(Ecofin Agency) - Private equity investors played it safe in the third quarter of 2023, as macroeconomic uncertainties persist in the global market.

Local and international private equity firms injected $1.2 billion into African companies in the third quarter of 2023, according to a report published on October 31 by the African Private Equity and Venture Capital Association (AVCA).

This amount, which is down 16% compared to the same period in 2022, brought the total PE investment on the continent in the first nine months of 2023 to $3.3 billion. The number of transactions over the period under review reached 91, down 34% compared to Q3 2022.

The "Private Capital Activity in Africa Q3 2023: A quarter in review" report links this slowdown to enduring global macroeconomic uncertainties. It emphasizes the detrimental impacts of various shocks associated with the conflict in Ukraine, leading to soaring inflation, increased exchange rates, currency shortages, and other challenges across the continent. Consequently, many private equity firms played it safe and adopted a more cautious approach, opting for smaller investment commitments.

Indeed, mega-deals were down across all asset classes. Similarly, between July 1 and September 30, 2023, no deals over $100 million were recorded in Africa in the private debt segment, which had been one of the main drivers of investment value growth in recent years.

Sharp drop in the number of local PE investments in the first nine months of 2023

The value of private debt transactions was limited to $38 million in the third quarter of 2023, compared with $580 million in the same period of 2022. The distribution of investments by sub-region shows that Southern Africa accounted for 22% of the total amount in Q3 2023, ahead of West Africa (20%), East Africa (9%), North Africa (7%) and Central Africa (1%), and 39% of investments were made in companies operating in more than one of the continent's sub-regions.

By sector, the utilities sector attracted 30% of the total amount injected by private equity firms into African companies, ahead of the financial services (28%), commodities (12%), information technology (11%), manufacturing (8%), consumer staples (6%) and healthcare (4%).

The report also reveals that managers of funds dedicated to Africa raised a total of $3 billion in the first nine months of 2023. Of this amount, $1.2 billion was raised in final closings and $1.8 billion in interim closings.

Similarly, private equity funds operating in Africa made only 25 investments in the first nine months of the current year, compared with 82 in the same period last year, mainly due to the high volatility and uncertainty of the markets.