PE Key Trends Blog

Technology is the Key to Unlocking Asian-Style Returns in Africa

Mar 26, 2013 1:12:57 PM

Tags: africa, palico member, private equity, Private Equity Market, V2

By Palico member Andrea Bohmert, partner at Knife Capital in Cape Town

Africa is still a neglected continent relative to its potential private equity opportunities. While those with an investment connection to Africa tend to have an overwhelmingly positive attitude regarding the opportunity the continent represents, those with no connection, on average, still have a starkly negative view. This is a point underlined by Building Bridges, Ernst & Young’s 2012 Africa attractiveness survey.

The positive perception amongst those investors with a business presence on the continent is so strong that on average they rated only Asia (and only slightly so) as a relatively more attractive investment destination than Africa in the Ernst & Young survey. However, participants with no connection to Africa viewed it “as the least attractive investment destination in the world.” That perception is wholly unjustified. But it does mean that Africa, relative to other emerging markets, remains an uncrowded land of opportunity, particularly Sub-Saharan Africa, with its strong demographics and largely untapped consumer potential.

Given Africa’s state of development, private equity focus, more often than not, has been on commodity-led growth and infrastructure backlog. But Africa’s growth, particularly in the vast Sub-Sahara region is increasingly being driven by a range of technologies that permit the leapfrogging of traditional development timelines. Rapid technology expansion is allowing companies in a broad range of sectors to reach new domestic and regional consumer markets, similar emerging markets and even the global marketplace.

The bottom line: Sub-Saharan Africa has one of the largest investor-positive mismatches in the world between opportunity and the reservoir of capital earmarked for opportunities. Speaking generally about a vast and varied region, Sub-Saharan Africa is the best buyers' market there is today for private equity investors.