New private investment fund favors African SMEs

Innovative finance programs like the USAID-sponsored Sudan Microfinance Institution (SUMI) helps provide capital to Africa’s small and medium enterprises and in so doing, fuels what many regard as the continent’s engine of growth. Photo by: USAID

Renascent Capital Group is taking a different approach to investing in Africa. While most investors would rather do business with the big kids on the block, the company is turning its attention to small and medium-sized enterprises.

“What we’re working on now, I think, will help to move things in the right direction – and that is having a fund structure with regional and country-focused sub-funds,” said Renascent founder and Managing Director Euclid Walker. “It’s pretty exciting because it’s going to change the way private equity and venture capital takes on the continent.”

Private equity investments have the potential to spur development as they fuel what many regard as Africa’s engine of growth: the private sector, Walker said.

In order to undertake these investments, large funds ranging from $500 million to $1 billion are usually required. At the barest minimum, a $250 million fund might be considered.

“What that means, traditionally, is those funds can’t make investments into smaller projects. So, they’re only helping companies or investing in companies that are already big,” said the former executive director of Morgan Stanley’s investment banking division in the corporate finance and mergers and acquisitions department.

For a continent where the majority of businesses are SMEs, this isn’t “doing much for development.” With the new fund, all that could change.

“So what I mean by that is we’ll raise, call it $500 million to focus on agribusiness. But that capital will be managed by several teams that are on the ground in specific countries,” the Africare board member explained.

This “decentralized” approach to private equity investment will take advantage of local expertise while encouraging best-practice sharing between country and regional teams.

“We’ll share best practices; we’ll be one fund,” he continued. “But we’ll have very specific expertise and capability on the ground in specific countries, which allows them to make … investment projects that are more meaningful because they’re investing in smaller businesses right where they’re needed.”

The new fund is looking at a “true partnership” between the nonprofit and for-profit communities.

Renascent is looking to partner with entities like the U.S. Agency for International Development, African Development Bank and Bill & Melinda Gates Foundation, as well as European and Francophone nonprofits that have experience working in the continent especially relating to agribusiness.

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