Private Equity Still Misunderstood in Africa

Private equity and venture capital is one asset class that is still grossly misunderstood in African economies.  This is according to Michelle Essomé, CEO of African Private Equity and Venture Capital Association (AVCA) which held its 11th annual conference in Lagos this week themed, Private Capital: Catalyst for Change.

The event was aimed at fostering private equity and venture capital discussions in Africa. “Private equity is effectively growth capital, it’s an investment that’s cashed into a privately held company and you become aligned with the owner, the entrepreneur about where you want to take that business and how you want to grow it,” Essomé advised.

The association represents an industry with over 200 firms managing over 25 billion dollars in assets across 54 countries.  She went on to add, “When we were thinking about the title, we wanted something that would encapsulate the power of private capital, so we intentionally didn’t choose private equity because increasingly, as the industry is evolving, we are seeing that people are investing in different ways.”

As bank loans remain a challenge for SME’s in Nigeria and with about 17 million SME’s in the country, Essomé believes that private equity can play a big role in venture capital for the businesses.   She explained, “Someone quoted earlier that one of the wonderful things about Nigeria is that, it’s a culture that is extraordinarily, enterprising and innovating. I think that is something you almost feel in the atmosphere.”

Nonetheless, as emerging markets present significant risks, potential investors will really need to understand the landscape, visit the continent, speak to development finance institutions and meet the people.  Essome concluded, “I think that as an investor in emerging markets, traditional investors looking at Africa, have invested in Latin America or Asia, so there’s an awareness of the due diligence that one should do when looking at emerging and frontier markets.”

Source: CNBC Africa