Participation of pension funds in private equity investments is improving access to capital for small businesses whilst enabling the funds to tap into new sectors for their portfolio diversification. The East African region has recorded a marked increase in the number of Private Equity funds looking to invest in the region from 72 in 2016 to 97 in 2018.
The region recorded a 12% increase in the amount of funds sourced from the domestic market largely driven by participation by pension funds. According to a report by KPMG and the East Africa Private Equity and Venture Capital Association (EAVCA), local participation by pension funds is one way to mitigate against the risk attached to investing in Africa.
Ethiopia is at the centre of the investment boost as a key destination for expenditure thanks to its population size and positive growth in the manufacturing, agribusiness and Fast-Moving Consumer Goods (FMCG) sectors. In 2017 and 2018, 84 PE-backed deals were reported at an estimated value of USD 1.4 billion.
“A total of 190 PE-backed deals in East Africa have been reported over the period 2007 to 2018 with an estimated value of over USD 2.7 billion. In addition, the average number of deals reported per year increased to 42 per year for the period 2017 to 2018 compared to 18 in 2015 to 2016,” said Sheel Gill, Director, and Head of Strategy and Deal Advisory at KPMG.
Overall, Kenya reported the highest number of reported deals at 61 in the 24 months to December 2018 followed by 13 in Uganda, five in Ethiopia, three in Rwanda and two in Tanzania. While Kenya maintains the lead by PE deal volumes and values, dedicated funds in Ethiopia as well as divergence from traditional investments (such as agribusiness) in the East African provides new opportunities for varied investment sectors and stages.
Whilst globally PE funds raised has increased over the period 2017 and 2018 by 25% to USD 1.6 trillion, there has been a decreased level of fundraising for Africa by 15% to USD 5.1 billion and East Africa by 18% to USD 0.6 billion. This is attributable to the challenging fundraising environment.