Private Equity in Sub-Saharan Africa
Date
2011-05-17
Authors
Mate, Joseph
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Abstract
Private equity refers to the pooling of funds from investors for investment in
private companies, as distinguished from publicly traded companies. The terms
Private Equity and Venture Capital are often used interchangeably. Venture
Capital is in fact a subset of Private Equity and refers to investments made for the
start-up and early development of the business. Private equity as an asset class
has taken on significant importance in emerging markets and in particular Sub-
Saharan Africa because of its potential to be a positive contributor to economic
development and unlock value in a business.
However the dynamics of doing business in Sub-Saharan Africa differ greatly from
a developed market. Emerging markets are characterised by minimal shareholder
rights, limited regulatory and legal framework - which impacts negatively on the
enforcement of contracts, poor accounting standards which in turn affect the
quality of reporting, nascent capital markets and unstable political environments.
Such conditions pose a considerable challenge for private equity in emerging
markets and Sub-Saharan Africa in particular.
The aim, therefore, of the study was to establish the success factors necessary for
the establishment of a private equity fund in Sub-Saharan Africa - given the
challenges associated with emerging markets. A representative cross-section of
private equity firms were interviewed in order to gain an in depth understanding
private equity in the region, its process, parties involved as well as the
determinants of its success.
The study employed the use of a small, purposely selected, non-random sample
in order to achieve depth of understanding, as opposed to finding out what is
generally true of the many, as in the positivist approach. Textual analysis was
applied, whereby common themes were identified from the discussions and
analysed further by relating back to the research propositions and relevant
literature. Thus a set of basic heuristics can be established for private equity in
Sub-Saharan Africa based on the findings of the study.
Description
MBA - WBS
Keywords
Equity, Private equity, Venture capital