Africa’s total private capital deal volume declined for the first time since 2016, falling by 28% year-over-year (YoY) to 450 deals.
This was contained in the 2023 African Private Capital Activity Report of the African Private Capital Association (AVCA) seen by Nairametrics.
The AVCA new report noted that despite a reduction in the number of transactions, Africa showed resilience, returning to the steady growth trajectory the region drove until 2022 when investors deployed large reserves of capital that were not allocated during the Covid-19 pandemic.
Compared with activity throughout the last decade, 2023 was the second-strongest year on record for deal volume in Africa.
Notably, deal volume on the continent surpassed the annual average of 264 deals from 2012 to 2022 and the average of 387 deals from 2019 to 2022.
Infrastructure drives investor appetite
According to the report, VC maintained its four-year streak as Africa’s leading asset class, accounting for 68% of the total investment volume of private capital activity across the continent in 2023.
The report notes that infrastructure had an impressive year for capital raising and deployment as the only asset class to benefit from increased funding in 2023, with deal values surging to S$1.8 billion – a remarkable threefold YoY increase.
It added that investments in renewable energy largely fueled this trend, indicating a growing interest in leveraging Africa’s abundant solar, hydro, biomass, and wind potential to accelerate the clean energy transition.
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Shifting trends
In a departure from previous years, the report noted that Southern Africa reclaimed its dominance as one of Africa’s top investment destinations. The sub-region attracted 119 capital investments at $2.6 billion, the highest volume (together with West Africa) and the value of deals across the continent.
- “South Africa accounted for the majority of investments in Southern Africa, with 81% of deals in the sub-region, due to growth across the IT and industrials sector and a rise in VC investments in software and services, logistics and transportation.
- In line with AVCA’s previous research, the Financials, Information Technology, and Consumer Discretionary sectors remained the most attractive sectors, accounting for 54% of the total volume of private capital deals in 2023.
- This trend replicates investor activity noted in previous years as digital financial services and e-commerce expand to meet growing consumer demand, presenting more opportunities for investors,” it said.
Exit market
It noted that despite a 48% YoY decline in volume, Africa recorded 43 exits in 2023, which marks a return to pre-2022 averages of 42 per year.
- “All sub-regions in Africa experienced a YoY decline. Economic challenges were exacerbated in 2023, ending the exit rush in Africa of 2022 led by fund managers dealing with a backlog of mature portfolio companies from the Covid-19 pandemic.
- Southern Africa, demonstrating its position as a mature exit market, was the most popular sub-region for exits, increasing its overall share of exits to 36% YoY,” the report said.
What AVCA said
Abi Mustapha-Maduakor, Chief Executive Officer, AVCA, said that despite global economic headwinds, the association is pleased to see Africa-focused investors’ ongoing commitment to the continent, particularly in venture capital – the continent’s leading asset class.
- “Whilst there were dips in investment activity across many asset classes, infrastructure proved to be resilient, as the only asset class to receive increased funding during the year.
- Based on this report, our expectation for the coming year is that investors will remain committed to investment opportunities that leverage disruptive tech on the continent,” Mustapha-Maduakor said.