Various factors, including risk aversion, currency volatility and regulatory delays have led to a decline in cross-border deal activity in sub-Saharan Africa.

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Risk aversion suffocates sub-Sahara Africa deal flow

By Hasnen Varawalla, co-Head Banking at Absa Corporate and Investment Bank


The pace of deal flow and cross-border Mergers and Acquisition (M&A) activity in sub-Sahara Africa declined in 2018 as compared with the previous year mainly as a result of economic, political and regulatory uncertainty according to co-Head Banking at Absa Corporate and Investment Bank, Hasnen Varawalla.

Varawalla says currency volatility and regulatory delays have also contributed to a slowdown in deal activity. Other factors include a growing “risk off” sentiment adopted by international investors who have been reducing their exposure to emerging markets, particularly across the past three years.

In Nigeria and South Africa, the region’s largest and second largest economies respectively, general elections scheduled for 2019 could further shape investor views as they wait tentatively for the overall outcomes as well as the resultant impact of any proposed economic policy changes which may follow.

“We have noticed a slowdown in deal activity in sub-Saharan Africa especially when compared to the last few years,” he says.

In Nigeria and South Africa, the region’s largest and second largest economies respectively, general elections scheduled for 2019 could further shape investor views as they wait tentatively for the overall outcomes as well as the resultant impact of any proposed economic policy changes which may follow.

The second half of 2018 was particularly challenging as the market grew to appreciate the gravity of these risks. He cites Dealogic M&A data which indicates a 47% decline in Sub-Sahara Africa M&A volumes between H1 and H2 (deal value declined 72% over the same period). Despite accounting for little over 1% of the nearly $3tr global M&A market, Sub-Sahara Africa remains a fast growing contributor to overall growth.

He points to South Africa as an example highlighting the Government’s plans to attract investment worth US$100 billion over five years, which is being impacted by slow economic growth and a volatile Rand. Although depreciation of the Rand may have made assets cheaper in hard currency terms, investors were still concerned about its volatility.

“We anticipate this uncertainty will continue perhaps until after the elections, just as in Nigeria where there has also been currency volatility and uncertainty ahead of elections next year,” says Varawalla.

Despite the slowdown, there are some countries that are showing promise resulting from positive economic reforms either promised or implemented, with the intent to attract investment and boost economic growth, he says. He lists Ethiopia, Ghana and Kenya as standout examples of countries that are attracting investor interest as a result.

Varawalla is optimistic as he touches on Ethiopia, where the government recently announced plans to invite foreign investment in sectors such as telecommunications, infrastructure, aviation and financial services. “Ethiopia has been a relatively closed economy until now and it is early days yet although there is potential,” he says.