Recent reports have suggested a precipitous decline in mergers and acquisitions (M&A) in Africa. In the first half of 2018, total deal volumes and values of M&A transactions declined with a 44% decrease in deal volume and a 57% decrease in aggregate value, in comparison to figures in the preceding year. In fact, M&A transactions on the continent have been on a steady decline for a few years now, as their value has dropped from $64.9 billion in 2015 to $32.4 billion in 2017.
Several theories have been posited in the attempt to explain this decline, including corruption and bad governance coupled with strong anti-bribery and anti-corruption laws in investor countries. Other reasons include economic and political instability, and generally poor business climates in the region.
However, despite the decline in M&A activity, opportunities for growth exist on the continent and make it a region to watch for investor countries, Canada being no exception. As Africa's middle class grows, so too does the market for financial services. Given that the continent is deemed to be lacking communication and banking infrastructure, this makes the region primed for investment in the area of financial services and technology or "fintech". This may be an opportunity for international banks to cooperate with those in the technology sector and be in the forefront of development in the continent.
Moreover, deal-making in certain African countries including Nigeria and South Africa is anticipated to improve in 2018. This is important news for Canadian companies interested in oil and gas production as well as mining, which are large sectors in these respective countries. In fact, it seems as though some Canadian companies are already looking to the continent for the purpose of tapping into its natural resource markets.
Ultimately, while M&A activity seems to be on a general decline in the African continent, there are still opportunities for investment in particular regions and growing industries and sectors.
The author would like to thank Basmah Osman, summer student, for her assistance in preparing this legal update.
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