NAIROBI, KENYA, MAR 6 — Tanzania and Rwanda have emerged as the most preferred investment destinations in East Africa for 2018, a survey by Deloitte has revealed, as the consumer goods sector tops the list of Private Equity firms’ areas of interest.
The Deloitte Africa 2017 Private Equity Confidence Survey report released yesterday revealed increased interest in Tanzania and Rwanda, with a decline in Kenya and Uganda.
The survey which was conducted between April-June 2017, noted that 67 per cent the respondents expected to focus on new investments in Tanzania this year, compared with last year’s 52 per cent.
Rwanda saw the highest increase in investor appetite for new investments at 48 per cent, translating to a 38 per cent jump over last year.
“Rwanda’s emerging interest is attributed to the country’s improving economic conditions, stable political environment, increase in infrastructure development and improving ease of doing business,” said Gladys Makumi, Deloitte East Africa Corporate Finance Leader.
“The investor focus on Tanzania is due to the smooth and successful transition of the government, as well as the relative maturity of the market and level of opportunities available,” she added.
Although Kenya and Uganda remain popular investment destinations in East Africa, new investor interest declined 81 per cent from 91 per cent and in Uganda, it dropped to 67 per cent from 81 per cent.
Kenya’s attractiveness as an investment destination is primarily driven by increased investment opportunities from the private sector, the survey notes.
Across Africa, consumer-focused sectors, which include food and beverages, healthcare and pharmaceuticals, agriculture and agribusiness, as well as financial services, rank among the top PE sector focus areas.
In East Africa, 62 per cent expect to focus on agriculture and agribusiness due to its significant contribution to economic growth.
The other investment focus areas in the region are financial services, health and pharmaceutical, food and beverages as well as education, driven by rising populations and the growth of the middle class, leading to higher disposable income.
“The positive sentiments in East Africa towards the agriculture and agribusiness sector is underpinned by the significant contribution of the sector to the region’s economic growth and the need to invest across the value chain,” SAID Makumi.
Travel, hospitality and leisure continued to receive the least interest as a focus area.
The report noted that most of the East Africa respondents manage funds ranging between $21 million and $200 million, though the deal size is much smaller compared to the other regions.
48 per cent of the East Africa respondents indicate increased focus on transaction sizes below $6 million. More than half of the respondents expect to target SMEs over the next 12 months, as the strong economic growth in the region is set to provide growth opportunities for small business expansion.
Though the transaction sizes tend to be smaller in East Africa at less than $6million, respondents expect valuation to be priced at a premium as competition for deals in the region continues to increase.
Nevertheless, fundraising remains a key priority in the region, with the increased participation of local pension funds emerging as an important source of funds.
“Improving regulations such as the recognition of PE as a fully-fledged investment class by the pension industry regulator in Kenya is contributing to this. From a geographical point of view, Europe and the US are anticipated to be key sources of funding as more international funds set up in the region,” the report notes.
Geopolitical concerns which include Brexit and lower foreign aid from the US are expected to pose a challenge to PE funds, Makumi noted, with their effects expected to be felt in the other two key region of West and Southern Africa.