African private capital investment drops in 2023 amid economic challenges
The African Private Equity and Venture Capital Association (AVCA) has reported that Private capital investment in African markets experienced a significant decline in 2023, falling by a fifth to $5.9 billion.
This drop-off was primarily led by a decrease in venture capital deals, as the continent grappled with economic challenges such as high inflation and rising interest rates, according to a report released by the association.
The report highlighted a decrease in venture capital transactions from 627 in the previous year to 450 in 2023, marking “the sharpest decline in investment volume since 2012.”
Venture funding in Africa totalled $2.2 billion in 2023, while private equity dealmaking reached just $1.6 billion. The decline in venture capital activity shook up the entire industry, with the continent experiencing its first decline in private capital investments since 2016. Despite signs of improvement in the second half of the year, the overall slowdown in private capital investment was largely attributed to the sharp decline in venture capital, which plummeted by 34% year-over-year.
“The year experienced a sharp decrease in deal count, which plummeted by 28%, marking the continent's steepest year-over-year decline in volume in 12 years, as well as a 22% drop in deal values. The significant year-over-year downturn in Africa was driven by a slump in venture capital investments,” the report indicated.
Despite this setback, venture capital retained its dominance as Africa’s leading asset class, contributing 68% to the total investment volume in 2023. This marked the fourth consecutive year that venture capital led investment volumes in Africa since 2020.
However, amidst these challenges, highly volatile market conditions posed significant hurdles and implications for dealmaking worldwide, impacting the trajectory of private investments. Globally, 2023 witnessed a downturn in private capital investment activity, with a 35% decrease in deal volume and a 22% decline in deal value. North America suffered the largest year-over-year drop in deal volume, declining by 44%.
Africa experienced its steepest year-over-year decline in volume in 12 years, with a sharp decrease in deal count by 28% and a 22% drop in deal values.
“Latin America recorded the second-largest decrease in volume (28%) and the largest decline in value (38%), pointing to the distinct challenges faced by emerging markets under these macroeconomic conditions,” the report adds.
