PE Deals In South Africa Are Lagging As Other African Countries See Record-Breaking Growth

The value of private equity and venture capital investment targeting South African companies fell in 2013. Meanwhile, the value of deals targeting African countries excluding South Africa is skyrocketing.

The value and volume of private equity and venture capital investments targeting South Africa is falling fast,

As private equity and venture capital investment falls dramatically in South Africa, its neighbors are looking at record-breaking increases.

Data from Zephyr, a database of information about M&A deals, IPO, Private Equity and Venture capital deals, shows a 91 percent decline in the value of private equity and venture capital investments targeted at South Africa -- which totaled $79 million in 2013, down from $911 million the year earlier.

“Private equity and venture capital investment targeting companies based in South Africa remained stubbornly inconsistent right to the end of 2013,” the report reads.

“The result continued the see-saw nature of investment in the country, where PE and VC value has lacked any real consistency in the last five years,” it reads.

In the fourth quarter of 2013, there were just nine transactions worth $5 million – an 89 percent decrease from the third quarter’s 45 million.

South Africa is the biggest economy on the continent, which makes it less of a growth market. It’s GDP growth rate is hovering between two and three percent, while other sub-Saharan African countries are looking at a range of four to six percent growth.

“PE firms are increasing diversifying their geographical focus outside the more advanced economy of South Africa to countries such as Nigeria, Ghana, Kenya and Ethiopia,” reads a 2013 report from Ernst & Young.

“As they continue to grow faster than South Africa, these countries will attract an increasing share of PE investment.”

It explains that due to “increasing confidence in African markets,” firms see greater potential in these countries.

Zephyr data shows that African countries excluding South Africa saw the total value of private equity and venture capital investment deals skyrocket to $8.6 billion in 2013 from just $834 million in 2012.

Moreover, this is just the beginning for this region. “These positive results for Africa as a whole are indicative of the continent’s status as a key market for PE and VC investors,” reads Zephyr’s quarterly report, noting that “the trend of year-on-year increases in volume and value seems likely to continue in the future.”

Even though private equity in Africa is still in its beginning stages, experts say it won't be long before it becomes a prime destination.

“Although PE investment activity in Africa lags behind other emerging markets like India, China and Brazil, the region is becoming increasingly attractive to the global investor community,” reads the E&Y report.