NAIROBI, Kenya, Jun 28 – Private equity deal activity in East Africa is expected to go up in 2016, according to a new report by Deloitte Africa.
The 2016 Deloitte Africa Private Equity Confidence Survey highlights that 90 percent of respondents expect to invest more in East Africa compared to 71 percent of responses recorded in the 2015 survey.
This is due to a continued improvement in East African economies, a growing middle class, infrastructure investments by governments and increased venture opportunities.
According to the report, private equity funds are targeting Small and Medium Enterprises (SMEs) with the main investment size expected to be between USD 6 million and USD 10 million.
The majority of firms in the survey indicated that they have raised new funds and are planning to deploy these over the next year, further citing an increase in Africa-focused funds.
The firms plan to invest in asset-backed industries like manufacturing, healthcare and retail with increased opportunities emerging in the financial services industry.
“In East Africa SMEs typically require funding of USD 6 million to USD 10 million to scale up operations. Importantly, East African funds are now able to raise investments from pension funds, a source of funding which was previously unavailable to them,” the report indicates.
The report also highlights that private equity funds consider Initial Public Offerings (IPOs) the least attractive exit route as they were considered expensive and bureaucratic.
“Investors are not willing to overpay given the current global economic environment, as assets are already considered expensive. This makes it important for the right price to be determined and a clear understanding of expected returns on exit,” the report cites.
East Africa was ahead of expectations compared with West Africa and Southern Africa at 78 percent and 60 percent respectively.
Respondents expect the economic climate to either improve or remain the same, aside from Burundi, which faces political unrest as a result of the 2015 controversial presidential election.
Ethiopia was found to have the largest expectation for improvement as it has the highest growth rate in the region and a more liberal government which is allowing foreign investment in various industries for the first time.
In 2015, the Kenya economy expanded by 5.6 percent with agriculture, construction, real estate, financial and insurance being the major drivers of the economy in the period under review.
In 2016 the economy is projected to expand by 6 percent, according to National Treasury Cabinet Secretary Henry Rotich.