The Sub-Saharan African opportunity represents one of the biggest growth stories in emerging markets private equity.

Once generally overlooked by investors, fundraising activity in Sub-Saharan Africa has almost tripled from US$800 million in 2005 to over US$2.2 billion in 2008. During the first half of 2009, fundraising for Sub-Saharan Africa reached US$1 billion, equivalent to the same period one year prior. Led by South Africa, private equity investments in the region totaled US$2.9 billion in 2008, down slightly from a peak of US$3.4 billion in 2007.

While the private equity landscape in the region remains largely uncrowded and competition is thin, the industry is evolving as investor appetite has fundamentally changed over the last several years. The 2009 EMPEA/Coller Capital Emerging Markets Private Equity Survey reveals that institutional investor interest in Africa has grown, with 38% of LPs surveyed currently investing in Africa versus only 4% in 2006.

The economic downturn has significantly impacted the region, with the International Monetary Fund (IMF) estimating that GDP growth will slow to approximately 1% in 2009. As greater than 30% of the regional economy is export-driven, Sub-Saharan Africa has been particularly vulnerable to the global drop in demand for commodities and subsequent fall in prices. Foreign direct investment (FDI) has declined, as has donor aid, contributing to depreciating currencies in markets such as South Africa, Mozambique, and Kenya.

However, while short-term indicators have suffered, investors view Sub-Saharan Africa’s long-term prospects as strong due in part to significant progress made in recent years: GDP growth has averaged 8% per year since 2004, compared to 3% in the previous 30 years; foreign reserves have risen from US$25 billion in 1996 to greater than US$150 billion in 2007; and debt servicing requirements have been reduced from over 100% of the region’s GDP in 2005 to 25% in 2008.

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Source(s): Emerging Markets Private Equity Association (EMPEA)