A RECENT study conducted by Ernst & Young on Private Equity (PE) exits across Africa between 2007 to 2012 has rated Nigeria among the 10 fastest growing economies of the world over the next five years.
Speaking at the formal presentation of its survey report on Private Equity in Lagos, the Partner, Transaction Advisory Services Leader, West Africa, Ernst &Young, Mr. Bisi Sanda, explained that the overall, sub-Saharan Africa has grown by over five per cent a year, with many countries posting rates in excess of six per cent.
This rapid growth, according to him was set to continue as Ethiopia, Mozambique, Tanzania, the Democratic Republic of the Congo, Ghana, Zambia and Nigeria are expected to be seven of the 10 fastest-growing countries in the world over the next five years.
He said that economic growth for sub-Saharan Africa was projected to be above five per cent a year right through to 2020, adding that these growth rates are attracting increasing PE interest as the industry is now casting its net far wider than the more developed and slower growing South African market.
Sanda pointed out that one of the drivers of economic growth has been a concerted effort by many African governments to improve the environment in which businesses and investors operate.
Key to this, he said, has been a focus on governance, even as 70 per cent of African countries have improved in overall governance quality since 2006.
“Our study into African exits between 2007 and 2012 paints a picture of a young PE industry that has laid strong foundations for significant future growth.PE is well positioned to take advantage of many of the favorable market conditions that Africa now displays. In Africa, however, the PE industry is in a phase of relative infancy.
“The continent’s stock markets, other than the Johannesburg Stock Exchange, are still very small and relatively illiquid, and the intermediary networks remain far from complete across the region. As a result, a widely held perception is that exits are hard to achieve and that therefore they are few in number.
However, our analysis points to a higher level of exit activity than might be expected. Between 2007 and 2012, we recorded a total of 118 realisations by African private equity fund managers.”
He however submitted that Africa is taking centre stage on the back of exceptional economic growth, a rising middle class and relative political stability, adding that these features has made the continent an increasingly attractive investment destination.
Concerning PE, Sanda explained that it is a source of investment capital from individuals and institutions for the purpose of investing and acquiring equity ownership.
According to him, PE invests in mature companies at the initial stage of investment circle, adding that it plays a significant role in growing companies, especially unlisted ones by providing a set of equity investment.
“The focus of PE is majorly on large stage venture capital opportunities that is, companies with huge growth potentials but no enough liquidity to meet their goal. The role guarantees continuous existence of a viable company with inadequate finance..
“Our aim in this inaugural study was to produce an important but not necessarily statistically significant sample of deals, analysis of which would enhance the understanding of exit modalities and strategies in these markets and the underlying drivers of value creation.
“Ernst & Young, a global leader in assurance, tax, transaction and advisory services has his research to provide investors with key information on how fund managers create value, deliver commercial returns and, more importantly, debunk common myths about exits in Africa”, he added.