Africa’s private capital took a hit in 2023 amid global investment slump

Africa saw a significant dip in private capital activity in 2023, with 450 transactions worth someUSD 5.9 bn, marking a 28% y-o-y decrease in volume and a 22% y-o-y decline in value, according to the African Private Capital Association’s latest private capital activity report (pdf). This marks the steepest decline in private capital volumes in over a decade, fueled by a slowdown in venture capital investments and sizable transactions, according to the report.

The value of transactions rose 35% y-o-y in 2H 2023, mainly on the back of two large infrastructure projects in South Africa’s renewable energy sector, each exceeding USD 250 mn and accounting for 27% of total investment value during the period.

Macroeconomic challenges weighed heavily: Africa grappled with soaring inflation in 2023, reaching 17.8%, its highest level in over a decade, propelled by global spikes in food and energy prices, domestic “fiscal extravagance,” disruptions in agricultural supply chains, and currency depreciations against the USD. North Africa bore the brunt of headwinds, with inflation doubling to 16.6% y-o-y.

The continent’s favorite asset class, venture capital, experienced a major slowdown, both on the continent and globally. Still, VCs contributed to 68% of total investment volume, with the financials sector taking the lead.

Exit activity also witnessed a 48% y-o-y decline in 2023, as the continent saw 42 exits in total during the year, unchanged from 2022, according to the report. North Africa was hit the hardest due to limited exits in Egypt, Africa’s primary exit market, while South Africa demonstrated resilience with only a 17% decline. Sales to trade buyers remained the most common exit route.

Some respite: Interim fundraising remained resilient, with Africa-focused fund managers achieving a record 40 interim closes valued at USD 3 bn, the highest to date. While overall fundraising declined for a second year, the overall trend saw larger funds take the backseat for smaller ones, which made up 65% of total closed funds, growing 1.6x in volume and 2.6x in value.

US institutional investors offload PE holdings amid liquidity concerns: Institutional investors in the US, including pension funds and endowments, are selling off private equity holdings at lower than their value to reduce exposure to illiquid assets, amidst a subdued market for traditional exits like stock listings and mergers, the Financial Times writes. Big investors sold 99% of their holdings in 2023, a marked increase from 95% in 2022 and 73% in 2021.

THE MARKETS THIS MORNING-

The Nikkei and Kospi are both down in early trading, while Hong Kong’s Hang Seng is expected to gain as markets return from a national holiday. The S&P 500, Dow Jones, and Nasdaq have all also lost ground as statements from US Fed officials fueled concerns of a delay in interest rate cuts.

THE CLOSING BELL-

The ADX rose 0.3% yesterday on turnover of AED 874.8 mn. The index is down 3.5% YTD.

In the green: Presight (+7.43%), Bayanat (+5.16%) and Abu Dhabi National Co for Building Materials (+4.59%).

In the red: Al Khaleej Investment (-7.69%), Invictus (-5.76%) and Response Plus Holding (-4.8%).

Over on the DFM, the index rose 0.2% on turnover of AED 300.2 mn. The index is up 4.56% YTD. Meanwhile, Nasdaq Dubai was up 0.4%.

CORPORATE ACTIONS-

Union Coop approved a dividend payout of AED 296.8 mn for 2023, according to a DFM disclosure (pdf).

The Roads and Transportation Authority (RTA) lowered Salik’s annual concession fees on the toll usage revenue to 22.5%, down from 25%, effective 1 April 2024, according to a DFM disclosure (pdf).

MBME Group’s general assembly approved distributing 250 mn in bonus shares to shareholders, equivalent to 10% of share capital, according to an ADX disclosure (pdf).