Africa’s private capital sector is experiencing a notable slowdown, marking the second consecutive year of reduced deal activity, according to the African Private Capital Association (AVCA). Year-to-date (YTD) data reveals a total of 287 deals, an 11% decrease from the 324 deals recorded in the same period of 2023. This year’s first quarter also sees the weakest start in deal values in five years, reflecting broader economic challenges impacting investments.
By the close of Q3 2024, investment levels have reached only $1.9 billion across Africa, a sharp 53% decline from the same period last year and significantly below the five-year average of $4.2 billion. This marks the lowest YTD deal values since 2020.
Smaller Deals Lead the Market
The report highlights a marked shift toward smaller deals, those valued under $50 million, now comprising the majority of transactions. These deals make up 66% of all activity, while deals above $50 million have sharply contracted by 75% year-on-year. The $50-99 million range is especially impacted, plummeting by 92%, with no transactions above $250 million reported. This trend underscores a strategic shift among investors toward smaller, lower-risk deals to manage uncertainty while optimizing returns.
Venture Capital Impacted by Capital Pullback
The retreat from large commitments has significantly impacted venture capital, private equity, and infrastructure investments. Venture capital remains dominant in Africa’s private capital landscape, representing 62% of deal volume and 52% of total deal value. Yet, venture capital transactions are also declining, with deal volumes down by 21% and values nearly halving, showing a 49% year-on-year drop. In response, startups across the continent are scaling back on growth initiatives to streamline their operations.
Mixed Results in Private Equity
While private equity deal volumes increase by 28% year-on-year, primarily due to growth capital deals and buyouts, total investment values remain low. Just $0.4 billion has been deployed across private equity transactions YTD, marking a 66% decrease from last year and the lowest figures in seven years. Deals under $10 million show some resilience, with investments in this category rising from $35 million in 2023 to $55 million so far in 2024. However, infrastructure investments struggle, experiencing a 68% drop in deal value to $0.2 billion. Notably, Africa Finance Corporation’s $150 million senior loan to Kamoa Copper in the Democratic Republic of Congo provided a substantial boost to the infrastructure sector.
Private Debt Emerges as a Strong Performer
Private debt stands out, as deal values in this asset class grow by 14% year-on-year, indicating a shift toward safer, more adaptable investments amid global market volatility. Although private debt values haven’t reached 2022’s peak levels, it remains a crucial capital source, especially in financial services. Lending companies see private debt values double compared to the same period in 2023.
Despite this widespread decline across various asset classes, AVCA emphasizes that Africa continues to offer attractive investment opportunities and remains a promising destination for capital inflows.
