Africa led in both the volume and value of private capital investment activity in 2022, new data shows.
According to the African Private Capital Activity Report, $7.6 billion (Sh959 billion) was invested across 626 private capital deals, with $17 million (Sh2.3 billion) as the average private capital deal size and 3.4 million (Sh465 billion) as the median.
"2022 was the highest year on record for deal volumes in Africa in the past 10 years, surpassing the record levels achieved in 2021 and representing a 46 per cent year-over-year increase," notes the report.
A robust deal-making start into the year was sustained throughout 2022, helping the continent rake in a fortune.
"An upsurge of investments in venture capital in quarter 1 led the first half of the year to record the highest volume of deals in any corresponding half-year in the period 2012-2022," says the report.
This level of deal-making was sustained in the subsequent quarters, which also reported record levels despite the macroeconomic conditions that affected the second half of the year.
This resurgence was the result of a 24 per cent year-over-year growth in the volume of private equity investments and a 7.2 times growth in private debt investments driven by investments in venture debt, which is becoming an important investment strategy in the private capital landscape in Africa.
"In 2022, venture debt represented half of the total private debt deal volume," says the report.
But globally, private capital investment was hurt due to a number of inevitable global factors, seemingly persisting after what should have been a recovery period post Covid-19.
"The global economic slowdown, which was exacerbated by several factors, including the Russia-Ukraine war and the resulting energy crisis, supply chain disruptions, along with rising inflation and the associated increase in interest rates, led to a contraction of economies, which subsequently resulted in a tough macroeconomic environment for investments worldwide," reads the report. West Africa led in the share of volume of private capital deals in Africa with 31 per cent, followed by North Africa and East Africa, each of which had 18 per cent. Central Africa performed worst at one per cent.
North Africa led in the share of the value of private capital deals in Africa, at 19 per cent, followed by West Africa at 18 per cent. Central Africa, again, performed worst at one per cent. With the exception of the energy sector, private capital investment activity showed significant increases in all sectors, the report shows.
The performance of the industry was more mitigated by deal value, as conversely, almost all sectors recorded a decline in their total deal value except for utilities, healthcare, information technology, materials and real estate, reflecting lower average ticket size injected into assets, the report noted.
Overall, financials, consumer discretionary and industrials were the three most active sectors by volume in 2022, with these three sectors collectively accounting for almost 60 per cent of the total number of private capital deals on the continent.
"By deal value, financial was the most-funded sector in Africa's private capital industry, echoing the trend in the venture capital landscape. In second and third place were the utilities and industrial sectors," it says. Private capital exit activity in Africa, according to the report, hit "unprecedented levels" in 2022.
The number of private capital exits reached 82 full exits, representing the highest number of exits ever recorded in a single year on the continent.
"This record-breaking number of exits marks a 2.3 times year-over-year growth and an 86 per cent increase when compared to the pre-pandemic average (44 from 2012 to 2019). Given the pervasive global macroeconomic uncertainty of 2022, which is only expected to worsen in the near to medium term, private capital fund managers in Africa may have been prompted to prioritise asset disposals in 2022," the report says.
This was further exacerbated by the disruptions caused by the Covid-19 pandemic, "which had impelled fund managers to postpone their exit planning and timelines." The total value of fundraising in Africa in 2022 was U$2 billion (Sh274 billion), a decrease of 54 per cent year over year. Since 2015, it was the second lowest figure after Sh1.1 billion recorded in 2020.
The average length of time to fundraise for funds closed in 2022 was two years.
Many foreign investors could have fled the continent due to geopolitical uncertainty. Several factors, including high inflation, rising interest rates and subdued economic prospects in developed markets are also considered likely reasons for such investors not making long-term commitments to other parts of the world, including Africa.
