AVCA: Currency, Commodity Price Volatility Most Important Macro Factors

Nosa Alekhuogie

A report by the African Private Equity and Venture Capital Association (AVCA) has revealed that 63 per cent of fund managers in Africa view currency and commodity price volatility as having been the most important macro factors in the continent.

However, 45 per cent consider geopolitical risk to be the biggest macro risk over the next three years. The inaugural edition of the AVCA special research reports titled: “Volatility and uncertainty: How private equity in Africa navigates through turbulent times,” explores how the African private equity (PE) industry remains resilient amidst currency volatility and unpredictable political environments.

The report examined the strategies adopted by fund managers active on the continent to address the risks and take advantage of the opportunities involved, despite the hurdles presented by challenging macroeconomic conditions.
“As a result, two thirds of fund managers will factor in political risk management when constructing their portfolios, combining diversification and the avoidance of risky locations to mitigate potential challenges. This is in the context of relatively low fund mangers’ interest in purchasing political risk insurance,”it stated.
The AVCA’s research also highlighted that currency volatility can be addressed by investing in market-leaders in resilient sectors, such as Consumer Staples and Healthcare, and adopting expansionary strategies.
It added: “These tactics contribute to the industry’s overall health and growing reputation as robust even when faced with sustained headwinds.”

By showcasing case studies that illustrate the various ways in which fund managers have planned for and reacted to currency volatility in Africa, the report further demonstrates that foreign exchange volatility can be weathered by focusing on the quality of business operations, expanding revenue streams, passing increased costs on to consumers, and reducing the need for hard currency by sourcing inputs locally.

Commenting on the new research report, Founder, Adenia Partners, and Member of the AVCA Board, Antoine Delaporte said: “ We are delighted to provide crucial insights at a time when the private equity industry continues to prove its adaptability in the face of sometimes challenging conditions. No doubt, Africa is on a long-term upward trajectory in its development of business environments that are more favourable to investment. It is important for us to highlight the opportunities present in the current environment and showcase strategies that produce outsize returns for investors while delivering significant impact.”

Head of Research at AVCA, Enitan Obasanjo-Adeleye said: “By launching this new research initiative, we hope to provide further enlightenment on investing in Africa and ultimately encourage greater capital inflow to the continent. The report sets out AVCA’s stall for the next 12 months, which are set to be an exciting time for the Association. As we work to strengthen and diversify our membership, this research reinforces the extent of AVCA’s ambition to facilitate greater private investment in Africa. We look forward to developing new ways to deliver exceptional value to our members and the wider investment community.”