A different approach to PE in Africa
I’m due to moderate a panel on private equity investment at The Global African Investment Summit this week so I’ve been diligently doing my research. I found an excellent interview with Kofi Bucknor, a senior Ghanaian banker and private equity veteran in Africa. He made a number of really interesting points that we then discussed in more detail together later. I plan to bring them up on my panel.
Small is beautiful
Kofi’s central argument was that PE firms in Africa might need to tweak their investment models. He believes that too much money is flowing into too few sectors. As an example, Kofi says that as much as 50% of PE investment in Africa goes into the energy sector, oil and gas and related industries. These tend to be mature businesses that have already established themselves.
Early stage investment
But what about the smaller and medium sized African companies in sectors like health, education and entertainment? Companies that serve a clear consumer need. Investments in small companies operating in these sectors are more likely to have a direct and positive impact on local communities than big one-off investments in mature industries like oil and gas. And it is a profitable strategy too. Investing in businesses at an earlier stage will, over the long term, creating much bigger uplift in returns. In the words of Kofi:
“More time needs to be spent growing businesses and creating giants.”
Mobilise local savings
Kofi also talked about the sources of investment too. He argued that the best way to benefit African communities in the long term was to mobilise domestic savings. Garner money from local sources and use it fund investment vehicles that support local SMEs.
Are Governments holding back business?
However, the greatest challenge to the growth of African domestic business is the macro-economic backdrop. African governments hold far too much debt. And burdensome budget deficits tend to be funded by yet more borrowing. It might be ok if government spending was channelled towards investments that promoted economic growth. But it doesn’t seem to be. The only real impact of all this borrowing is higher interest rates, which are bad for business.
So maybe governments should ‘step out the way’ and borrow less, so the continent can attract the capital it needs. Capital that can then be directed towards investments in businesses that innovate and promote inclusive and sustained economic growth.
I’m really looking forward to discussing these issues, and more, at our panel next week. I hope to see you there!
Rosalind Kainyah, MBE, Founder and Managing Director