F E B R U A R Y 2 014

Uncovering hidden
investment opportunities
in Africa
Alastair Green, Conor Kehoe, and Farid Sedjelmaci

Recent research on the African private-equity market reveals a mismatch between

supply and demand for financing that could point to investment opportunities.
Private equity is set to grow rapidly across
Africa. Continent-wide demand for
capital should increase by 8 percent a year
between now and 2018. Annual growth
could reach 20 percent in resource-rich
Angola and nine other countries, and
$50 billion in total investment is possible
over the next decade.1
But there will be wide variations by country
and industry, and the supply of capital
doesnt seem to match the growing
demand. Large international 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 include
infrastructure funds (which some

investors view as too risky and politically

fraught) and small- and midcap funds
in East, West, and Southern Africa
(excluding South Africa, which will remain
a magnet for funding). On the other
end are funds that will probably raise more
money but face greater competition to
complete attractive deals, often involving
larger target companies. Multinationals
seeking viable acquisition targets might
look outside the active markets to midsize African companies.
1 Estimate based on interviews with 70 leaders

in the African private-equity market and an

analysis of proprietary data.

The authors would like to acknowledge the

contributions of Mayamiko Kachingwe to the
development of this article.
Alastair Green is a consultant in McKinseys
Washington, DC, office; Conor Kehoe is
a director in the London office; and Farid
Sedjelmaci is a principal in the Geneva office.

2 2014
Q1
Africa PE
Exhibit 1

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
Extractive

Infrastructure

Demand growing faster

than supply

Real estate

0
15

10

10

15

20

Demand growth rate, 201418, %

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

Copyright 2014 McKinsey & Company. All rights reserved.

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