Ayisi Makatiani, CEO of Fanisi Capital: Kenyan entrepreneurs should take advantage of the new funds to expand or set up new businesses. Photo/File
What you need to know:
E&Y says investors are shifting their focus to Kenya, Nigeria, Ghana and Ethiopia which have had higher growth than South Africa.
Several PE companies targeting Africa are in the process of raising up to Sh490 billion, according to the E&Y report.
Kenya has grown by an average of 4.9 per cent in the past three years and is projected to grow by at least five per cent this year.
Kenya is set to be a major beneficiary of an increasing shift by private equity investors to frontier African economies, auditing and financial consultancy firm Ernst & Young has predicted.
E&Y says in a new report that investors are shifting their focus to Kenya, Nigeria, Ghana and Ethiopia which have had higher growth than the continent’s largest economy, South Africa, which has showed signs of slowing down in recent years.
“PE firms are increasingly diversifying their geographical focus outside the more advanced economy of South Africa,” said the report dated February 2013.
According to the report, several PE companies targeting Africa are in the process of raising up to Sh490 billion – based on those that have announced but have not closed the fund-raising period.
Kenya is made more attractive by the fact that it is the second-largest economy in SSA after Nigeria of the new markets being targeted by PEs.
The report noted that South Africa has grown by just three to four per cent per annum over the last three years even as most of the other African countries have been posting growth rates of at least five per cent.
Kenya in particular has grown by an average of 4.9 per cent in the past three years and is projected to grow by at least five per cent this year if the General Election is peaceful.
Economic output in Africa has increased threefold in the past 10 years to $2 trillion, and six African countries have been among the 10 fastest growing economies in the world over the past decade.
The report cites Kenya’s banking sector as having among the highest levels of PE involvement between 2008 and 2012 at nine per cent of the total in Africa, ahead of South Africa at five per cent but behind Nigeria with 51 per cent of the deals, Togo with 16 per cent and Egypt with 12 per cent.
It cites Equity Bank’s Helios investment as among the top in the banking sector in the Africa region during the period. The PE firm put in Sh11 billion in 2007 taking 24.99 per cent of the bank at the time.
The Ernst & Young report also notes the PE firms’ interest in Kenya’s telecoms sector in the past few years.
“Regionally, Kenya accounts for a large proportion of deals in this [telecoms] sector, partly because of its Government’s commitment to boost the sector, with Kenyan companies such as Essar Telecom and Cellulant successfully raising PE investment in the past,” said the report.
The drivers of the interest by PEs in Africa include growing urbanisation, an increasing formal labour force, declining dependency ratios and rising middle-class incomes.
“Kenyan entrepreneurs should take advantage of the new funds to expand or set up new businesses,” said Ayisi Makatiani, CEO of Fanisi Capital, in an earlier interview.
The Ernst & Young report says many firms are currently in the market raising Africa-focused funds to capitalise on growth opportunities in the region, and as such, fund-raising totals should improve in the coming years.
It noted there is a growing trend towards funds that target specific sectors, largely to capitalise on opportunities in sectors benefiting from consumer growth as well as much-needed infrastructure investment.
“The large number of small and medium-sized enterprises (SMEs) needing growth funding, coupled with strong economic fundamentals and a lack of alternative funding sources, should continue to drive the growth of PE investment across Africa closer towards the levels seen in other emerging markets,” the report said.
It added that though PE has yet to achieve significant penetration into the Sub-Saharan region, individual countries such as South Africa and Nigeria were coming closer to other emerging-market penetration levels.
