Seeds of Opportunity: The African Growth Series
March 2023 | Issue 2
In this week's issue, you will learn more about:
- AFRICA OPPORTUNITY: Private Equity – Africa’s Lifeblood of Project Success
- AFRICA TREND: Investment in Africa in 2022
- AFRICA OPPORTUNITY: Video-on-Demand
- AFRICA OPPORTUNITY: Second-Generation Biofuels
- AFRICA TREND: Investment Think Tank Points to a Promising 2023
- AFRICA OPPORTUNITY: Artificial Intelligence in African Healthcare
- AFRICA OPPORTUNITY: Hydrogen Discussion at the African Energy Indaba
AFRICA OPPORTUNITY: Private Equity – Africa’s Lifeblood of Project Success
Investing in Africa's private equity market is one of the most promising opportunities. In a recent think tank hosted by Frost & Sullivan Africa about Investment Trends in Africa, Research Director Craig Parker explained that private equity is the lifeblood of project success. The more private equity invested in a deal, the greater the chance of financial closure. This is due to robust due diligence, feasibility studies, and commitment from the private sector.
Private equity investments in Africa have increased in the past couple of years. From 2021 to 2022, there was a staggering increase from USD 4.4 billion to USD 7.5 billion. Africa previously averaged around USD 2.5 - 3 billion in private equity deals. The size of deals has also been increasing, with the number of deals between USD 150-250 million doubling in 2022 compared to the previous year.
Africa presents a tremendous opportunity for private equity investors to capitalise on the growing market and achieve significant returns, as well as contribute to developing a fast-growing continent with abundant natural resources, a youthful population, and untapped potential.
Discover the recording of the think tank, which also features two titans of industry: Hendrik Malan, the CEO of Frost & Sullivan Africa, and Dr. Hubert Danso, CEO and Chairman of Africa Investor. Delve into their expert insights by accessing the recording here: https://www.brighttalk.com/webcast/5562/573395.
AFRICA TREND: Investment in Africa in 2022
Despite the macroeconomic challenges the world has experienced in the last year (the slow economic rebound after the COVID-19 pandemic and the invasion of Ukraine), “Africa has remained quite resilient when compared to other regions, specifically with regards to investments”, as said by Frost & Sullivan’s Africa Research Director and Lead Economist, Craig Parker. The African investment landscape underwent significant positive growth, as the region recorded growth in its deal-making and private capital environment despite the economic volatility of 2022. Accordingly, the share of private capital deals by volume year in 2022 indicated that Venture Capital deals were the leading investor platforms, closely followed by private equity deals.
On the 16th of February, Frost & Sullivan Africa hosted a Think Tank that focused on four leading investment platforms coming into the region and the dynamics thereof. These included y Venture Capital (VCs), Private Equity (PE), Foreign Direct Investment (FDI), and infrastructure investment. The Think Tank that can be viewed here (Think Tank) provided a multi-faceted view of the region's investment landscape and associated trends.
AFRICA OPPORTUNITY: Video-on-Demand
Africa’s youthful population, growing middle class and rising internet connectivity offer a growth opportunity for streaming services. The continent’s video-on-demand subscriptions will almost triple from 4.89 million at the end of 2021 to 13.7 million in 2027. This growth drives the revenues to almost double from US$2.1 million in 2022 to US$3.97 billion in 2027. Netflix and YouTube hold nearly half the market at 48%, but these global players are confronted with the first signs of market saturation. The international offerings aren’t as attractive to Africans since people prefer consuming local content. Hence, African streaming services such as the Wi-flix startup in Ghana, Kenya, and Nigeria grew from 300 thousand to over 1 million paid subscribers in 2021 alone. More established providers, such as iROKOtv and GloTV in Nigeria and Showmax in South Africa, remain popular. These companies can offer large amounts of locally made content alongside high-end international offerings.
AFRICA OPPORTUNITY: Second-Generation Biofuels
There is a growing demand for biofuel, with the global market projected to amount to US 201.2 billion by 2030. Africa has been eyed as a key player in this industry, with biofuel production set to reach 4.7 million metric tonnes of oil equivalent by 2030. However, biofuel production commonly requires using food crops, such as sugarcane and sorghum. In Africa, an estimated 346 million people face acute food insecurity, making the production of first-generation biofuels untenable. One option is the production of second-generation biofuels (made with non-food crops). The second-generation biofuel market size is valued at USD 5.5. billion in 2020, has been projected to reach USD 54.8 billion by 2030, growing at a compound annual growth rate of 26.4% between 2021-2030. Second-generation biofuel production is clearly indicated in Ethiopia, where biomass (obtained from charcoal, crop residue, and animal substrate) accounts for up to 89% of the country’s energy supply. In 2022, Ethiopia officially began exporting energy to neighbouring countries, such as Kenya, earning the country over USD 95 million. Ethiopia produces a surplus of 141.8 million metric tonnes of biomass availability per annum, indicating a significant energy potential.
AFRICA TREND: Investment Think Tank Points to a Promising 2023
Mobilising and deploying private capital at scale and speed are the terms loudly echoed in much of Africa's investment industry. A look at figures from the two years gives a positive impression of some shifts towards achieving this, yet much is still required. In the recent African Investment Think Tank hosted by Frost & Sullivan Africa, speakers Craig Parker, Hendrik Malan and Dr. Hubert Danso highlight the path thus far, looking at four key categories, FDIs, Private Equity, VCs and Infrastructure Investment. 2021 rose as the golden year everyone hoped for on the business and investment front after the slump caused by Covid-19. VC took the lead with a record high of $US5.3 Billion. Yet, as per Hendrik's statement, this cannot be used as the benchmark, with the drop in deal activity in the latter half of 2022 attesting to this. However, 2021 and 2022 collectively indicate an increasing appetite and confidence for Africa's innovation. Early-stage investment deals dominated, centred around Egypt, Nigeria, South Africa and Kenya. As the African economy is still dominated by small, medium and micro enterprises, the early-stage funding growth can help accelerate this critical sector's development. For a deep dive into how we can expect these four investment platforms to flare in 2023, using insights from the past three years, you can access the Think Tank recording at https://www.brighttalk.com/webcast/5562/573395.
To take hold of opportunities in Africa, please contact Lynne Martin at lynne.martin@frost.com
AFRICA OPPORTUNITY: Artificial Intelligence in African Healthcare
The applications of artificial intelligence (AI) in healthcare are numerous. In addition to enabling remote medicine, AI technologies can optimise healthcare administration, enhance medical research and improve the accuracy of diagnoses. AI-powered healthcare solutions could save an estimated USD150 billion in healthcare expenses by 2026 and generate USD900 billion in revenue by 2030.
Although the total number of African AI healthcare startups amounted to less than 30 in 2021, the nascent market is growing. As the adoption of AI in healthcare increases, Africans are also harnessing the technology to develop their healthcare solutions – with great success. South Africa’s Envisionit Deep AI has secured USD 1.6 million in funding as of 2023 to expand its AI-powered medical imaging technologies. Another success story is Viebeg Technologies, founded in Rwanda in 2018. The health technology company harnesses AI to optimise medical supply chains. Following expansions into Burundi, Kenya, and the Democratic Republic of the Congo, the company projected an annual revenue of USD 2.5 million by the end of 2022.
The global market for AI in healthcare is estimated to reach USD188 billion by 2030, and African health technology companies are well-positioned to contribute to this growth.
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AFRICA OPPORTUNITY: Hydrogen Discussion at the African Energy Indaba
The Africa Energy Indaba conference starts today at the CTICC in Cape Town. Given South Africa's current electricity state and sub-Saharan Africa's overall poor electrification rate, some crucial topics will be discussed during the three-day conference. One of the topics discussed will be the role of hydrogen in the African energy value chain, specifically, how green and low-carbon hydrogen can help boost the economies of hydrogen-producing countries. Green and low-carbon hydrogen have long been hailed as one of the key solutions to the global energy crisis and its role as a critical enabler of the energy transition toward renewable energy generation. Given its massive renewable energy potential, Africa is ideally positioned to produce vast volumes of low-cost, low-carbon hydrogen and associated products. African governments need to realise the potential of low-carbon hydrogen now and put conducive policies in place, such as key hydrogen roadmaps, to strengthen investor confidence, which is now needed more than ever.
To find out more about opportunities in Africa, please get in touch with Lynne Martin.
