Africa recorded a total of $1.9 billion (FCFA 1,159 billion) in private equity investments at the end of the third quarter of 2024, a 53% drop compared to the same period in 2023, according to the latest report from the African Private Equity Association (AVCA). This level is well below the five-year average, estimated at $4.2 billion (FCFA 2,896 billion), marking the lowest investment volume since 2020.
The number of transactions, although down by 11% to 287 since January, has fallen less sharply than the amounts invested. This is mainly due to a significant reduction in large-scale transactions. Transactions in excess of $50 million (FCFA 30.5 billion) fell by 75%, and no deals in excess of $250 million (FCFA 152 billion) were recorded during this period. Transactions in the $50 to $100 million range (FCFA 30.5 and 61 billion), meanwhile, fell by 92%. According to the AVCA, this cautious attitude on the part of investors stems from a desire to minimize risk by focusing on smaller transactions.
Pressure on venture capital and African start-ups
According to the AVCA report, the venture capital sector, often the driving force behind innovation on the continent, is also affected by this slowdown. Although it still accounts for a large share of activity (62% by volume and 52% by value), venture capital transactions have fallen by 21%, while amounts invested have almost halved (-49%). Faced with this pressure, African start-ups are adopting a more defensive strategy, pausing their growth initiatives to optimize existing operations and conserve resources. The private equity segment is experiencing a paradoxical situation. While the number of transactions rose by 28% year-on-year, driven by buy-outs and fund-raising for growth, the amounts invested remain sharply down. Only US$400 million (FCFA 243 billion) was deployed in this segment, a 66% drop compared to 2023.
Private debt, a safe haven for investors
In contrast to private equity and venture capital, private debt has proven resilient, with a 14% increase in transaction value. In times of volatility, private debt attracts investors looking for stable, flexible investments. With increased demand for financing, particularly in financial services, African lending companies are finding private debt a valuable lever for maintaining their activities, despite liquidity constraints. Despite this series of downturns, Africa retains significant potential attractiveness for investors willing to take a long-term view. Funds raised for final closings in 2024 reached $2 billion (FCFA 1,217 billion), testifying to this latent interest. However, growth prospects remain fragile solvency pressures are weighing on African banks, and Fitch anticipates a rise in non-performing loans. Measures such as the increase in capital requirements in Nigeria are intended to stabilize the banking sector, but the road to a solid recovery remains fraught with difficulties.
Private capital in Africa, affected by global economic uncertainties, marks a sharp decline in 2024. Large transactions are becoming rare, while investors now prefer smaller, less risky operations. While some segments, such as private debt, are doing well, caution remains the watchword for the private equity sector as a whole. Africa’s attractiveness persists, but players need to adapt to new challenges if they hope to return to a sustainable growth dynamic.
