From African Business Review. Guest column by Elikem Nutifafa Kuenyehia, a Ghanaian lawyer, entrepeneur and author of “Kuenyehia on Entrepreneurship.” He is chairman of the law firm ENSafrica Ghana and was named “West Africa Young Business Leader of the Year” by Forbes and CNBC.

Given the nature and dynamics of entrepreneurship in Africa and the mindsets of the vast majority of African entrepreneurs, private equity is unlikely ever to become a mainstream source of finance for African entrepreneurs. Most successful indigenous African businesses have been built by a single entrepreneur who in many instances is used to having their own way. According to academic research over the years, it has been found that entrepreneurs are seldom willing to submit to authority.

This is particularly true in the context of Africa. A combination of weak institutions, corruption and poverty gives successful entrepreneurs significant influence. It makes many of these “demi-gods” able to have their own way, and able to break laws and regulations with impunity. Many such entrepreneurs have no incentive at all to submit to the authority of a private equity fund, no matter the size of the check. There is also the issue of control: the typical African entrepreneur is unwilling to give up control of his company the way a private equity firm would like. In many instances, equity and control are currently concentrated in the hands of a single entrepreneur or his or her family or close friends.

I have met hundreds of African entrepreneurs who would rather own 100 percent of a small business than dilute their stake to own a small percentage of a bigger pie. Admittedly, many private equity firms only take a minority stake; but the reality is that they exert more control on the companies they invest in than the typical African entrepreneur would be comfortable with.

Another barrier to greater use of outside financing is the level of scrutiny and corporate governance that private equity firms require. Many African entrepreneurs are simply not willing or able to work with these structures. While researching my book on African entrepreneurs and the companies they create, I was particularly struck by the lack of interest many have of them have in adopting proper governance structures. These entrepreneurs recognise that investors and bankers like to see boards of directors in place and so they do make the effort to find qualified people to join their boards. However, in most cases of a strong founder-led company, the board becomes no more than window dressing – good for the website, brochures and for making pitches to banks and investors, but in practice unable to hold the CEO to account.

The vast majority of businesses built by African entrepreneurs are local businesses, often limited to a particular city, country or region. Local political patronage and connections often sustain the enterprise. Given historical colonial divides, language barriers, lack of integration and fragmented markets, only a small number of African entrepreneurs have regional, let alone pan-African ambitions. The Dangotes, Elumelus and Thakkars, building pan-African businesses which diversify risks, are more the exception rather than the rule.

For these reasons, private equity, although continuing to increase steadily in Africa, will remain a small percentage of total capital available to and taken up by African entrepreneurs. The vast majority of African entrepreneurs would continue to rely on debt capital – even at rates close to 30 percent. That in itself may perhaps be indicative of another opportunity for foreign firms looking to Africa.

There is no doubt that change can happen. But it will need the support of government, industry bodies and African corporations to encourage the necessary shift in culture across the continent.

Read more at African Business Review.