Seeds of Opportunity: The African Growth Series
February 2022 | Issue 1
In this week's issue, you will learn more about:
- South Africa's Private Equity Market
- Smartphone Application Trends in Africa (2022)
- Part One: Trends in Africa's Fintech Market (2022)
- Energy Efficiency in Africa within the Fish industry
The South African Private Equity Market
Oversubscribed or Incorrectly Applied?
South Africa is generally regarded as the most industrialised economy in Sub-Saharan Africa. The country has a strong financial backbone and a mature investment environment. This has however translated to high levels of competition in the private equity markets often leading to oversubscribed deals and inflated prices for local assets. This obviously makes it difficult to achieve high yielding results.
So what is the solution? How do (or should) Private Equity and industry investors bridge this challenge or should South Africa simply be ignored? Frost & Sullivan Africa has had the privilege of being involved in a number of innovative approaches to the challenge through our due diligence work from targeting mid-cap to consortium-based deal origination approaches.
One approach we’ve found very interesting (and bold) – leveraging Africa’s strengths and plugging its weaknesses by taking a regional approach from the outset. South Africa may (typically) not be able to deliver strong growth, but it can deliver stable assets with the right level of scale and skills pool. The rest of SSA typically poses great opportunities for growth, but the base is often low and the skill shortage a challenge. When an industry is evaluated or a specific investment is uncovered, the regional opportunities should be considered from the outset and an anchor investment prioritised from which to drive further expansions or acquisitions.
The portfolio expansion approach has been leveraged by the Private Equity industry for years when moving from South Africa into the rest of Africa. This utilises the industry and technical expertise of the acquired company to drive an acquisition strategy into Africa and hence lowering the commercial risk of increasing the Africa exposure proportion. The above model is essentially an expansion of that model with a more structured, pro-active approach to the ‘growth design’ of the investment portfolio.
Hendrik Malan
Trends in Africa's smartphone applications, 2022
By 2025, sub-Saharan Africa will have 615 million people subscribed to mobile services. This is equivalent to half of the region’s population. In 2021 the mobile phone industry continued to show promise as the industry remained resilient during the pandemic and experienced accelerated growth. The impact of digital solutions in the region has been instrumental in providing support for communities and businesses, boosting the transition into a mobile - first approach to tackle most of the daily challenges. The application of fintech has therefore continued to dominate the region as a result of the growing mobile phone industry. As the fintech industry continues the grow, new innovations will continue to promote the importance of mobile apps. Accordingly, Africa is likely to see increased investments into mobile applications, growth in mobile commerce which will drive brand loyalty and customer experiences as well as fintech and social super apps that will most likely become more common.
Part One: Trends in Africa's Fintech Market, 2022
Fintech's future looks promising with 96% of global consumers being aware of at least one fintech service or company and large investments flowing into Africa's market. This post is part one of two and will elaborate on half of the fintech trends for 2022.
Environmental focus
The 2021 United Nations Climate Change Conference's (COP26) post-Covid theme is “building back better” which focuses on environmental, social, and governance (ESG) practices. This opens opportunities for the fintech space, such as parametric insurance. This insurance is based on smart contracts that pay out automatically when an insured event occurs thereby reducing the lead time of the claims process. Swift responses like this can positively impact the environment; e.g. if there was a fire and the sensors picked it up, the parametric insurance policy would notify authorities and payout instantly. Fire-fighters can arrive sooner thereby reducing the impact of the fire on the surroundings.
Neo-banking
South Africans have grown used to digital banking and neobanks, such as Bettr Finance and Discovery Bank, have focused on offering a good user experience. This focus on the user has developed to niche mobile banks such as Nigeria's Kuda focusing on its unbanked population.
The Internet of Things
The Internet of Things (IoT) is a network of physical objects, sensors, and devices that collect data and automatically share that with other devices over the internet. South African insurance companies have offered those telematics programs to customers who willingly engage with them. This technology can instigate all sorts of new services and businesses in 2022.
Increasing Mobile Network Operator participation
Mobile network operators (MNOs) such as Vodacom has aggressively promoted its Vodapay service. MTN noted that its Mobile Money (MoMo) had increased fintech revenue in 2021's first half by 39.7%. Mobile money may grow in popularity across Africa, but South Africa's competitive banking sector will make its adoption difficult. Nigeria's MTN has obtained a mobile money license which gives MNO's a chance to grab market share from Africa's overall payments segment.
Energy Efficiency in Africa: Fish Industry
The acknowledgment of a need to incorporate energy efficiency and sustainability in the different economic activities in some sub-Saharan African countries is something to celebrate. In East Africa, some positive developments in light of this are within the fish industry; which is generally the biggest staple protein source in much of Africa. In 2021, the Kenyan government funded an establishment for a ~$2,1 million (sh239 million) green energy-focused fish market in Nakuru County. This smart solar-powered fish market will incorporate digitisation, e-waste management, e-mobility solutions for electric motorcycles (i.e. charging ports), and solar-powered cold rooms. Within the private sector in Rwanda, FoodTechAfrica Rwanda is developing a solar energy-powered fish farm through a private-public partnership agreement. Similar to Kenya, this project has several economic growth and job creation opportunities to be celebrated. Moreover, both projects demonstrate the potential that Africa is tapping into with regards to becoming energy efficient in economic activities.
To find out more about opportunities in Africa, please contact Lynne Martin.
Lynne Martin
Rebecca Mabika
To find out more about opportunities in Africa, please contact Lynne Martin.
Lynne Martin
Rebecca Mabika