Private equity as a solution for West African SMEs
Securing access to long-term resources remains a major headache for the West African SMEs that constitute the bulk of the local economic fabric (SMEs account for 92% and 98%, respectively, of companies incorporated in Ghana and Côte d’Ivoire). An investment entity like Oasis Africa Fund can meet such requirements by investing in the equity and quasi-equity of SMEs in Ghana and Côte d’Ivoire where Private Equity is still in its infancy.
OAF’s investment strategy targets SMEs that provide low- and medium-income sections of the population with basic goods and services in areas such as private education, health, agribusiness, financial services, real estate and the hotels sector.
The fund is aiming to acquire stakes of between USD 0.5 million and USD 5 million in 12 to 15 high-potential SMEs. The investments will be used to finance the growth phase of the companies in question, provide technical support to help them scale up, and enhance their CSR performance.
AFD Group wishes to partner this initiative and it has just invested USD 7 million in OAF via the Social Business facility of FISEA, a fund that invests in the equity of African businesses that is owned by AFD and advised by Proparco.
High development-impact investments
All told, the project will create and maintain over 3,000 jobs in Ghana and Côte d’Ivoire and 40% of these should go to women. OAF’s investments will also fund training for employees of its investees.
As Anne-Sophie Rakoutz, Head of Proparco’s Equity and Equity Interest division explains, “using the OAF, our aim is to identify and partner local SMEs specialised in providing basic products and services for vulnerable sections of the population. These investments will both help to improve access to essential goods and services and create local jobs, which fits perfectly with FISEA’s Social business strategy.
This project will also help diversify financial markets in Ghana and Côte d'Ivoire - countries that have been largely shunned by private equity investors – and encourage SMEs in sectors assigned priority status by AFD Group, such as health and education.”
In 2016, IFC, a member of the World Bank Group, also invested $ 7 million in the fund through its SME Ventures program. SME Ventures creates and invests in funds like OAF, which provide capital and hands-on guidance to entrepreneurs in frontier markets. “AFD’s partnership with OAF is proof that a growing number of international investors share the vision that businesses can thrive, even in the most difficult markets. Funds like OAF provide SMEs with capital and advice, enabling them to create jobs and boost local economies. Since IFC pioneered its SME Ventures program in 2008, we have been joined by fifteen like-minded investors, who are willing to contribute their expertise and financing to support entrepreneurs in frontier markets,” said Oumar Seydi, IFC Director for Eastern and Southern Africa.