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Private Equity Investments in East Africa: What are the Opportunities?

  Jan 12, 2018

Trading and expanding into new markets can be as exciting and equally risky. Entrepreneurs seeking to do so should considerably take time to study the market.

An in-depth look into East Africa’s economy, will significantly lead one to the major role Private Equity and Venture Capital sector is playing in the region’s growth. East Africa has demonstrated resilience against turbulent times, recording GDP growths above the continental average. According to the KPMG and East Africa Venture Capital Association (EAVCA) 2017 survey, this has greatly been cushioned by the natural hedge against the turbulent commodity prices crisis which rocked other parts of the continent.

The region’s growth story has also been influenced by the direct correlation of the growth of Private Equity and the Venture Capital sector.

 “Most of the private equity funds are set on a regional account. This is because of the collective regional gains which outweigh the risks incurred in focusing on specific countries,” said Stephen Gugu, an Adjunct Faculty at Strathmore Business School during the Doing Business in Africa Programme.

The number of Private Equity funds in the region has doubled, representing a 100% growth in two years as compared to the first seven years of private equity in East Africa. “As more investors look into East Africa as an investment destination, funds raised for East Africa investments have also increased,” remarked Gugu. In the years 2015 and 2016, there was an estimated total of USD 1.1 billion raised for private equity investment in East Africa.

There has also been a great increase in the numbers of strong private enterprises that have stability which is fundamental to attract private equity investments. With this regard, Stephen noted that most firms are usually interested in enterprises that have illustrated they have the muscle to manage capital and have matured through their returns. However, he also noted that ‘unripe businesses’ – those that are quite young in their growth stages are considered high risk and equally highly demanding of the investors input. Although they may seem unattractive, unripe businesses also possess great potential for growth.

Private Equity sector in the region has experienced a great shift from an agribusiness deal focus, to financial services, and manufacturing. During the period of 2015 and 2016, 25% of the deals recorded were in financial services , while manufacturing followed at 22% and Agribusiness accounted for 6% of the deals recorded in the same period, as compared to 27% of the sector’s deals recorded in the period of 2007- 2014.

The shift in the sector’s interest in private equity deals is reflective of the region’s emerging trend to move into value-added industries and services sector industries.

 Business executives across various regions in the world have significantly taken up initiatives to study and explore opportunities beyond the confines of their local and regional operations. Strathmore Business School’s Doing Business in Africa Programme in particular has been significant in building this bridge; linking and providing executives with the prerequisites of identifying opportunities in East Africa, while immersing executives into the business culture of the region, exposing them to the trends surrounding the various business industries. This January, Strathmore Business School hosted 38 MBA executives from IESE Business School for the Doing Business in Africa Programme.

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