Inbound merger and acquisition (M&A) deals in Africa plunged 48% from 33 in the second quarter of 2016, and 45% from 31 in the first quarter of this year, to just 17 in the second quarter of this year.

The total deal value for inbound deals decreased to $780-million – an 83% year-on-year and an 88% quarter-on-quarter decline, Baker McKenzie’s latest quarterly Cross-border M&A Index shows.

“The second quarter of 2016 saw $4.54-billion worth of deals. In the first quarter of 2017, $6.38-billion worth of inbound deals were concluded in Africa,” Baker McKenzie managing partner Morne van der Merwe pointed out.

Australia was revealed as the top investing country by volume, accounting for three of the reported deals or 18% of the total count, while China deals had the highest overall value at $324-million or 42% of the total.

“Asia Pacific and the European Union (EU) were tied as top investing regions by volume, each accounting for 35% of total deal count. By value, Asia Pacific outpaced the rest with $487-million or 62% of the total,” he said.

While South Africa was the top target country for inbound deals by volume and value, accounting for 29% of total deal count and $422-million or 54% of total value in Africa, foreign direct investment in the country had decreased during the second quarter of the year.

Baker McKenzie attributed this to the credit ratings downgrades and the rising cost of raising capital for acquisitions making deals more difficult, while a volatile rand, political instability and uncertainty are suppressing deal appetite and raising the risk perception.

The decline was expected to continue until the local investment climate stabilised, he said, pointing out that global players were finding “more attractive investment destinations elsewhere”.

“Further, almost half the continent’s M&A activity flows through South Africa, so recent South African developments have had a negative knock-on effect in Africa. Political uncertainty in other jurisdictions on the continent, such as the current election in Kenya, has also made investors wary of African deal making in the short term, although we expect this to change once stability returns to the region,” Van der Merwe commented.

However, the index reveals that the 15 cross border outbound deals in the second quarter of this year is a 67% improvement on the nine outbound deals recorded in the first quarter of the year, despite a 12% year-on-year decrease from 17 in the second quarter of 2016.

While total deal value, at $1.52-billion, decreased 28% from the $2.1-billion achieved in the second quarter of 2016, it was more than double the $665-million reported in the first quarter of this year.

“The index also shows that South Africa outperformed other African bidders by volume and value for outbound deals, with eight deals, 53% of the total, amounting to $821-million, 54% of the total,” Van der Merwe said.

Top target regions for outbound deals were the EU and Asia Pacific by volume, each with 40% share of total.

The top target country from Africa by volume was India, with three deals accounting for 20% of total deal count.