Fundraising Opportunities In Africa: Nigeria, South Africa And Oil Still Raise Questions

By Kurt Davis Jr. AFKI Original Published: June 30, 2017, 11:08 am
Oil and gas remains an investment opportunity in Africa. Photo - HowWeMadeItInAfricaOil and gas remains an investment opportunity in Africa. Photo - HowWeMadeItInAfrica

As the second half of 2017 comes into focus, entrepreneurs and private equity managers alike want the narrative in investor circles to change regarding sub-Saharan Africa and fundraising opportunities.

Investor sentiments remain that sub-Saharan Africa is still rebounding from the economic challenges of 2015 and 2016.

Many players in the region are asking investors to avoid oversimplifying the regional prospects to the fate of its two largest economies – Nigeria and South Africa – and commodity prices.

Changing perspectives requires reframing past performance and creating targets of interests for Western investors.

Reframing African private equity performance in 2015 and 2016

Investors began 2016 criticizing many private equity managers for carrying significant amounts of “dry powder” (or univested capital committed to funds by investors).

Managers accordingly responded to the criticism by investing $3.8 billion in 145 deals across Africa. The amount was nearly a 52 percent increase from the $2.5 billion invested in 2015, according to the Africa Private Equity and Venture Capital Association.

Although the jump in capital invested is significant, it is important to note that a rather small number of sizeable energy and utility transactions account for the bump, and, furthermore, the number is less than 50 percent of the $8.1 billion invested in 2014.

Private equity fundraising also reflects investor criticisms. Significant capital was in private equity managers’ coffers in 2014 and they aggressively spent it. Thus, 2015 fundraising represented a re-investment from investors as capital raised was more than $4 billion, compared to approximately $2 billion in 2014.

Fundraising in 2016 was about $2.3 billion as investors waited for capital raised in 2015 and previous years to be spent.

What does this mean for 2017? African private equity managers comparatively raised less capital in 2016 yet still hold dry powder that needs to be invested.

Investors are reluctant to pour more capital into regional private equity until more deals are done in the space. This situation is challenging for funds out in the market fundraising as 2017 is colored by other economic challenges in the region and beyond.

Economic challenges in Nigeria and South Africa

The two largest economies in sub-Saharan Africa continued through a recession in the first quarter of 2017.

Although the story may be changing, with Nigeria potentially exiting a recession, the reality of more than 50 percent of sub-Saharan African GDP in a recession is the narrative, until statistics show otherwise.

The storyline for investors only reflects a trend from 2016, in which sub-Saharan Africa growth fell to 1.5 percent according to the World Bank.

Some critics blamed a drop in regional growth on commodity prices. But those prices have not exactly recovered and the World Bank still forecasts 2.9 percent economic growth for 2017.

A bump in growth projections by the World Bank and related organizations cannot cover the credit rating downgrades in South Africa and the related political shakeups in president Jacob Zuma’s administration.

The South African rand took a drastic hit but has found some breathing room as some investors are betting on the country’s recovery. Yet the question of when that recovery comes will have a hangover effect on private equity and entrepreneurs in the market, particularly those with a focus on West Africa.

The growth in Francophone Africa, consequentially, is the silver lining for those operating in West Africa and trying to avoid discussions on Nigeria. East Africa is also the other tale of two tapes for investors looking to crowd out the discussion around weaker Southern African and Northern African countries in the regional context.

Oil and…Gas

Oil prices will stay around (or below) $50 per barrel. Commodities prices will not skyrocket soon. And the new price supercycle is not coming before the end of 2017.

Investors, rightfully, are still trying to point to the reality that oil and gas are not the sole opportunities for Africa. This is always a misconception (or misperception) in some investor circles, spelled out in a previous article.

Economists argue that many African economies can thrive in the current economic reality by focusing on infrastructure and strengthening entrepreneurs across a broad range of sectors. Oil importers are also getting some relief in this price market and those are economies investors want to profile to the market.

Gas, admittedly, is a major component of Tanzania and Mozambique. But again these are only two countries in a larger region diversified beyond oil and gas. Senegal is a perfect example of how gas and oil could be additive for a young emerging economy with investments in infrastructure, technology, and consumer goods.

Then there are simply countries in sub-Saharan Africa where the opportunities are spread across several sectors and are comparatively untapped. For example, the Central Africa Economic and Monetary Union (CEMAC) plus the Democratic Republic of the Congo (DRC), according to the Africa Private Equity and Venture Capital Association, accounts for only five percent of deals since 2011.

Margins and returns are proving to be higher in these rather frontier markets, albeit requiring more hands-on management and operational participation.

Pushing a Different Narrative

Although Nigerian growth may be a positive trend in the second half of 2017, the focus for entrepreneurs and private equity managers should be on the oil importers and emerging Francophone Africa.

It is not a new storyline. But it is one that requires growing the familiarity of such countries within investor circles. Investor trips may include Kenya, Ethiopia, Cote d’Ivoire and Senegal more often, and less Nigeria and South Africa in the near term.

Introducing (and growing) new country reputations and refocusing the dialogue around investment opportunity in sub-Saharan African (beyond 2-3 major countries) can spell greater relief in the fundraising and performance arena as investors will see more resilience and have more commitment when the next South African, Nigerian or commodity price hiccup comes…because, as with any other region in the world, the slowdowns always come.


Kurt Davis Jr. is an investment banker focusing on the natural resources and energy sectors, with private equity experience in emerging economies. He earned a law degree in tax and commercial law at the University of Virginia’s School of Law and a master’s of business administration in finance, entrepreneurship and operations from the University of Chicago. He can be reached at

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