East Africa trailing peers in attracting needed private equity funds

East Africa has been way behind its peers on the continent in attracting private equity deals over the past five years. FILE PHOTO | NATION 

In Summary

• According to the survey by the African Private Equity and Venture Capital Association (AVCA) released last week, the value of PE deals in the region stood at $2.4 billion between 2012 and 2017.
• The value of PE deals in the region stood at $2.4 billion between 2012 and 2017, compares unfavourably with the West African region.
• East African economies are expected to see increased economic growth in 2018, that could translate to a 3.2 per cent growth.

By VICTOR KIPROP
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East Africa has been way behind its peers on the continent in attracting private equity deals over the past five years, according to a new survey.

According to the survey by the African Private Equity and Venture Capital Association (AVCA) released last week, the value of PE deals in the region stood at $2.4 billion between 2012 and 2017.

This compares unfavourably with the West African region, which was ranked the top PE destination on the continent over the period, attracting 267 deals worth $10.7 billion.

However, this number was lower than the 284 deals southern Africa attracted, albeit with a value of $3.8 billion.

East Africa attracted 180 PE deals worth $2.4 billion while Northern Africa registered 136 valued at $3.5 billion over the period.

Bigger investments

According to Shiv Arora, head of private equity real estate at Cytonn Investments, Southern and West African markets are mature and commodity-driven, thus receiving bigger investments than East Africa.

Kenya accounted for 56 per cent of the region’s deals by volume over the five-year period, followed by Uganda with 19 per cent and Ethiopia and Tanzania with 17 per cent each.

“Kenya has an open and diversified economy with fewer restrictions on foreign exchange and ownership, which has allowed it to attract more investments into different sectors. Most foreign investors are keen on a country’s democracy, economic openness and foreign restrictions,” Mr Arora said.

“We have been witnessing a volatile political trajectory in East Africa, which tempered PE investments in 2017. However, Kenya remains the gateway and transit state for this region and whose free market credentials have been proven, therefore will remain the main recipient,” said AlyKhan Satchu, chief executive of Rich Management Ltd.

PE deals

According to the report, 143 deals worth $3.8 billion were reported in Africa in 2017, raising the total number and value of PE deals closed on the continent between 2012 and 2017 to 953 and $24.4 billion respectively.

Over the period, the value of PE deals in East Africa more than doubled to $2.4 billion, from the $1.1 billion.

In Kenya, the report noted, investors adopted a “wait and see” approach to deals during the year compounded by some delays faced in obtaining financial approvals from government agencies, which in turn decelerated deal closing during the period.

According to the report, Tanzania’s Fair Competition Threshold for Notification of a Merger (Amendment) Order, which was passed in July 2017, raising the threshold for the notification of a merger to $1.5 million, from $360,000, and the recent overhaul in industry-specific policies and regulations could affect deal activity this year.

“In Kenya, the election and then a Groundhog Day probably choked the flow while Tanzania’s battle with Acacia Mining among others made investors think twice,” Mr Satchu said.

However, the main regulatory changes pegged to affect private equity in the region in 2018 is the full enforcement of the East African Community Competition Authority, which would require parties to transactions affecting more than one EAC jurisdiction to make separate applications to the EAC.

According to the World Bank, East African economies are expected to see increased economic growth in 2018, that could translate to a 3.2 per cent growth.