New Investment Model For Africa’s Poorest Countries

By Staff Published: June 17, 2017, 9:01 am
Investment Model(Photo: Africa Capital Digest)

One of the biggest current challenges for the impact investing community is the aggregation and deployment of growth capital equity in the world’s poorest countries.

Few would argue with the proposition that for the world’s poorest countries to move out of poverty there must be a much higher volume of growth capital equity provided by private investors.

However, in view of the absence of local private equity, growth capital and venture funds in those countries, as well as the relatively small deal sizes, there is a challenge with respect to the way in which growth capital can be aggregated and deployed. It is unquestionably a ‘bottom of the pyramid’ problem. (For purposes of this article, I have considered the world’s 23 poorest countries, which I refer to as “the 23”).

If the Sustainable Development Goals are to be achieved and the poorest countries are to benefit from impact investment, it is crucial that a new model is developed for impact-driven growth capital equity investment in those countries.

From Impact Alpha. Story by Peter O’Driscoll, Orrick, Herrington & Sutcliffe LLP.

That new model is a large private fund and a manager focused exclusively on growth capital equity investments across the 23 (which I refer to as the ’23 Fund’ or the ‘Fund’).

To have a meaningful impact across 23 countries, the Fund would need aggregate capital commitments from its limited partners of between $600 million to $1 billion. The fact that the Fund’s portfolio investments would be spread across 23 countries would, in contrast to single country and regional PE funds, provide investors with a healthy degree of diversification.

Private equity and growth capital investment in the 23 is almost non-existent. In 2016, only five of the 23 had any private equity investment — Madagascar (two transactions), Togo (one), Burkina Faso (two), Rwanda (three) and Ethiopia (two). The Democratic Republic of Congo had one private credit transaction in 2016. Transaction size figures are not available for any of the countries other than Rwanda (US$27m in aggregate for the three transactions) and Burkina Faso (US$1m in aggregate for two).

Read more at Impact Alpha.

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