By Tapiwa Shamu; Principal – Corporate Finance: Nedbank CIB.
M&A activity in sub-Saharan Africa reached multi-year lows in 2017, declining by close to 50% over the course of the year as political uncertainty reached a peak in SA, through which a large proportion of the entire region’s inbound M&A deal activity flows.
While the slowdown was the obvious response to rising investor risk aversion, the drop in actual transactions didn’t necessarily represent a strong decline in interest in the region by prospective investors, most of who continued to keep one eye on prospects in Africa. This continuing interest became abundantly clear when, on the back of the ANC’s appointment of Cyril Ramaphosa as party president, and later leader of the country, international ‘buyers’ quickly began lining up to initiate deals across a broad spectrum of sectors, even those that are highly regulated like telecoms, energy and agriculture, and even the beleaguered mining sector.
Talk of the possible revisiting of the mining charter, coupled with the new president’s stated commitment to stamping out corruption, creating jobs and reshuffling the cabinet created a sense of national euphoria in the country that quickly overflowed into global markets as it translated into a stronger currency and far more buoyant economic prospects.
Against this backdrop, global interest in, and activity around, M&A deals in SA and into Africa increased fairly significantly in the first few months of 2018.
Unfortunately, though, the Ramaphosa honeymoon period proved shortlived, and the surge in market optimism quickly gave way, once again, to uncertainty – albeit of a slightly less pessimistic variety than had been the case under the country’s previous leadership.
The beginning of the second quarter of the year hasn’t brought many significant improvements to this situation, and most of the hoped-for M&A deals remain stuck at conceptual stage. However, while there may not be any significant increase in deal activity, the silver lining is most certainly the fact that very few, if any, of the prospective investors have run for the hills, and there are still many who recognise the massive potential for successful M&A activity on this continent.
Perhaps the recent signing of the long-awaited renewable energy contracts will open the M&A inflow taps, at least slightly, in that sector. If nothing else, this positive step should serve as a reliable litmus test of what could transpire in terms of investment into SA if national government acts decisively to address the uncertainty that continues to hamstring so many of the country’s industries and sectors.
Ultimately, in this regard, the ball remains firmly in government’s court. But there can be little doubt that, if our new president and his cabinet act quickly to demonstrate a real commitment towards creating policy and regulatory certainty, global M&A investment inflows will follow. And despite the fact that any resulting M&A growth might occur off a very low base, these inflows will undoubtedly help put the country firmly back on the road to economic recovery.
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