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International equity surge into sub-Saharan Africa set to continue - new report

Written by Judith Tyson

​The rapid growth in international private equity in sub-Saharan Africa is set to continue with up to $20 billion flowing into the region annually, a new report by UK think-tank the Overseas Development Institute has found.  

But governments need to put in place stronger policies to manage the risks of financial instability in global emerging markets, it warns.
The report, called "Sub-Saharan Africa and international equity", found more than $50bn has surged into the region since 2010.

Report author Judith Tyson, research fellow at the Overseas Development Institute said: “Private capital flowing into the region offer an unprecedented opportunity to accelerate economic development and poverty alleviation – in particular through creating jobs – but policy needs to tackle threats to financial stability.”

Private equity has been willing to put funds into countries where financing is difficult, as well as key development sectors. These include infrastructure, financial services and consumer markets.

However, a lack of suitable companies for investment had led to an "overhang" of $4 billion of unused capital and asset price inflation.
Dr Tyson said private equity funds were responding by moving into higher risk countries, such as Rwanda, Burundi, Cameroon and Sierra Leone and developing new business models.

The influx of capital from mutual funds has also increased the risk of volatility in the region's stock markets, the report has found.
Frontier market mutual funds have been hit with losses in 2014 and 2015, after investing more than $16 billion in the region's stock markets since 2010.

Lessons should be learnt from elsewhere, the report suggests. Capital controls have been used to protect economies such as Malaysia during the Asia financial crisis in the 1990s, as well as Spain, Indonesia, Brazil, Hong Kong and Korea during the 2007-2008 global financial crisis.
Dr Tyson said: "Sub-Saharan African countries can and should protect their economies through capital controls.

"Nigeria has already implemented limited capital controls as part of their defence of the Nigerian currency which is down by 15% against the dollar in the past year."

In the medium term, the report recommends greater policy effort is needed to grow small family firms into investable medium-sized businesses suitable for private equity funds and to assist with the growth of industrial clusters.

Notes to editors

To request a copy of the report or to interview the author Judith Tyson please contact James Rush on 07808 791265 or email [email protected]