Africa fintech shines as private capital investment doubles in H1

Private equity investment in Africa in the first half (H1) of 2022 produced a total deal volume of 338 deals with a cumulative deal value of $4.7 billion, making it one of the strongest half-years of private equity activity on record, according to a report by the African Private Equity and Venture Capital Association (AVCA).

The investment in H1 2022 is almost double the $2.4 billion invested in the first half of 2021 and more than three times the $1.4 billion recorded in the same period of 2020.

The three main factors contributing to strong deal activity include the significant amount of fresh capital raised by fund managers in 2021, a growing interest in Africa’s venture ecosystem and generally larger ticket sizes.

“The record H1 performance is a powerful demonstration of the continued growth of the African private equity and venture capital ecosystem, despite significant global headwinds,” said Nadia Kouassi Coulibaly, head of research at AVCA.

“The industry is on track for outstanding performance in H2 and we are working closely with members to provide the insight and support they need to grow their portfolios,” Coulibaly said.

Finance was the most active sector in H1 2022 by volume, attracting 103 private capital investments, almost twice the investments recorded in H1 2021, followed by the industrial sector which also emerged as the second most active sector by value.

While the total volume of reported deals in 2022 H1 already represents 79 percent of the total deal volume reported in 2021, the average deal size also increased in H1 2022 to reach $20 million from $15 million in 2021, an indication that ticket sizes in Africa are becoming bigger.

From a regional perspective, West Africa dominated private equity deals by volume (34 percent) for the second year in a row.

Senegal now holds third place, overtaking Ivory Coast, to follow Nigeria and Ghana who have the largest shares of deal volume in the region.

East Africa experienced the strongest growth in its share of the deal volume compared to the corresponding period last year. Kenya’s role in this was key, with early venture deals in Financials and Consumer Discretionary – mainly online trading – contributing significantly to this remarkable growth.

Also read: Fintech holds the key to Africa’s economic prosperity, Nigeria must continue to lead the way

Private capital exit activity also experienced significant growth in the first half of 2022. Fund managers achieved 22 full exits, representing an increase of 29 percent compared to the corresponding period in 2021. This was mainly driven by growth in trading and secondary sales.

However, private capital raising in Africa slowed in the first half of 2022, reaching $0.7 billion in final closings, down 20 percent compared to the same period last year.

The absence of generalist funds reaching a final close in 2022 H1 contributed significantly to the drop in fundraising value in the first half of this year. An additional $0.7 billion in temporary closures was also reported through the first half of 2022.

This decline in the value of African private capital raising, which mirrors the global trend, is mainly the result of a more challenging fundraising environment for fund managers globally.

Africa’s venture capital deals set a new record

In a record-breaking start to the year, the cumulative value of VC deals reported in Africa reached $3.5 billion, raised by 300 unique companies.

This corresponds to an increase of 133 percent on an annual basis from 2021 H1 despite inflation and an unfavorable macroeconomic environment.

The AVCA report predicts that the total value of VC deals will reach $7.0 billion by the end of 2022—a 35 percent year-over-year increase from the $5.2 billion raised in 2021 if the pattern continues.

Africa is the only market to have recorded more than single-digit growth for the period. This growth in start-up funding, contrary to global trends this year, demonstrates the depth of opportunity, the continent’s growth potential and increased support measures from governments to enable entrepreneurship in previously underserved areas.

The report finds that the region attracting the largest share of VC investment by deal volume remains largely unchanged with West Africa (33 percent) leading the way.

Interestingly, East Africa has now overtaken North and South Africa, which can be attributed to Kenya achieving the second largest share of deals by value ($330 million). The report’s sector focus highlights that Financials is still a titan of the ecosystem as the most active sector both in volume (32 per cent) and value (44 per cent).

Three sectors emerged from the margins to the mainstream in 2022 H1: Health Care (50 percent YoY growth); Education (64 per cent growth on an annual basis) and Utilities (23 per cent growth on an annual basis).