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African private equity funds may struggle to reach target size, says CDC’s Evison

African private equity funds are set to struggle with fundraising in 2009 as investors have withdrawn from the market, according to Rod Evison, managing director for Africa at CDC, the

African private equity funds are set to struggle with fundraising in 2009 as investors have withdrawn from the market, according to Rod Evison, managing director for Africa at CDC, the UK government-backed private equity emerging markets fund of funds manager.

African countries such as South Africa and Nigeria have escaped the direct effects of the financial crisis. African banks have low exposure to international business and did not require the same recapitalisation as their counterparts elsewhere.

However, the secondary effects of the crisis, such as falling commodity prices, may result in declining economic activity in 2009.

Private equity fundraising for African funds was active in 2008, but funds that started raising money in the second half of 2008 are likely to struggle to reach their target size as a result of the current withdrawal of most international investors from the market, Evison says.

He notes that South Africa’s economically vital mining sector is suffering from the sharp decline in commodity prices. Gross domestic product growth in South Africa in 2009 is likely to be between two and three per cent, well below the five per cent level that enjoyed in 2007.

Continued expenditure on infrastructure will help to keep the growth rate above two per cent, but overall private equity activity is becoming more subdued.

In Nigeria, Evison says, growth in 2009 will remain around the six per cent level achieved recently. The oil sector had a better year, but conditions were tough for the non-oil sector in 2008.

This was illustrated by the performance of the stock market, which, by the end of 2008, after an initial continuation of bull conditions, returned to its early 2007 level. This has caused some short-term difficulties for the private equity industry, but many firms will be able to take advantage of a correction in valuations.

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