Africa as the next emerging market – maybe we should look more closely?

I have just had the privilege of attending and speaking at a private equity conference in South Africa, the conference was focusing on private equity in Africa as a whole and most of the other speakers were all representatives of the continent’s PE and advisory community.

The most fascinating thing was that all the speakers talked about the potential opportunities that exist in Africa for investors, but only if investors are prepared to take what the speakers consider to be a more rational and less sensationalist view of the risks that many outside of Africa associate with the region.

Many of the firms represented talked about the difficulties they had faced in doing deals in Africa compared with other economies but the vast majority also spoke positively about the returns they had been able to make in the region despite the global economic downturn.

The overall consensus of the speakers was that yes there are risks, both political and economic, but Africa as a continent has shown growth in GDP this year that is around 5.5%. It has weathered the economic downturn much better than would have been imagined and much more so than other more developed countries. It has a population in terms of size that mirrors that of some of its Asian counterparts like China and India, thus offering the potential for considerable growth in terms of deals in the consumer market space.

The issue for Africa is going to be one of image, when investors look to new markets their preferred choices are likely to remain the countries they consider to be less risky; so China, Brazil and India. That said if deal multiples and company valuations in these countries begin to rise to pre-2008 levels due to competition for assets, then there could be a compelling choice to look to Africa as a viable alternative.

Filed under: BRIC, dealmaking, lending, M&A, PE, Africa