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Exploring private equity activity in Nigeria, Africa

         Date: 2012-09-20

           Tag: Nigeria, Africa

Summary: Avanz Capital, an investment firm that specialises in private equity across emerging and frontier markets in collaboration with African Venture Capital Association (AVCA), recently released a new st…

Avanz Capital, an investment firm that specialises in private equity across emerging and frontier markets in collaboration with African Venture Capital Association (AVCA), recently released a new study on the private equity market in Africa.

Private equity refers to the purchase by a private investor of a share of a company that is not listed on a stock market.

The company invested in, can then take the money from the sale and use it for expansion or other investments. In exchange, the owner gives up some control, as the new partner gets a seat on the board or, in smaller companies, plays an advisory role.

Eventually, investors make money by selling their shares or receiving dividends.

Often referred to as the ‘final frontier’ market by private equity investors, Africa is showing signs of promise due to its rapidly improving economic environment, favourable demographics and growing private sector business activities.

According to Avanz Capital, the underpenetrated private equity industry in Africa offers substantial growth potential, given that sub-Saharan Africa private equity represents only 0.09 percent of total gross domestic product (GDP) for the region.

Further, the potential of the private equity market in Africa is substantial given the estimated 400,000 private companies in South Africa compared with 388 publicly listed companies.

Public (stock) markets are often concentrated on larger companies and they lack representation of many companies and industries that will benefit from future growth of the continent.

The African continent comprises 44 countries – eight countries in North Africa and others can be divided into five sub‐regions - East, West, Southern, Central and North. Of these five sub‐regions, West Africa is divided into Anglophone and Francophone West Africa.

Each of the sub‐regions is typically dominated by one country that provides a larger market hub for many increasingly regional companies – Kenya in the East, Nigeria in the West, South Africa in the South, and Egypt in the North, offer the most developed country specific markets.

The macro-economic backdrop for Africa also serves as a boost for private equity activity on the continent.

The International Monetary Fund (IMF) estimates that GDP growth in Africa will be 6.6 percent in 2012, compared with 3.7 percent for Organisation for Economic Co-operation and Development (OECD) countries.

The economies of Africa are resilient, as demonstrated by the economic growth maintained through the heart of the financial crisis.

According to IMF data, sub-Saharan Africa’s GDP grew at a high of 7.1 percent in 2007, slowing to 2.9 percent in 2009, compared with advanced economies’ real GDP growth, which averaged 2.8 percent in2007 and 3.6 percent in 2009.

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