Kenya tops East Africa states in PE, venture capital deals

Kenya has accounted for the lion’s share of private equity (PE) and venture capital deals in East Africa in the past decade, helped by a diversified economy and talent base that has made Nairobi a preferred base for investors eyeing regional opportunities.

Analysis of investment activity done by the East Africa Venture Capital Association (EAVCA) shows that the country accounted for 69 percent of the 478 PE and development finance institution (DFI) investments between 2013 and the first half of this year. These deals incorporate both inward investments and exits.

Uganda accounted for 12 percent, Tanzania and Ethiopia six percent each and Rwanda five percent, with the rest cutting across multiple countries.

In terms of monetary value, Kenya has accounted for 74 percent of the total disclosed deal value of $8.6 billion (Ksh1.26 trillion), ahead of Uganda, Ethiopia and Rwanda at eight, seven and five percent respectively.

PE funds do not always disclose the value of deals, meaning that the monetary value is likely higher, both for entry and exit transactions.

“Kenya is considered a central hub for economic activity in the region and has a relatively well-diversified economy less susceptible to commodity risks as compared to other large African economies,” said EAVCA.

“A large addressable market and economy, strengthening rule of law especially as relates to commercial matters, and a large talent base are some of the factors that have set the country apart in attracting PE and DFI investments.”

In the other markets, a mix of factors including government policy and monetary restrictions have hampered the flow of PE investments.

In Tanzania, EAVCA said, institutionalisation of businesses has trailed East African peers, which has had the effect of lengthening transac­tions, and the ability of investors to create value.

A change in administration and government policy has, however, improved the attractiveness of the economy for investors, especially in agriculture, natural resources, infrastructure and tourism sectors.

In Ethiopia, where there is a large market and a fast-growing economy, investment has been slowed by political instability and a fixed exchange rate regime that has made it hard to extract dividends.

Rwanda is seen as attractive to venture capital due to a relatively small market size that is less suitable for commercial PE investment.