Magazine article African Business

Sparking Investment through Greater Transparency: Africa's Middle-Market Companies Represent a Big Opportunity, but Potential Investors Need Clearer Data

Magazine article African Business

Sparking Investment through Greater Transparency: Africa's Middle-Market Companies Represent a Big Opportunity, but Potential Investors Need Clearer Data

Article excerpt

Better access to corporate data could open an enormous middle market for investment in Africa.

Investors and corporates around the world, seeking higher yields and access to new markets, are eager to tap into Africa's growth economies and capitalise from the strong fundamentals. Yet the high cost of access to information across African markets is a key limiting factor that constricts deal flow and business opportunities with the continent's middle-market companies.

For private investors, a lack of data often means that proprietary investment screening and preliminary due diligence are time and resource intensive, resulting in fewer opportunities being evaluated despite a steady appetite to invest. Capital is not the problem, but access to it is.

According to investment advisers Aubrey Hruby and Joanne Yoo writing for the Financial Times blog, between 2010 and 2016, Africa recorded only about 1% of global private equity (PE) investments, despite contributing roughly 3% to global GDP. Furthermore, the majority of the transaction capital came from a few big investment firms targeting a limited number of deals. Looking at 2015, for example, approximately 70% of the deals came from Helios, Abraaj and Development Partners International, according to Hruby and Yoo.

But what about the middle market? The African Private Equity and Venture Capital Association found that less than 2% of deals between 2007 and 2014 were of a value lower than $iom. Yet, a 2016 Boston Consulting Group report states that approximately 11,000 African companies have revenues of $iom to $100m and assets of $20m to $200m. "Look beyond the narrow cohort of Africa's corporate elite and you'll see that the continent offers real opportunities. Some of the most promising targets in Africa are companies that are still off the radar of most funds," says the report. …

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