Private equity investors reap profits in East Africa

East Africa emerged as the top destination for PE funds with Kenya securing the largest number of deals, according to a survey by Deloitte.East Africa attracted US$475-million from private equity funds last year, more than double 2011’s inflows of $200-million, according to data released by consultancy firm Deloitte on 19 March.
Dealmakers chose to invest in the region, citing an improved business environment, rising consumer demand and the discovery of oil and gas deposits in Uganda, Tanzania and Kenya.
Kenya emerged as the top destination for dealmakers, followed by Tanzania and Ethiopia. Deals in South Sudan and Uganda are also on the upward trend, although oil revenues in Uganda are still a few years away from generating significant revenue.
“Penetration and fundraising for Africa-focused funds is continuing to grow rapidly in sub-Saharan Africa. The focus is turning more towards regional hubs like East Africa, which is becoming increasingly attractive,” says Nonnie Wanjihia, the executive director of the Eastern African Venture Capital Association.
“Kenya, as the financial hub, remains a key gateway country for investors interested in neighbouring countries such as Ethiopia, Uganda and Tanzania,” she says.
Most funds for 2012 went into manufacturing, agribusiness and financial services, and 46% of funds were targeted at small and medium-sized businesses.
According to Deloitte, the growth in appetite for the East African market marks a big shift in the attitudes of private equity dealmakers, who have historically focused on South Africa.
“East Africa has a healthy investment pipeline and the numbers of investable companies are certainly increasing. Infrastructure, telecommunications and retail sectors provide strong investment opportunities given the growing middle-class,” says Nonnie.
The executives polled by Deloitte highlighted the power, oil and gas sectors as those that will witness the most increased activity. Whereas interest in agriculture and healthcare dropped in 2013 compared with the previous year.
“We expect to see more oil and gas deals in the near future. We are also seeing more investors competing for a relatively small number of ‘big ticket’ deals each year.  As we continue to build our infrastructure, the region will become a very attractive investment destination,” says Nonnie.
Half of investors expect the average size of transactions to increase this year, and half of PE funds expect the economic environment in East Africa to improve.
Investors are positive about Kenya with the swearing-in of their new president Uhuru Kenyatta, but also the smooth political transition and the strong drive to invest in infrastructure from the new government.
Kenya is set to attract at least $330-million in foreign direct investments in the next few months, according to the Kenya Investment Authority.

“There is greater optimism for the region in 2013. Kenya, its hub, is expected to experience increased activity as investors who had adopted a wait and see approach pending the outcome of Kenya’s elections kick-start their investment efforts. Kenya will continue to be a key driver of East African investments,” says Deloitte East Africa.