Private capital activity was subdued on the African continent in 2023 as high inflation, exchange rate pressures, foreign exchange shortages, and broader macroeconomic challenges provided global headwinds with a big domestic impact. Investments, exits, and fundraising were all markedly lower than a year earlier with the latest available data recording just $3.3bn of private capital deals in the region during the first three quarters of 2023, down from $7.6bn in the whole of 20221. Fundraising over the period also fell by 40% compared to 2022 to $1.2bn, according to the African Private Capital Association (AVCA).
However, pockets of growth in areas like climate finance and the green energy transition, as well as fintech and broader tech-enabled businesses look set to drive both fundraising and dealmaking opportunities in 2024.
Private capital activity was subdued on the African continent in 2023 as high inflation, exchange rate pressures, foreign exchange shortages, and broader macroeconomic challenges provided global headwinds with a big domestic impact. Investments, exits, and fundraising were all markedly lower than a year earlier with the latest available data recording just $3.3bn of private capital deals in the region during the first three quarters of 2023, down from $7.6bn in the whole of 20221. Fundraising over the period also fell by 40% compared to 2022 to $1.2bn, according to the African Private Capital Association (AVCA).
However, pockets of growth in areas like climate finance and the green energy transition, as well as fintech and broader tech-enabled businesses look set to drive both fundraising and dealmaking opportunities in 2024.
Climate Tech and Energy
With the United Nations’ climate conference ringing change for energy consumption and production globally, climate finance continues to be a growth area for both the development community and private investors. COP28 in Dubai, an event with significant bearing on both capital flows and investment strategies, saw several notable commitments set to benefit African businesses, including $16.9mn in climate finance for African businesses from British International Investment2. This included $9.8mn to Planet Solar, Sierra Leone’s first large-scale solar independent power producer, and a $5mn debt facility for Kenyan-based transport group BasiGo for delivery of 100 electric busses3. Add to this some notable fundraising in the sector in 2023 and a strong pipeline for deals in 2024, and climate finance looks set to be an area that’s hard to ignore.
AVCA reports eight climate focused funds had already raised $500mn from LPs in the first three quarters of 2023 — representing more than a quarter of total fundraising (28%) over the period — and finds that for both LPs and GPs going forward, climate finance is a key investment strategy4.
Managers facing increasing pressure to embed environmental, social and governance (ESG) considerations into investment strategies are on the hunt for investments which deliver these non-financial returns, providing ready demand for assets on the continent. Despite a challenging few years for ESG investment, ESG assets under management continue to grow and are set to surpass $40tn by 2030, according to a survey by Bloomberg Intelligence5.
However, while the demand side may be robust, investors are still faced with a raft of domestic risks, as well as those dictating capital flows in the global markets. Unfavorable regulatory environments and macroeconomic risks are cited by LPs as among the three biggest challenges for investing in private capital in Africa. Options for exiting investments on the continent is the biggest point of concern, with just 25 exits reported in the first three quarters of 20236, compared to 82 in 2022, though this figure may be bolstered by a back log of deals cleared post COVID-197. Despite this, investment still remains higher than pre-pandemic levels.
Other notable fundraises include The Energy Entrepreneurs Growth Fund (EEGF), an initiative led by Shell Foundation in collaboration with FMO, the Dutch Development Bank, which in October raised $125mn to focus on extending access to clean energy solutions in underserved regions in Sub-Saharan Africa8. In September, the African Development Bank secured $50mn in new commitments from Germany and the U.S. for its Sustainable Energy Fund for Africa and earlier in the year, Swedfund invested $30mn in the Mirova Gigaton Fund, which is targeting $500mn and will provide debt financing to off-grid solar energy projects9.
For a sector well backed by development capital, there were also some interesting deals from the private sector. January saw Affirma Capital, previously Standard Chartered Private Equity, lead a $145mn investment into CEC, a power transmission and distribution company in Zambia which is investing heavily in renewable energy10.
As governments and businesses press ahead with energy transition strategies and smaller-scale businesses look to disrupt the energy market, opportunities in the sector are set to abound.
Climate Tech and Energy
With the United Nations’ climate conference ringing change for energy consumption and production globally, climate finance continues to be a growth area for both the development community and private investors. COP28 in Dubai, an event with significant bearing on both capital flows and investment strategies, saw several notable commitments set to benefit African businesses, including $16.9mn in climate finance for African businesses from British International Investment2. This included $9.8mn to Planet Solar, Sierra Leone’s first large-scale solar independent power producer, and a $5mn debt facility for Kenyan-based transport group BasiGo for delivery of 100 electric busses3. Add to this some notable fundraising in the sector in 2023 and a strong pipeline for deals in 2024, and climate finance looks set to be an area that’s hard to ignore.
AVCA reports eight climate focused funds had already raised $500mn from LPs in the first three quarters of 2023 — representing more than a quarter of total fundraising (28%) over the period — and finds that for both LPs and GPs going forward, climate finance is a key investment strategy4.
Managers facing increasing pressure to embed environmental, social and governance (ESG) considerations into investment strategies are on the hunt for investments which deliver these non-financial returns, providing ready demand for assets on the continent. Despite a challenging few years for ESG investment, ESG assets under management continue to grow and are set to surpass $40tn by 2030, according to a survey by Bloomberg Intelligence5.
However, while the demand side may be robust, investors are still faced with a raft of domestic risks, as well as those dictating capital flows in the global markets. Unfavorable regulatory environments and macroeconomic risks are cited by LPs as among the three biggest challenges for investing in private capital in Africa. Options for exiting investments on the continent is the biggest point of concern, with just 25 exits reported in the first three quarters of 20236, compared to 82 in 2022, though this figure may be bolstered by a back log of deals cleared post COVID-197. Despite this, investment still remains higher than pre-pandemic levels.
Other notable fundraises include The Energy Entrepreneurs Growth Fund (EEGF), an initiative led by Shell Foundation in collaboration with FMO, the Dutch Development Bank, which in October raised $125mn to focus on extending access to clean energy solutions in underserved regions in Sub-Saharan Africa8. In September, the African Development Bank secured $50mn in new commitments from Germany and the U.S. for its Sustainable Energy Fund for Africa and earlier in the year, Swedfund invested $30mn in the Mirova Gigaton Fund, which is targeting $500mn and will provide debt financing to off-grid solar energy projects9.
For a sector well backed by development capital, there were also some interesting deals from the private sector. January saw Affirma Capital, previously Standard Chartered Private Equity, lead a $145mn investment into CEC, a power transmission and distribution company in Zambia which is investing heavily in renewable energy10.
As governments and businesses press ahead with energy transition strategies and smaller-scale businesses look to disrupt the energy market, opportunities in the sector are set to abound.
Country Focus
While Nigeria, Kenya, and South Africa continue to be the most attractive destinations for private capital investment by deal volume and value, Egypt is attracting attention as a viable investment destination and emerging as a hub for venture capital activities within the continent. Indeed, respondents to AVCA’s industry survey identified Egypt as one of their top three investment destinations for 202411.
Egyptian companies tracked by AVCA raised $285mn in the first three quarters of 2023, though this was well down on the $877mn raised by year end 202212. Notable deals include MNT-Halan, a fintech and e-commerce series of businesses, which became the country’s first private tech firm to reach a $1bn valuation after raising $400mn, including $200mn from Chimera Abu Dhabi in February 202313. MNT-Halan’s digital ecosystem includes business loans, consumer finance, payments, and e-commerce.
High numbers of unbanked people and broad mobile penetration provide the demographics for a thriving fintech sector. In addition, Egypt’s government has been introducing sector-targeted policies and reforms with the view to nurturing the growing market. In July last year, its Financial Regulatory Authority issued new regulations for obtaining fintech licenses in the country which are expected to unlock significant growth in the industry14. Financials overtook consumer discretionary in 2022 as Egypt’s most popular investment sector15. More broadly, the Madbouly government has also been working to improve the investment environment in order to stabilize its economy and attract more foreign direct investment with a package of 22 regulatory reforms to reduce red tape and improve transparency, introduced in May16.
In Kenya, the country’s President William Ruto signed the 2023 Finance Act, which includes a series of tax and regulatory changes aimed at improving the FDI climate. A supportive regulatory environment for SMEs has driven investments from both domestic and international sources in Kenya for several years now. The Central Bank of Kenya expects the country to secure $4.6bn of foreign investment in 2024, up from $3.5bn in 202317.
In addition to its fast growing tech sector — where e-commerce, cleantech and agritech stand out18 — Kenya is set to become a leading supplier of Article 6 carbon credits to the global compliance market after President Ruto approved the Climate Change Act in September 202319. The Act provides a framework for regulation of carbon markets and is set to boost opportunities for green investment in the country.
Egyptian companies tracked by AVCA raised $285mn in the first three quarters of 2023, though this was well down on the $877mn raised by year end 202212. Notable deals include MNT-Halan, a fintech and e-commerce series of businesses, which became the country’s first private tech firm to reach a $1bn valuation after raising $400mn, including $200mn from Chimera Abu Dhabi in February 202313. MNT-Halan’s digital ecosystem includes business loans, consumer finance, payments, and e-commerce.
High numbers of unbanked people and broad mobile penetration provide the demographics for a thriving fintech sector. In addition, Egypt’s government has been introducing sector-targeted policies and reforms with the view to nurturing the growing market. In July last year, its Financial Regulatory Authority issued new regulations for obtaining fintech licenses in the country which are expected to unlock significant growth in the industry14. Financials overtook consumer discretionary in 2022 as Egypt’s most popular investment sector15. More broadly, the Madbouly government has also been working to improve the investment environment in order to stabilize its economy and attract more foreign direct investment with a package of 22 regulatory reforms to reduce red tape and improve transparency, introduced in May16.
In Kenya, the country’s President William Ruto signed the 2023 Finance Act, which includes a series of tax and regulatory changes aimed at improving the FDI climate. A supportive regulatory environment for SMEs has driven investments from both domestic and international sources in Kenya for several years now. The Central Bank of Kenya expects the country to secure $4.6bn of foreign investment in 2024, up from $3.5bn in 202317.
In addition to its fast growing tech sector — where e-commerce, cleantech and agritech stand out18 — Kenya is set to become a leading supplier of Article 6 carbon credits to the global compliance market after President Ruto approved the Climate Change Act in September 202319. The Act provides a framework for regulation of carbon markets and is set to boost opportunities for green investment in the country.
A Few Policy Considerations
Investors in the African continent are more than aware of the challenges and opportunities such disparate and fast-growing markets bring. While 2023 tested even the hardiest of managers, several key policy and regulatory developments in countries from Nigeria to Angola are helping to create a more attractive investment landscape for foreign investors.
Nigeria’s move to de-peg the naira in June 2023 caused the biggest fall in the currency’s history20, putting pressure on domestic companies with dollar receipts — which were also feeling the pinch of a stronger dollar — and fueling inflation. However, investors welcomed the move to abandon the peg as it is expected to encourage an inflow of portfolio and direct investment. In addition to this, the removal of the controversial oil subsidy by the government is helping to create a market environment that is less uncertain for international investors. However, currency weakness still remains a key concern for investors in the continent with Kenya’s shilling and Zambia’s kwacha weakening to record lows against the dollar in 2023.
Several developments in the domestic regulatory landscape may also boost investment in 2024.
In Mozambique, the parliament passed a new Private Investment Law in May aimed at fostering investment in the country21, while Tanzania has also reworked its investment regulations to support investment and economic growth22. Angola too has enacted a number of regulatory reforms to encourage foreign investment — particularly the private investment law, which reduces minimum capital requirements as well as removes requirements that local investors have at least a 35% stake in foreign investment projects23.
Such reforms have been met favorably by international investors and have resulted in an uptick of M&A activity in both Angola and Nigeria — for example, Andela acquired local tech training company Qualified24 while the Africa Finance Corporation acquired Ghana’s Aker Energy25.
With investors gearing up for the year ahead, these pockets of growth in sectors from climate finance and green energy to fintech clearly provide a promising opportunity for those looking to the African continent.
A Few Policy Considerations
Investors in the African continent are more than aware of the challenges and opportunities such disparate and fast-growing markets bring. While 2023 tested even the hardiest of managers, several key policy and regulatory developments in countries from Nigeria to Angola are helping to create a more attractive investment landscape for foreign investors.
Nigeria’s move to de-peg the naira in June 2023 caused the biggest fall in the currency’s history20, putting pressure on domestic companies with dollar receipts — which were also feeling the pinch of a stronger dollar — and fueling inflation. However, investors welcomed the move to abandon the peg as it is expected to encourage an inflow of portfolio and direct investment. In addition to this, the removal of the controversial oil subsidy by the government is helping to create a market environment that is less uncertain for international investors. However, currency weakness still remains a key concern for investors in the continent with Kenya’s shilling and Zambia’s kwacha weakening to record lows against the dollar in 2023.
Several developments in the domestic regulatory landscape may also boost investment in 2024.
In Mozambique, the parliament passed a new Private Investment Law in May aimed at fostering investment in the country21, while Tanzania has also reworked its investment regulations to support investment and economic growth22. Angola too has enacted a number of regulatory reforms to encourage foreign investment — particularly the private investment law, which reduces minimum capital requirements as well as removes requirements that local investors have at least a 35% stake in foreign investment projects23.
Such reforms have been met favorably by international investors and have resulted in an uptick of M&A activity in both Angola and Nigeria — for example, Andela acquired local tech training company Qualified24 while the Africa Finance Corporation acquired Ghana’s Aker Energy25.
With investors gearing up for the year ahead, these pockets of growth in sectors from climate finance and green energy to fintech clearly provide a promising opportunity for those looking to the African continent.
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