Middle East and Africa Private Equity Market- Growth, Trends, and Forecasts (2022 - 2027)

Private equity fund (PE Fund) investments in promoting private sector development in emerging markets were challenged by the COVID-19 pandemic. Around 88 percent private equity, deal-making activity in the Middle East and Africa (MEA) decreased in the second half of 2020.

The Middle East and North Africa (MENA) is a region that has long been in the sights of the international private equity community. As an emerging market, it offers superior economic growth rates and, there is now a demand amongst companies in the region for investment and expansion. National governments are rapidly becoming aware of the economic benefits private equity can bring, not just as providers of capital but also as importers of good business practices. Geographically situated at the heart of some of the world's most important trade routes, the countries comprising the MENA region are culturally, politically, and economically diverse.

Investing in the Middle East and Africa presents both familiar and unfamiliar challenges. In addition to the familiar issues around assessing financial performance and prospects, structuring to optimize tax treatment, ensuring appropriate levels of control and facilitating an exit, there are also a number of additional, unfamiliar issues to be considered. Bilateral investment treaties (BIT) may be available to protect investments against expropriation without adequate compensation. There are over 2,200 investment treaties in force, and they can provide for international arbitration of treaty claims as an alternative to local courts. Traditionally most private equity investments in Africa have involved minority investments in young and emerging companies, as opposed to majority investments or in mature businesses. Minority investments naturally give rise to their own challenges, particularly in relation to control issues (or rather the lack of control) and difficulty of exit.

Key Market Trends

Increase in Capital Deployment in Africa

The African PE industry has become increasingly complex and diverse, with the arrival of global institutional investors in recent years paving the way for some of the world's largest firms to enter the market. While deal volumes have maintained an upward trend, their value has gradually decreased, suggesting growing investor interest but smaller deal sizes. Moreover, in addition to consumer-driven industries, PE fund managers have diversified their strategies to invest across a variety of sectors such as IT, renewable energy, infrastructure and real estate.

The continent's growing consumer class played a crucial role in driving much of this change, as did government efforts to move beyond commodity-based growth. This encouraged greater private sector participation and fostered expansion in a wide range of industries. Africa is among the most talked about parts of the world for private equity firms looking to invest in emerging markets. Despite the challenges to investing in the various regions within Africa, many economic indicators are pointing in the right direction and some traditional market barriers are being broken down.

New Opportunities and High Returns on Capital in Middle East

Domestic opportunities are one of the major focuses of the Middle East's growing private equity sector - as well as the increasing return or retention of capital within the region. Capital generated from the higher oil prices and economic growth within the region stays within the region rather than going abroad. That will result in more liquidity.

The Middle East has always been a very significant investor in the asset class and has been a huge source of capital for GPs in Europe, North America, and to a lesser extent, Asia. A lot of investment is really driven by the attractiveness of potential returns as certain markets open. The US and Europe are very mature in terms of private equity, their pricing is getting competitive. Asia and the Middle East probably still offer opportunities where there is good pricing potential, information asymmetry, you can get involved in potential transactions very early on and find exclusivity.

Competitive Landscape

Middle East and Africa Private Equity Market is competitive, with the presence of both international and domestic players. The market studied presents opportunities for growth during the period, which is expected to further drive the market competition. With multiple players holding significant shares, the market studied is competitive.

Additional Benefits:

• The market estimate (ME) sheet in Excel format
• 3 months of analyst support