Three African private equity trends for 2013

UK-based frontier market investment firm Silk Invest recently published its outlook for 2013. Silk Invest manages the African Food Fund, a private equity fund that invests in processed food, beverages and quick-service restaurant companies on the continent. Below are three key takeaways from its outlook for private equity in Africa over the next 12 months and beyond.

1. The formalisation of Africa’s food sector is still taking shape: According to Silk Invest, African food companies can grow over 10 times in the future. Africa’s per capita consumption of products such as dairy and dried food is still significantly lower than in many other parts of the world.

Modern shopping centres are slowly but surely popping up across the continent. Silk Invest says that a more formal retail environment will be a big driver of the growth of Africa’s food industry. The majority of people in sub-Saharan Africa currently shop at open markets, as opposed to modern malls.

2. Potential in housing and real estate: Even though Africa’s real estate sector is still in its infancy, it could potentially add 2-3% to the continent’s GDP growth. Silk Invest estimates that Africa needs to build 100 million housing units over the coming decade to eradicate slums. “As in China, a focus on construction could spur local and global GDP growth,” says the firm.

It is for this reason that Silk Invest is currently exploring investment opportunities in the area of affordable housing.

3. Africa’s private equity opportunities remain attractive with limited competition: Silk Invest reckons that Africa’s private equity environment remains healthy. The region has very low private equity participation compared to the rest of the world (see graph below), and presents good opportunities for investment in especially smaller companies.

“Africa’s investment thesis is increasingly in the spotlight. Silk Invest was an early entrant by investing in the consumer space and we remain committed to building exposure to the development of the sectors that form the base of Africa’s Maslow Pyramid. We have grown our private equity investments in the food industry and are currently working towards the launch of an investment vehicle focused on affordable housing in Africa,” commented CEO Zin Bekkali in an emailed note.