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The current tight market conditions in Africa and heightened investor uncertainty continue to affect the availability of capital for Africa-focused fund managers, ultimately impacting deal volume and value in H1 2024, the study further says.
A new study shows that Africa is grappling with an unprecedented slump in new investments due to tight market conditions and heightened investor uncertainty, which have caused fund managers to abandon large deals in the face of declining availability of private capital.
The study by the African Private Equity and Venture Capital Association (AVCA) on the state of ‘private capital activity in Africa’ during the half-year that ended June 30 shows that the ongoing capital squeeze in the continent has heavily hit large deals of USD 100 million and above. The financial sector in the continent is a major casualty in the process, the study adds.
The study further says that the current tight market conditions in Africa and heightened investor uncertainty continue to affect the availability of capital for Africa-focused fund managers, ultimately impacting deal volume and value in H1 2024.
The deal values on either side of the USD 100 million threshold contracted. However, deals above USD 100 million felt the greatest pinch of the ongoing capital squeeze as they plummeted by 91 percent year-on-year. To keep the deal wheel moving, fund managers shifted focus to smaller deals, significantly increasing their share of total deal values, the study further says.
During the period under review (January-June) a massive 88% of the value of investments in Africa was channeled into deals below USD 50 million, according to the study. It is the first time since 2018 that deals below USD 50 million have accounted for more than 50% of total deal values in the continent.
Despite inflation stabilizing in major economies such as Kenya and South Africa, the period (H1 2024) failed to live up to the projections of economic growth and recovery, according to the study.
The private capital industry in the continent suffered major headwinds recording 182 deals with a cumulative value of USD 900 million, representing a 17 percent year-on-year decline in volume and a 66 percent year-on-year decline in value.
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The study notes that the financial sector continued to dominate investments on the continent attracting 24 percent of the volume and 39 percent of the value of investments during the period under review the deal volumes within the sector declined by 4% year-on-year while deal values plunged by 64%
