68

Uncovering hidden
investment opportunities
in Africa
Recent research on the African private-equity market reveals a
mismatch between supply and demand for financing that could point to
investment opportunities.

Alastair Green,
Conor Kehoe, and
Farid Sedjelmaci

Private equity is set to grow rapidly across

include infrastructure funds (which some inves-

Africa. Continent-wide demand for capital should

tors view as too risky and politically fraught) and

increase by 8 percent a year between now and

small- and midcap funds in East, West, and

2018. Annual growth could reach 20 percent in

Southern Africa (excluding South Africa, which

resource-rich Angola and nine other countries,

will remain a magnet for funding). On the other

and $50 billion in total investment is possible over

end are funds that will probably raise more money

the next decade.1

but face greater competition to complete attrac-

But there will be wide variations by country and

Multinationals seeking viable acquisition targets

tive deals, often involving larger target companies.

industry, and the supply of capital doesnt seem to

might look outside the active markets to midsize

match the growing demand. Large international

African companies.

investors often prefer proven investment managers,

sizable investments, and diversification across
Africa. Those preferences may lead them to overlook some attractiveand growingcountry
and sector gems.
The exhibit shows the mismatch between supply
and demand by investment type. On the right are
segments with rapidly growing opportunities
but relatively little money chasing them. These

1 Estimate based on interviews with 70 leaders in the African

private-equity market and an analysis of proprietary data.

69

MoInvesting 2014
Africa
Exhibit 1 of 1

Exhibit

Tracking projected supply and demand in African private equity

reveals rapidly growing but underfinanced opportunities.
Distribution of African private equity, based on projected demand and supply growth rates
Supply growth rate, 201418, %

Relative size of demand

20
Supply growing faster
than demand

Eastern: small cap

Anglophone West: small cap
Southern (excluding S. Africa): small cap

15
Eastern: midcap

Large cap

Oil and
gas
10

Very large cap

Northern:
midcap

Anglophone West:
midcap
Central: midcap
Central: small cap

Francophone West:
midcap

Northern:
small cap

Francophone West: small cap

Southern (excluding S. Africa): midcap
Southern: midcap
Southern: small cap

5
Extractive

Infrastructure

Demand growing faster

than supply

Real estate
0
15

10

10

15

20

25

30

35

40

Demand growth rate, 201418, %

Source: Preqin; Standard & Poors Capital IQ; Zawya; McKinsey analysis

The authors wish to thank Mayamiko Kachingwe for his contributions to this article.
Alastair Green (Alastair_Green@McKinsey.com) is an associate principal in McKinseys Washington, DC, office;
Conor Kehoe (Conor_Kehoe@McKinsey.com) is a director in the London office; and Farid Sedjelmaci
(Farid_Sedjelmaci@McKinsey.com) is a principal in the Geneva office. Copyright 2014 McKinsey & Company.
All rights reserved.