(Ecofin Agency) - The report points out that persistent global macroeconomic uncertainties have prompted most private equity funds active on the continent to exercise caution, opting for smaller ticket sizes.   

Local and international private equity firms injected $2.2 billion into African companies in the first half of 2023, according to a report published on August 7 by the African Private Equity and Venture Capital Association (AVCA). This amount is 52% lower than that recorded in the first half of 2022.

The number of transactions recorded during the first six months of the current year reached 196, down 44% during the same period last year.

The report, entitled "2023 Q1-Q2 African Private Capital Activity: A mid-year review," explains this slowdown in the continent's private equity industry to be due to the persistence of global macroeconomic uncertainties, which prompted most players to exercise caution and opt for smaller ticket sizes.  

On a global scale, the volume and value of transactions carried out by private equity funds in the first half of 2023 fell by 44% and 43% respectively.

The breakdown of investments by sub-region shows that Southern Africa accounted for 29% of the total amount invested on the continent between January 1 and June 30 of the current year, ahead of North Africa (18%), West Africa (11%), East Africa (6%) and Central Africa (1%), while 35% of investments were made in companies operating in more than one of the continent's sub-regions.

Southern Africa was the region that best withstood the market downturn, with only a 9% drop in transaction value, compared with declines of 76% and 59% in East and West Africa respectively.

Increased interest for private debt funds

A sectoral breakdown of investments reveals that financial services attracted 31% of the total amount injected by private equity funds into African companies. This was followed by commodities (22%), consumer staples (17%), utilities (10%), healthcare (9%) and information technology (5%).

The report also reveals that fund managers dedicated to Africa raised a total of $2.3 billion in the first six months of 2023. Of this amount, $1 billion was raised through final close and $1.3 billion through interim close.

Investors showed increasing interest in private debt funds, as demand for this type of financing in Africa continues to grow in a context marked by rising interest rates.

In the first half of 2023, private debt funds raised $400 million in final close, three times the amount raised in 2022. They also raised a further $300 million in interim close, compared with just $20 million for the whole of 2022.

On another note, private equity funds operating in Africa made just 17 exits in the first half of the current year, compared with 29 in the same period last year. This downward trend in exit activity reflects the challenges that fund managers face when seeking to exit portfolio companies in the current macroeconomic environment.