Consumer demand to drive next wave of PE investments in Nigeria, S’Africa, others
MEETING current needs of the one billion plus population and, the future demands of the rapidly emerging middle class consumers will drive the next wave of Private Equity investment on the continent.
However, investors, according to KPMG, are keener to do business in sectors that have little to no direct relationship with government, or through structures that limit government control and undue influence.
This was the view of Partner & Africa Head, Deal Advisory & Private Equity at KPMG, Dapo Okubadejo, who said that throughout the firm’s ongoing interactions with foreign investors, it was clear that concerns about ‘red tape’ and perceived corruption are still top of mind for investors who are looking to enter African markets.
“However, even once potential complexities related to these two issues have been discussed and overcome, there is a growing consensus among investors.”
Accordingly, he said numerous African investors – and those from across the world – are realising that the best way to exploit the significant growth potential in Africa would be to invest in sectors that talk to the fundamentals of the continent’s growth story.
These include; the geographical size and sheer diversity in the markets on the continent, the young population and, the very high rate of urbanisation in Africa that is also creating increased disposable or discretionary income among the emerging middle class.
“These socio-demographic factors are not only a positive show of sustainable growth in certain economies, but also demonstrate that there will be rapid growth in needs and demands for consumables, which bodes an immense opportunity for investors in consumer facing sectors – including for instance, fast moving consumer goods, healthcare and financial services.
“Additionally, in most African countries these sectors have been reformed, where they are predominantly in private hands and there is a clamour for improved services and efficiencies, which will be best achieved through increasing competition and bringing new innovations, solutions and products to local markets”, he stated.
According to him, this is not to say that the old favourites such as mining activities and infrastructure development, including in transport, energy, utilities and households, for instance, won’t still see a share of PE investment.
“There is still a huge need and growing demand for all of these sectors in Africa and as such these segments are still very popular for investment, depending on the investor’s risk appetite. Typically, however, as these sectors are largely government controlled and more often investments into these sectors are driven through government-to-government relations and deals, or public-private-partnerships with foreign investors,” Okubadejo added.
There are a number of concerns that the current economic slowdown experienced in China will negatively impact PE investments into Africa, however, Okubadejo’s disagreed.