue to find ways to create value in their portfolios in the region and find new opportunities for exits,” Graham Stokoe, EY’s Africa Private Equity leader said.

Exits in East Africa posted the strongest returns over the study period, making two times an equivalent hypothetical investment in the MSCI Emerging Markets Index assuming the same period as the PE firms’ investments occurred according to the report