AfricInvest Fund IV

Direct: Providing primarily growth capital and value add to 8 to 12 mid-cap businesses resulting in business growth, improved productivity and employment creation.

Catalysing markets: Our countercyclical commitment will improve the fund manager’s chances of weathering the COVID-19 crisis and sustaining an important channel for equity investment across some of the largest economies in sub-Saharan Africa (beyond South Africa) post crisis to support businesses to recover. If the fund succeeds at generating returns that are attractive to commercial investors, it can position the fund manager to mobilise additional capital in the medium-long term. Success will be signaled by growth of investees (short term). In the medium term we would expect to see attractive commercial returns and as markets recover from the COVID-19 crisis, the raise of a larger fund with increased commercial investor presence.

Pan Africa – primarily East Africa (c. 45 per cent), but also West Africa (c. 22 per cent), Southern Africa (c. 18 per cent), and North Africa (c. 15 per cent).

Variable. Likely to be low and medium-skilled employees in sectors such as manufacturing and retail, and higher-skilled in financial services and healthcare.

• Direct impact: Previous funds had an average (median) job creation growth rate of 7 – 8 per cent. If this performance is delivered in Fund IV, we can expect c. 2,500 jobs over the life of the fund.
• Market impact: A resilient (in the short run) and larger (in the long run) private equity market can support private sector growth and ultimately deliver economic opportunities at scale.

• Depth: Workforce training is one of the six verticals of Africinvest’s value-add strategy. Previous AFII and AFIII’s investees delivered upskilling and training programmes to c. 1,800 employees each year, which can result in deeper impact. No track record data available on improved incomes of employees.
• Duration: Direct impact will materialise post COVID-19. It will take five to ten years and repeat success for the catalytic impact to materialise.

• Financial additionality: As anchor investor, our commitment will help the fund reach a viable fund size at first close. Other investors in this fund are still largely DFIs (approximately 10).
• Value additionality: Alongside other DFIs invested in the fund, we can help the manager adapt its environmental, social and governance processes as the platform scales-up, sustaining responsible management of investments and reducing negative impact risks. We will also continue to help shaping the platform into a more streamlined and attractive asset for commercial investors.
• Mobilisation: We can help mobilise through signalling effect, helping reach target fund size

2.0-2.2

Market context: The fund will invest in relatively more sophisticated African private equity markets, yet in the context of significantly reduced supply of capital expected across the board, including for mid and large-cap companies.

Alignment Risk

• Relates to the probability that, given the expanded geographical mandate into North Africa, the fund will have significant exposure to category ‘C’ and ‘D’ countries. This risk is partially mitigated by country caps set at 35 per cent of committed capital and will be monitored through standard monitoring process.

External Risk

• Relates to probability that regardless of the fund’s financial performance, commercial investors will remain averse to investing in the African private equity market due to high perceived market risk or macro-economic dynamics. This risk is inherent in supporting these markets and has to be tolerated.