Private capital in Africa, a growth engine for many emerging economies, is facing a significant downturn. According to a report by the African Private Capital Association (AVCA), private capital investments in Africa dropped by 11 % at the start of 2024, continuing a downward trend from the previous year. This decline reflects an increasingly uncertain global economic environment, marked by persistent inflation, high interest rates, and geopolitical risks reshaping investor ambitions.
Sharp decline in investments
The 2024 figures are alarming. By the end of the third quarter, only 1.9 billion USD had been invested, marking a 53 % drop from the same period in 2023. This amount is also well below the five-year average of 4.2 billion USD, signaling the worst start to a year for private capital in Africa in five years.
While the total number of transactions remains relatively stable, with 287 deals compared to 324 in 2023, the investment value has notably decreased. One of the most visible signs of this trend is the decline in large transactions, which are increasingly giving way to smaller, lower-risk operations.
West and East Africa : Hardest hit
The impact of this private capital crisis varies significantly by region. In West Africa, investment volume dropped by 30 % year-on-year, with Nigeria long a regional leader in venture capital experiencing a sharp 44 % reduction. Inflation and the depreciation of the naira have disrupted Nigeria’s macroeconomic environment, deterring investors and stalling transactions. East and Southern Africa have also seen notable declines in financing values, although some areas have managed to maintain a relatively stable transaction volume.
Increase in smaller transactions
The drastic reduction in transactions over 250 million USD is striking, with no such large deals recorded in 2024. Conversely, investments below 50 million USD now account for the majority of the sector’s activity, comprising 66 % of all deals. This shift, evidenced by an increase in smaller transactions, reflects investors’ heightened risk aversion amid an uncertain economic climate.
Venture capital faces mounting pressure
Venture capital, a key driver of innovation in Africa, is no exception to this trend, with the sector experiencing a 21 % decline in transaction numbers and a 49 % drop in investment value compared to 2023. However, venture funding still represents around 62 % of private capital activity by volume and 52 % by value across the continent.
African startups, often catalysts of innovation, are especially impacted by this contraction. Faced with an increasingly challenging economic environment, these companies are adopting more conservative strategies, limiting expansion initiatives, and focusing on optimizing existing operations instead of pursuing rapid growth.
Private equity : Modest resilience
The private equity segment shows a mixed trend. While transaction numbers increased by 28 % compared to 2023, this growth did not translate into a significant rise in total investment value, which stands at 400 million USD a 66 % decline from 2023. Small-scale transactions, particularly those below 10 million USD, remain relatively stable, showing a slight increase with total values ranging between 35 million USD and 55 million USD.
Private debt : Growing sector
Among the various asset classes, private debt stands out for its positive momentum, with investments rising by 14 % in 2024. This increase is driven by investors seeking safer, more flexible options amid economic and financial volatility. African lending institutions, facing liquidity challenges, are finding private debt to be an essential funding source to sustain their activities. Consequently, private debt has emerged as a refuge for those seeking more stable, lower-risk returns.
Despite this decline in private capital, Africa retains long-term growth potential and appeals to investors. However, global economic uncertainty weighs heavily on the outlook. According to Fitch, a rise in non-performing loans may be on the horizon. Additionally, African banks, already under solvency pressures, will need to bolster their capital to navigate upcoming economic challenges. Some initiatives, such as increased capital requirements in Nigeria, aim to strengthen the banking sector’s stability, but these measures may not be enough to reverse the trend in the short term.
