Private capital investments in Africa, which include venture capital, fell by 23% to $5 billion in 2023, a drop from $6.5 billion a year earlier says a new report by the European Investments Bank.
The bank, in its latest annual Finance in Africa report, highlights significant declines in private equity and venture capital investments, the two main asset classes in private capital. These fell by 39% and 59%, reaching $1.24 billion and $1.14 billion respectively compared to 2022 levels.
The report, titled Unlocking Investments in an Era of Digital Transformation and Climate Transition (2024), states that private credit, which had surged in 2022, dropped by 70% to $330 million.
However, infrastructure spending saw a significant rise, nearly quadrupling to $2.18 billion in 2023 from $550 million in 2022. This boost helped Africa experience a more moderate decline in overall capital investment compared to other regions.
Renewable energy emerged as the sector receiving the largest share of private capital investment, surpassing the financial industry, which had been the leading recipient of investment in 2022.
The renewables sector represented 37% of total investment in 2023, while financial services received 10% of the overall investment. This significant rise in investment for the renewable energy sector effectively reversed the distribution seen in 2022, when the financial sector received 37% of total investment.
“This volatility in industry share is partly related to the markets being relatively small. However, industry shares have been steadier in other sectors, including consumer goods and services, industrials, and information technology, with each typically receiving 10-13 percent of the total private investment annually,” the report says.
One of the largest declines in private investment in 2023 was observed in the conventional energy sector, which only received 4% of total funding, highlighting the growing preference for renewable energy.
Private capital investments have become more concentrated within specific countries, with South Africa representing half of all African investments in 2023.
South Africa accounted for 47 percent of Africa’s private investment, with its dominance attributed to increased investment in larger, more liquid markets during challenging financial conditions.
- Kenya ranks as the second largest country market for investment (11 percent), followed by
- Côte d’Ivoire (7 percent), and
- Morocco (6 percent)
With the exception of Morocco, most large African economies saw their share of capital investment decline in 2023 compared to the previous two years.
Nigeria, which held the largest share of investment in 2021 with 20 percent, saw a significant drop to 6 percent in 2023 due to a slowdown in venture capital funding for the financial technology (fintech) sector.
The report indicates that exit values for private capital investments fell by 39 percent, dropping to $4.6 billion in 2023 from $7.5 billion in 2022, though the value of exits remained strong by historical standards. Exit value refers to the return from an investment or asset upon its sale.
Despite tight financial conditions in 2023, private capital funds achieved high returns on exited assets compared to the historical average.
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