Private equity shifts interest to Rwanda & Tanzania

In a recent confidence survey conducted by Deloitte Africa, it has been revealed that Rwanda and Tanzania are now the preferred East African destinations for private equity investors. The survey indicated a significant increase in investor appetite for new investments in Rwanda, while Tanzania is benefiting from the smooth and successful transition of the government. Gladys Makumi, Corporate Finance Leader at Deloitte East Africa, shed light on the shifting trends in private equity investments in the region during an interview with CNBC Africa. The unexpected results of the survey stemmed from the uncertainty surrounding Kenya, especially in light of the recent elections. Many investors were cautious due to the political climate in Kenya, leading to a slowdown in economic performance. This uncertainty prompted private equity players to consider alternative investment destinations. Rwanda, despite being a smaller economy, emerged as a preferred choice due to the expected smooth transition of power and the favorable business environment in the country. Additionally, Tanzania's ongoing governmental reforms positioned it as an attractive option for capital investment as investors waited to ascertain the situation in Kenya. One key point highlighted in the survey was the significant shift of 48% of investors focusing on new investments towards Rwanda. While Rwanda's smaller economy may not be able to absorb investments on a 100% basis compared to Kenya, investors are inclined towards the country due to various factors such as ease of doing business and political stability. The preference to allocate more time and effort towards identifying opportunities in Rwanda showcases the growing interest in the region. The survey also indicated that private equity firms in East Africa typically manage funds ranging from $21 million to about $200 million. With the temporary shift towards Rwanda and Tanzania, investors might face challenges in finding mid to long-term solutions for capital deployment. However, it is essential to understand that the survey is forward-looking, focusing on investment strategies for 2018. Deployment of capital will not happen instantaneously, with investments spread over several years. Tanzania, being a larger economy, may have the capacity to absorb larger deals compared to Rwanda in the long run. Gladys Makumi emphasized the strategic approach adopted by private equity firms, highlighting that capital deployment takes place over a span of years. Even with a fund size ranging from $20 million, investments are typically made over a three to five-year horizon. The decision to shift focus towards Rwanda and Tanzania for potential investments reflects the dynamic nature of the private equity landscape in East Africa and the importance of adapting to evolving market conditions. As private equity investors realign their investment strategies to navigate the changing economic and political landscape in the region, Rwanda and Tanzania stand out as promising destinations for capital deployment. The survey results signal a trend towards diversification and risk mitigation among investors, showcasing a shift towards emerging opportunities in East Africa.