Navigating Exits in African Markets: Insights on Liquidity, Valuation, and Structure (AFSIC 2024 Panel Discussion)
Africa’s investment landscape is evolving, with exits from investments currently posing a significant challenges, especially in terms of liquidity, valuation, and market structure. At the recently concluded AFSIC 2024 conference in London, panellists, moderated by Abi Ajayi – Head of Primary Markets, Middle East and Africa at the London stock Exchange – addressed these critical aspects, sharing insights into how investors can better prepare for and execute successful exits while advancing financial inclusion across the continent.
One of the prominent themes discussed was the need for a robust exit strategy tailored to African markets. Verdant Capital’s Managing Director, Edmund Higenbottam, underscored the importance of planning for multiple exit scenarios, stating, “Before you invest in a business, you need a very, very clear plan as to how you’re going to exit.” He highlighted that Africa’s unique market complexities, including fluctuating currencies, economic conditions, and liquidity challenges, require more than a one-size-fits-all approach to exits. This flexible planning approach ensures that investors can adapt to changes in the market, a vital strategy for those looking to commit capital to African assets.
Valuation also emerged as a significant topic. Higenbottam pointed out that “valuation is the inverse of cost of capital,” underlining the need for realistic, local-market-aligned valuations. Historically, investments made in Africa during the early 2010s reflected overly optimistic valuations, largely influenced by the “Africa Rising” narrative. As he explained, African markets often involve distinct cost structures and currency risks, which can lengthen the timeline to exit and affect overall returns.
The panel further explored the role of governance and structure in facilitating smoother exits. Yara El Abd, a fintech founder and Group Head of Investments at Valu (a leading fintech platform in the MENA region), emphasized the importance of establishing “the right corporate governance and financial management in place early on.” Her insights resonated with the broader theme that well-founded legal, tax, and governance structures not only bolster business sustainability but also enhance the credibility of African markets. As African economies mature, having robust governance structures in businesses becomes crucial in attracting capital and creating viable pathways to exit, ultimately advancing financial inclusion and investor confidence.
Mike Mompi, the Co-Founder and Managing Partner of Enza Capital, contributed by discussing the limited liquidity within the African investment ecosystem, especially for venture-backed firms. He pointed out that while venture investments in Africa have exceeded USD 10 billion, much of this capital remains stranded without clear exit paths, underscoring the need for African entrepreneurs to demonstrate tangible value creation. The limited number of strategic buyers, both local and international, complicates this further, necessitating a deep understanding of the local landscape and longer investment horizons.
The panel’s insights reflect the commitment of Verdant Capital and other stakeholders to confront Africa’s market challenges head-on, creating a more robust ecosystem for sustainable investment. Through forward-looking strategies grounded in local market realities, Africa’s markets stand poised to balance investor expectations with the continent’s unique dynamics, driving inclusive growth across the region.
Source:
1. AFSIC – Investing in Africa 2024 | AFSIC: https://connect.afsic.net/event/afsic-investing-in-africa-2024