(Ecofin Agency) - In 2023, the African private equity sector experienced significant downturns, with exits dropping by 48% and investments by 22% to $5.9 billion, primarily due to macroeconomic challenges.

Africa recorded only 43 PE exits throughout 2023, according to a report issued on March 31 by the African Private Equity and Venture Capital Association (AVCA). This figure marks a sharp decrease from the 82 operations recorded in 2022, reflecting the most significant drop in a decade (2014-2023).

Titled "2023 African Private Capital Activity Report," the document highlights that the reduction in private equity firms divesting from certain companies in their portfolios can mainly be attributed to ongoing macroeconomic uncertainties. This environment, characterized by tighter monetary policies and rising inflation, led to lower company valuations and very limited exit opportunities.

The decline in activity affected all exit avenues. Sales of stakes to trade buyers remained the most common exit strategy on the continent for the fifth consecutive year, accounting for over 41% of the total operations last year. This was followed by asset sales to other private equity firms or financial companies (32.5%), management buyouts (16.3%), and initial public offerings (2.3%).

Southern Africa takes the lead

The report also unveils that private equity firms injected $5.9 billion into African businesses in 2023, a 22% decrease from the previous year's figures, reflecting investors' caution amid macroeconomic challenges. Despite this decline, the transaction value was still higher than the last decade's average of $4.7 billion, largely due to a significant increase in investments during the second half of the year (+35% compared to the first half of 2023).

This investment surge in the latter half of 2023, totaling $3.4 billion, was mainly driven by two transactions exceeding $250 million each in the renewable energy sector in South Africa. The total number of transactions for the year stood at 450, marking a 28% decrease from the previous year.

Investment allocation by sub-region reveals that Southern Africa led with 44% of the total investment in 2023, followed by North Africa at 15%, East Africa at 14%, West Africa at 11%, and Central Africa at 1%. Furthermore, 15% of the investments targeted companies that, while operating within Africa, are headquartered outside the continent.

The report also details that African-focused private equity fund managers raised a total of $4.9 billion in 2023. Of this amount, $1.9 billion was raised through final closes, and $3 billion through interim closes, indicating a resilient fundraising environment despite the market's overall contraction.