East Africa’s fragmented tax regimes and foreign exchange restrictions are obstructing private capital flows, even as investors injected $4.1 billion into nearly 500 deals between 2021 and 2025, according to a new survey by the African Private Capital Association.

 

The report, Private Capital Activity in East Africa (May 2026), notes that capital market reforms and forex liberalisation in Kenya, Ethiopia and Tanzania are improving governance, entry visibility and exit execution, while reducing longstanding investment constraints. At the regional level, integration efforts are gradually lowering transaction costs and enhancing deal execution efficiency.“The reform trajectory is positive, but uneven implementation, tax fragmentation and FX restrictions across member states remain binding constraints on fund structuring and capital repatriation,” the survey says.

Private capital refers to investments in assets, companies or projects not listed on public stock exchanges, providing vital funding to grow businesses. Tax fragmentation denotes a system where jurisdictions apply varied rates, laws and compliance rules without coordination.

The survey highlights that resilient domestic demand, rapid urbanisation and expanding innovation-driven markets are expected to sustain deal flow in East Africa this year.

However, investment outcomes remain highly sensitive to forex volatility, uneven debt sustainability and political cycles. These factors continue to shape valuation discipline, structuring approaches and the pacing of capital deployment.

Annual private capital transactions in East Africa averaged 108 deals, with annual investment at $700 million, reflecting a deeper pipeline and larger cheques across climate infrastructure, fintech and agribusiness.

In 2025, total deal value rose 75 percent year on year to $1.2 billion, returning to peak levels recorded in 2022 and positioning East Africa as the continent’s second largest market by value.

Much of this growth was driven by large renewable energy investments, with three integrated solar transactions above $100 million accounting for 55 percent of total regional deal value.

Mid-market expansion has also supported growth. While deals below $10 million continue to anchor activity, the $10–49 million segment has doubled over the past three years to approximately $400 million. The financial sector has been central to this shift, reflecting the maturation of the region’s fintech ecosystem.“This expansion signals a maturing pipeline that can accommodate larger cheques, improving entry discipline for mid-market fund managers,” the report says.

Venture capital leads East Africa’s private capital landscape, accounting for 60 percent of transaction volume over the past three years. Activity surged to record highs in 2022, driven by global enthusiasm for fintech and digital platforms, before a recalibration in 2023.

Private debt has also emerged as a defining feature, with East Africa accounting for 36 percent of Africa’s total private debt transactions after a 30 percent surge in 2025. Agribusiness and fintech anchor this growth, offering dependable, currency aligned cash yields in a volatile forex environment.

Repeat investors drove 24 percent of transactions in the past two years, signalling strong market conviction. Kenya remains the dominant entry point, attracting 61 percent of deal volume and 87 percent of deal value in 2025, underpinned by the depth of its fintech sector.

Investor confidence is extending structurally across the region. Uganda, the second most active destination, saw deal activity rise 1.4 times in 2025, contributing 14 percent to regional volume. Rwanda, Ethiopia and Tanzania are emerging as frontier destinations, each with distinct investment profiles.

Kenya continues to shape the scale and direction of investment, but Uganda has consistently ranked second over the past five years. In 2025, Uganda contributed 17 percent of deal volume and five percent of deal value, with agribusiness and fintech anchoring its pipeline.

Rwanda, though modest at six percent of deal volume and one percent of deal value in 2025, is positioning itself as a venture led destination, with its share of venture capital rising to 67 percent in 2025 from 50 percent in 2022. Ethiopia contributed six percent of deal volume and one percent of deal value, reflecting limited activity.

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