The energy, mining, and utilities (EMU) sector took the lead in contributing to the total deal value in sub-Saharan Africa (SSA) in 2022, amassing $7.8 billion through 64 transactions.
This is according to the October 2023 Doing Deals in Sub-Saharan Africa report by KPMG.
Furthermore, the KPMG report cites the United Nations, highlighting that Africa is estimated to possess approximately 30% of the world’s mineral reserves, 12% of its oil reserves, and 8% of its natural gas reserves.
This includes valuable resources like gold, diamonds, platinum, cobalt, and uranium, with prominent producers in South Africa, Botswana, and the Democratic Republic of Congo.
Nigeria, as the continent’s largest oil producer and a significant holder of natural gas, coal, and iron ore reserves, stands out. Angola closely follows as the second-largest oil producer in Africa.
These rich reserves make Africa especially enticing for strategic investors.
In fact, 20% of KPMG’s respondents indicated that physical assets and natural resources were the primary drivers behind their most recent deals in sub-Saharan Africa, a number that rose to 27% among corporate investors who cited this as their main motivator. According to the KPMG report, sub-Saharan Africa remains an appealing investment destination.
This attractiveness is primarily attributed to the region’s abundant natural resources and comparatively favourable asset valuations when compared to more established, lower-risk markets.
Among KPMG’s survey participants, it is notable that approximately a third of domestic investors (35%) revealed that their recent acquisitions or investments in sub-Saharan Africa fell within the range of $5 million to $50 million.
These investments are driven by the region’s wealth of natural resources, the growing need for connectivity, and technology facilitating last-mile access.
Additionally, sectors like healthcare, financial services, and education are gaining traction due to the expanding consumer market, all of which contribute to unlocking the substantial growth potential of the region.
The Nigerian context – Decade of Gas has increased energy deals
The KPMG report also provided valuable insights into the investment landscape, particularly in West Africa, where Nigeria boasts the continent’s largest crude oil reserves. Notably, 27% of respondents in the region have recently invested in the oil and gas sector.
The primary magnet for these investments is the abundance of natural resources, drawing attention to the Energy, Mining, and Utilities (EMU) sector. While the Nigerian Petroleum Industry Act was anticipated to stimulate investment in the oil and gas domain, a significant driving force has been the sale of assets by international oil companies to local entities.
This has allowed them to exit the market or reduce their involvement in upstream operations. Independent oil and gas companies, known for their agility and higher risk tolerance, have emerged and intensified the competition in this sector.
Another influential factor spurring deals in this space is the launch and execution of the “Decades of Gas 2021” initiative. This initiative aims to boost domestic gas utilization and expand gas infrastructure.
With the increasing significance of gas as a primary energy source in the region, investors are keen to explore mergers and acquisitions (M&A) as a means of entering the market or accelerating their growth.
Moreover, the rising demand for extraction, storage, and transport infrastructure has created new avenues for mergers and acquisitions (M&A) activity within the service sector that supports the oil and gas industry.
This dynamic environment provides opportunities for both local and international investors looking to participate in the region’s energy and gas sector.