Ghana Private Equity Report 2015

Goodman AMC takes a detailed examination of the Private Equity (“PE”) space in Ghana whilst providing key insights into what PE is all about, and profiles of some of the more prominent funds now operating in Ghana.

Private equity is becoming an increasingly important factor in Ghana’s economic development. Data from the African Private Equity and Venture Capital Association (“AVCA”) shows that there has been a shift in investment activity across the African continent since 2007, with Ghana currently receiving a greater share of private equity investment (by number) compared with South Africa and Nigeria.

In 2014, Ghana had the second highest private equity transaction in Africa after Cenpower Generation Company Limited, which is an independent power producer ("IPP") concluded a USD 900 million facility to develop the 340 megawatt Kpone Independent Power Plant (“KIPP”) near Tema. The plant, scheduled to start production in 2017, will be the largest private independent power plant in the country and will account for approximately 10% of Ghana’s total installed capacity and approximately 20% of its available thermal generation capacity.

Ghana is rapidly becoming the favored channel for international investors to take advantage of one of the most galvanized countries in West Africa, in terms of growth.

Private equity is also of particular importance to Ghana, as it provides local companies with the means, and often the impetus for positive change, and thus, more jobs and wealth for the country. The 2014 Preqin Global Private Equity Report estimates that as at October 2014, approximately USD 1.3 billion had been raised in aggregate capital by 8 Africa-focused funds reaching a final close. Additionally, the report estimates the mean assets under management (by Africa-based institutional investors) at approximately USD 11.4 billion.

Background: Private Equity in Ghana

The United States Agency for International Development (“USAID”) and the Commonwealth Development Corporation (“CDC”) contributed significantly in setting the fundamental framework for what later became Ghana’s private equity industry.

In 1991, the USAID sponsored the formation of the first venture capital firm in Ghana: the Ghana Venture Capital Fund (“GVCF”). This was a USD 5.8 million fund, managed by the Venture Fund Management Company (“VFMC”) with the mandate to provide risk capital to new and expanding Ghanaian businesses. While the USAID underwrote the administrative expenses of VFMC, the CDC was the anchor investor in GVCF. With a capital commitment of USD 2 million, the CDC attracted co-investments totaling USD 3.8 million.

In a final evaluation report, the USAID noted that while the Ghana Venture Capital Fund supported several businesses, its most significant contribution to private equity development was in facilitating the formulation of a regulatory framework within which the embryonic PE industry in Ghana could operate.

The second most eminent initiative that contributed to the take-off of Ghana’s PE industry was the establishment of the Venture Capital Trust Fund (“VCTF”) by the Government of Ghana in 2004. The VCTF, backed by the VCTF Act, 2004 (Act 680), is a Venture Capital fund that uses a fund-of-funds investment approach to support SMEs and catalyze the growth of a sustainable privately-owned venture capital industry. The VCTF, since its establishment, has leveraged a government seed funding of GHC 22.4 million (USD 5.5 million) to attract co-investments of over GHC 40 million (USD 10 million) from other institutional investors. All capital raised had been fully invested as at the end of 2013. Over 45 portfolio companies across several industries have benefited from the VCTF since its inception in 2004.

Majority of the funds currently in operation in Ghana began to take off after the establishment of the VCTF Act (680) 2004 and the Internal Revenue (Amendment) Act (2006), which provided favorable tax incentives for investing in private equity and venture capital funds domiciled  in Ghana, such as exemptions from capital gains and corporate tax.

Evidently, the establishment of the Venture Capital Trust Fund and the Internal Revenue (Amendment) Act (2006) demonstrated government’s support for the PE sector and increased private sector confidence in the sector, leading to an influx of direct private sector capital into private equity.

Sector dynamics have been interesting, showing some resilience to global funding activity. For example, applications for funding hit their lowest in 2005 but peaked in 2007. The actual number of deals closed also decreased from 3 in 2005 to 0 in 2006, but maintained an upward tick up to 2010. Peak deal activity was also recorded in the same year.

Although the growth in funding proposals and deal activity over the years has not been smooth, there has been significant growth over the period, using 2004 as a base year, when no activity was recorded. This suggests an increase in awareness by entrepreneurs and SMEs of private equity as a financing option.

In 2009, Oasis Capital, a local private equity firm, created its first fund -the Ebankese- despite the ongoing global financial crisis and its obvious consequences to fund raising, at least on the global market. In spite of this, Oasis Capital raised USD 10 million from local investors, including the Venture Capital Trust Fund, HFC Bank and the Ghana Union Assurance. An additional USD 3 million was raised from two foreign investors, P.C.Groenen BV and Social Venture Fund. The success of this exercise further bolstered confidence in the PE space and reinforced the economy’s relative resilience against global shocks.

Players in Ghana’s Private Equity Space

Ghana’s investment climate is blisteringly alluring and is driven by a number of factors, including significantly improved economic fundamentals, an enriched socio-political environment, and a colossal natural resource wealth. Moreover, asset prices are moderately low considering the growth prospects, with increasing domestic liquidity and capital formation acting as a cushion against global capital-market volatility.

Major private equity investors in Ghana include the development finance institutions (“DFI”s) such as the International Finance Corporation, the UK’s Commonwealth Development Corporation (“CDC”), France’s PROPARCO, the Netherlands’ Financierings-MaatschappijvoorOntwikkelingslanden (“FMO”) , the Swiss Investment Fund for Emerging Markets (“SIFEM”), Canada Investment Fund for Africa (“CIFA”) and the United States Overseas Private Investment Corporation (“OPIC”). These, in certain respects, grant Ghana’s private equity industry a somewhat developmental theme.

The next bracket of funds with investment interests in Ghana are the emerging market- and or Africa-focused funds such as the Abraaj Group, Actis Capital, Sanlam Investment Fund, Helios Investment Funds, Development Partners International, Enko Capital Managers, the Carlyle Group, Amethis Finance, Kingdom Zephyr Africa Management, etc.

The final category includes fund managers, investment vehicles and advisory firms that are visibly Ghanaian in terms of location, market presence, and or staff composition. This category of players either invest actively or drive PE activity through financial advisory and capital raising. Examples include IC Securities, Databank, Serengeti Capital, GroFin, Black Star Advisors, SIC Financial Services, Fidelity Capital Partners, Investiture Fund Managers, Gold Venture Capital as well as SSNIT.

A few years ago, most global investors might have considered Ghana off limits. This has changed in recent years, with private equity investors, multinationals and investment banks increasingly building their stake and or operations in Ghana to find business opportunities and get “a slice of the cake”.

Global private equity giant and Dubai-based Abraaj Capital reportedly paid more than USD 350 million for the West African frozen dairy products company Fan Milk International in June 2013, this made it the largest-ever private equity transaction in Ghana for a fast-moving consumer goods company, and in sub-Saharan Africa, outside South Africa. Fan Milk International, headquartered in Ghana, was still majority-owned by the Danish family that founded it in 1950. Fan Milk sells more than 1.8 million dairy and juice products daily across West Africa. DANONE, the world’s biggest yoghurt company by sales, later bought a 49% stake in FanMilk with plans to gradually acquire a controlling interest from Abraaj. IC Securities was the financial advisor for the Abraaj –Fan Milk deal.

To increase its exposure to the Ghanaian economy, Abraaj Capital, with an estimated USD 7.5 billion in assets under management (“AUM”), subsequently purchased a majority stake in Ghana Home Loans, a local company that offers mortgages to first time buyers, as well as buy-to-let and refinancing products. One can conclude that private equity is potentially, a key driver of growth in Ghana’s private sector.

According to AVCA, between 2007 and 2014, 983 private equity transactions were completed in Africa, with a total value of USD 34.5 billion. Abraaj alone has deployed more than USD 3 billion on the continent and made 67 separate investments.

Private equity moved higher on the radar in Ghana when Actis emerged with a series of investments in Ghana. Actis, which invests exclusively in emerging markets with a growing portfolio of investments in Africa, launched a Pan-African renewable energy generation platform; Lekela Power projects. The project is currently developing a 225 MW wind power project called the Ayitepa Wind Project in Ghana.

Actis went on to raise a total of USD 278 million in 2012 from its closed fund, the Actis Africa Real Estate 2. This was to fund projects which include Ghana’s first green office building, known as the One Airport Square, in Airport City, Accra. Actis is presently on the verge of completing a 70,000 square meter landmark development called “The Extension” together with two other equity investors; Mabani Holdings and the Commonwealth Development Corporation (“CDC”). This will house the Radison Blu Hotel, 100 residential apartments and a 10,000 square meter retail space and 16,000 meter square office developments on a seven acre site overlooking the Kotoka International Airport in Accra.

Ghanaian investments are also gradually becoming part of global private equity portfolios, for instance:  Kosmos Energy secured a USD 500 million equity funding which was led by two of the world’s largest and most highly regarded private equity firms in the US; Warburg Pincus and Blackstone Group. These 2 equity firms together with Kosmos management had initially committed USD 300 million to Kosmos Energy. Kosmos Energy is the oil and Gas Company which discovered the Jubilee Oil Fields in Ghana and this happened to be one of the largest oil discoveries in West Africa within the last two decade.

Private Fund Managers in Ghana

According to Owusu-Adjei, 2010, the number of locally active private equity funds in Ghana was 17 and are currently raising capital to invest in Ghanaian businesses, including mining. The amount of money actually being raised and invested is still negligible. Total fund-raising for locally-represented Ghanaian private equity firms in 2010 was over USD 1, 368 million. The study further estimates that there were 11 fund managers and 17 funds with registered offices in Ghana as at 2010.

In Ghana, the success of a fund depends on close links between the investee company and its private equity investors, who might be direct investors or fund managers (usually called ‘General Partners’ or ‘GPs’). According to Osei Tutu, 2014, Ghanaian-owned PE fund managers constituted a majority of 88% of fund managers and this we believe may be indicative of greater interest by residents in the emerging industry of PE. However, the extent of local participation may be constrained by the availability of long-term investment capital. Although foreign-owned fund managers represent only 12%, they account for 84% of the over USD 638,393,952 worth of funds under management in Ghana.

Osei-Tutu, 2014 also observes that foreign-owned fund managers had over five times more funds under management than Ghanaian-owned fund managers, which could be explained by the considerably wide access to long-term capital enjoyed by international PE fund managers, who are mostly domiciled in advanced countries with mature PE markets. 

While foreign-owned PE fund managers raised 100% of funds externally, Ghanaian-owned fund managers raised funds predominantly from local sources with only 3% of funds being raised from outside Ghana. IC Securities’ Africa Fund appears to be the only locally active fund that is without governmental or DFI support. Its funds were sourced entirely from high net worth individuals and families across the world.

Investor Attitudes in Ghana

60% of fund managers in Ghana prefer to invest their funds in the financial services, tourism and hospitality, manufacturing, and information and communication technology (ICT). Also, 35% of fund managers did the same for the education, healthcare and real estate sectors. It is also of no coincidence that these sectors have exhibited the highest growth potential in the Ghanaian economy; as PE typically invests in sectors with high growth prospects.

This preference for PE investments is somewhat reflected in the direction of actual value invested with a greater proportion of funds being channeled to the real-estate, financial services, consumer products and services sectors. Manufacturing, agriculture and agri-business followed as the next favored sectors, with the pharmaceutical sector receiving the least funding.

The real estate, financial services, consumer products and service sectors are the top sectors which receive the most investments in Ghana. 

Most activity in Ghana is in growth capital, backing existing operations, helping companies grow in existing markets and expanding across borders and into new products. Growth investors develop and support talented managers and are active in the companies they invest in, boosting capacity, marketing and encouraging progress. For instance, Duet Group (an alternative asset management firm in UK with USD 4.7 billion of assets under management) through the creation of Duet Consumer West Africa Holdings (DCWA) has invested USD 50 million of growth capital into Ghana, taking controlling stakes into Shop N Save, a supermarket joint-venture with the founders of the Finatrade Group, and GN Foods, a fast-growing food manufacturing company. The growth capital invested into these two companies will be used to roll-out new food retail stores, expand manufacturing capacity and invest in sales and marketing capabilities.

Getting top private-equity returns in Ghana depends on sustained work in finding and winning the best deals, useful and strategic management inputs, and inspired exits from the investments.

Private Equity Inflow to Ghana

According to the Ghana Investment Promotion Center (“GIPC”), foreign direct investment (“FDI”) is the most important source of private capital flows into Ghana. Although in 2013 FDI inflow to Ghana had fallen by 19.5% (USD 3.9 billion) since its 2012 peak of USD 4.9 billion. The discovery of oil in Ghana has also contributed massively to FDI inflows in Ghana.

Private equity investments have been on an upward trend in Ghana. From a baseline of zero in 2004, investments reached a peak in 2010, dipping substantially in 2006 and 2009. The compound annual growth rate of total PE investments from 2007 through to 2013 was approximately 18%.Unlike advanced markets, where investment activity is cyclically linked to fund raising activity and macro-economic booms and bursts, volatility in Ghana may well be random as funds are raised less frequently. 

Development finance institutions represent the most significant investors in PE accounting for the overwhelming majority of funds under management (“FuM”) by both Ghanaian-and foreign-owned PE fund managers. In 2014, Emerging Capital Partners’ (ECP) portfolio company, Eranove, signed a Joint Development Agreement with General Electric and Endeavor Energy to develop a 1,000 Megawatts (“MW”) electricity project in Ghana. When complete, the project – named Ghana 1000, will deliver more than 1,000 MW of electricity to Ghana’s national power grid, helping to reduce the cost, and increase access to power for the population of Ghana.

Raising Funds in Ghana

Raising private equity funds in Ghana is often difficult, since local PE firms are close to non-existent.To raise large PE funds, fund managers have to focus their fund raising efforts abroad. In Ghana, an experienced manager in known markets can take up to two years to reach a fund-raising target. It can be even harder for many Ghanaian fund managers who have little or no track record. Additionally, the majority of investors know too little about their business environment. Nonetheless, 50% of Africa-focused capital raised in 2014 was raised by domestic managers according to Preqin.

According to data from the Emerging Markets Private Equity Association (“EMPEA”), private equity firms raised USD 4.2 billion to invest in Africa in 2014, more than double the average for the preceding five years. This further increased in the first quarter of 2015; when a further USD 2.2 billion was raised, led by Helios Investment Partners, which closed the first-ever USD 1 billion-plus Africa-focused fund, and the Abraaj Group, which was a fraction behind at USD 990 million.

Specialists and Generalists

About 90% of PE firms in Ghana are generalist funds who invest in all sectors, with the exception of funds like the IC Africa Fund which gives precedence to telecom, media, and agro-business. Majority of these funds do not support business in traditional agriculture since it is assumed that the risk is very high. They however do not shun sectors in the agro-processing and aqua culture.  Many funds in Ghana also invest in start-ups which are not at their initial stage in order to avoid risk.

There is also an increasing number of specialist funds which focus on social impact as well as financial returns. The focus is on small and medium enterprises which are often the drivers of economic growth and job creation in Ghana.

Firms such as Jacana Ventures in the UK help SMEs that lack growth capital and management expertise. The firm is a UK impact investor which seeks to take stakes in African fund managers and help them specialize in SME investments, including in-depth technical support. One of its first investments was Fidelity Capital Partners in Ghana. Fidelity Capital Partners invests up to USD 3 million in SME’s annually.

Private equity has played a major role in the development of infrastructure in Ghana. Kingdom Zephyr Africa Management Company, a pan-African private equity company whose biggest investor is Kingdom Holding, the private investment vehicle of HRH Prince Alwaleed of Saudi Arabia, raised more than USD 100 million to develop the former Ambassador hotel into Movenpick Ambassador Hotel. The hotel is considered a National and historic landmark in Ghana.

Specialist firms like  Africa Integras, headquartered in New York City, which invest in the development of education infrastructure like  academic facilities, student hostels, faculty housing and related commercial and leisure facilities entered into a USD 64 million funding landmark agreement with The University of Ghana to construct four new academic buildings and 1,000 student hostel beds on the Legon campus. Africa Integras’ approach is conducted through a “mutual benefits” public-private partnership strategy that enables favorable risk-adjusted returns.

Executing Deals

In Ghana, a quarter of fund managers invest at either the early or start-up stage with the rest investing at either the growth or expansion stage. Most notably, no fund manager makes late stage investments. This contrasts sharply with industry practice in advanced markets in Europe and North America where significant PE investments take the form of leveraged buy-outs (LBOs) in mature enterprises.

After the  Bank of Ghana gave the December 31, 2012 deadline for the GHC 60 million minimum capital requirement for all banks in Ghana, majority of the financial institutions in Ghana began to search for funds – Kagiso Tiso Holdings (“KTH”) Proprietary Limited of South Africa, Amethis Finance and Edmond de Rothschild Europportunities Management II of France invested a total of USD 67.3 million in Fidelity Bank Ghana through a combination of ordinary and preference shares under the Tier I capital funding program.  The Bank also signed a USD 60 million Tier II syndicated facility agreement between Fidelity Bank and a consortium of European Development Financial Institutions (EDFI) arranged by DEG-Deutsche Investitions and EntwicklungsgesellschaftmbH from Germany.The financing partners included DEG (USD18.5 million), FMO (USD18.5 million), SWEDFUND (USD 14 million), and the European Financing Partners S.A. (USD 9 million) with DEG as overall facility agent of the transaction. Fidelity Bank Ghana Limited with this capital injection represents the most significant fund raising in the Ghanaian banking sector and in West Africa outside of Nigeria.

Sub-Saharan Africa-focused private equity firm Development Partners International also bought almost a third of CAL Bank Ghana, in a USD 61.5 million deal which lifted the bank’s capital base in line with central bank minimum capital requirements. PROPARCO, a French Development Finance Institution also acquired a 6.86% holding in the bank.

GN Bank Ghana secured a USD 9 million equity investment from the Soros Economic Development Fund (“SEDF”) to expand banking services in rural Ghana and reach one million new customers. SEDF’s investment aims to support GN Bank’s mission to encourage a savings culture and provide safe, first-class banking services to every Ghanaian through the creation of the largest network of banking locations in the country.

Access Bank (Ghana) Limited also secured a USD 40 million credit facility from the French Development Bank, PROPARCO and its Dutch counterpart FMO, to support its lending activities to the private sector in the Ghanaian economy.

Societe Generale Ghana (SG Ghana) received a USD 10 million credit facility from PROPARCO to enable it support its clients’ growth with long-term resources.The seven-year loan agreement would be used by SG Ghana, formerly SG-SSB, to lend to Corporate, Small and Medium Enterprises (SMEs) for financing capital expenditures in various sectors of the Ghanaian economy. 

Guaranty Trust Bank (Ghana) Limited also signed a USD 20 million term facility agreement with the Dutch development bank, FMO.

In Ghana’s technology sector, Peninsula Capital, a private investment management company based in Menlo Park, California led the second institutional investment in Rancard Solutions; Ghana’s leading IT services provider. Also participating in the round were existing investors, Intel Capital; Intel’s global investment and M&A organization and Adlevo VAS Holdings an investment holding company managed by Adlevo Capital Managers; a technology-focused African private equity firm.

In April 2015, Vantage Capital; one of Africa’s leading mezzanine debt provider, also raised USD 60 million in its third fundraising from DEG - Deutsche Investitions- und EntwicklungsgesellschaftmbH (“DEG”) and four other European investors; with DEG committing USD 20 million to the fund III. In addition to this, DEG provided USD 15 million to a co-investment in Surfline Communications with Vantage Capital who had already in 2014 invested USD 15 million from its second fund into Surfline Communications. Vantage Capital together with DEG has therefore invested a total of USD 30 million in Surfline which is Ghana's leading 4G LTE internet service provider.

According to AVCA, the total value of deals executed in Africa in 2014 was second highest on record at USD 8.1 billion.

Challenges Facing Private Equity in Ghana

Investing in Ghana has its own merits, but with that come challenges. These include the ability to execute transactions in a difficult operating environment where high-quality management talent is sparse, supply chains are weak, and the general state of infrastructure is poor. In addition to this, macro-economic (including currency) and political risks need to be considered, along with the traditional risk factors specific to certain industries, companies, management teams and broader financial issues.

Ghana’s cedi performance against the dollar took a massive dip. According to the Bank of Ghana, the cedi cumulatively depreciated by 17.2% against the USD between January and May 8, 2015, compared with 21.3% recorded in the same period in 2014. This decline was caused by the flight of capital from Ghana’s emerging market, as investors feared the level of current account deficit (11.7% of the country's Gross Domestic Product in 2015) and diminished economic indicators. The immediate impact of the currency depreciation on Ghana’s funds has been a decline in the projected dollar-denominated returns.

Getting Out

Exits in this study referred to full exits only. Research on exit activity was largely exploratory, as most PE fund managers only started operations within the last 6 years and a majority (62.5%) had not made any exits. Concerning reasons why these fund managers had not made any exits, 80% reported that no investment had reached the desired maturity while the rest reported a lack of suitable exit opportunities.

Exit options are evolving for when investors want to sell their equity holdings. In recent years, African private equity exits have included listings both on domestic exchanges and on international stock exchanges such as the NYSE Euronext, which claims better access to international investors. For instance, ECP used NYSE Euronext Paris to exit its shares in rubber producer Société Internationale de Plantations d’Hévéas whose 2 subsidiaries include Ghana Rubber Estates Ltd. (“GREL”) in Ghana and Société Africaine de Plantations d’Hévéas (“SAPH”) in Côte d’Ivoire. ECP’s exit was made via block sales on the NYSE Euronext Paris exchange and the sale of call options, with total proceeds of USD 49.8 million representing 3.4x the fund’s initial investment. The highly structured USD 14.8 million investment consisted of common shares, convertible notes and options, and was made through the AIG African Fund Infrastructure Fund L.L.C. (Africa Fund I) in March 2005.

In that same year ECP also exited Ecobank Transnational Incorporated (“ETI”), one of the largest regional banking groups in sub-Saharan Africa, through multiple listings on the Nigerian and Ghanaian stock exchanges and the Bourse Régionale des Valeurs Mobilières (“BRVM”). The investment was made through EMP Africa Fund II PCC (Africa Fund II), with the total proceeds of USD 35.9 million representing 3x the fund’s initial investment of USD 11.8 million in April of 2006. The sale followed Ecobank’s successful listing in September 2006.

In 2013, LeapFrog Investments successfully exited Express Life to Prudential PLC. Express Life is a high-growth provider of life insurance and savings in Ghana’s burgeoning insurance market (with life insurance sector alone growing 52% per annum, yet less than 2% of the Ghana’s 25 million population have access to insurance). LeapFrog Investments in 2014 went on to acquire a 25% stake in Petra Trust Ghana after investing fresh capital into the firm.

Actis sold 85% of its shareholding in Accra Mall to two South African firms. The two are retail property developer, Atterbury, and financial services group, Sanlam. Actis used debt financing in the construction of the Accra Mall project which was worth USD 36 million. The Accra Mall, which is Ghana’s first A-grade shopping and leisure centre, attracts over 135,000 shoppers a week.

InfraCo Ltd. signed an agreement with the Africa Finance Corporation (“AFC”) and Cenpower Holding Company Ltd to exit and sell its 46% controlling stake in The Kpone Independent Power Project (Cenpower Generation Company Ltd); this proved a good investment for InfraCo with a USD 900 million project resulting from a development spend of just USD 11.7 million. The deal comprises two components: a USD 650 million debt tranche and a USD 250 million equity tranche. The debt is being funded under export credit cover by a consortium of South African commercial banks and international Development Finance Institutions (DFIs). Rand Merchant Bank (“RMB”) acted as the Global Lead Bank and Mandated Lead Arranger for the commercial banking tranche. Other South African banks involved in the transaction as Mandated Lead Arrangers were Nedbank and Standard Bank. Nederlandse Financierings-Maatschappij voor Ontwikkelings Landen N.V. (“FMO”) and the Dutch Development Bank, acted as the Mandated Arranger for the DFI tranche. Through the equity raising, three leading investment groups joined the equity consortium, whilst InfraCo, the principal project co-developer since inception, exited. Currently, the equity holders in the Kpone Independent Power Project are AFC Equity Investments Limited (a wholly-owned subsidiary of the Africa Finance Corporation (“AFC”) (31.85%); Cenpower Holdings Limited (21%); a consortium of Ghanaian investors, (21%); Sumitomo Corporation of Japan (28%); African Infrastructure Investment Fund II and its co-investors (via an investment vehicle called Mercury Power) (15%) and FMO (4.15%).

Currently, in Ghana, trade sales rank as the most feasible alternative exit strategy since multinational companies are increasingly keen to buy into leading Ghanaian companies.

This is followed by company buy-back and public listing. Company buy-backs may be one of the few options available when investments fail or do not meet return expectations.

Majority of private equity fund managers in Ghana (about 95%) only make exits after their investments have reached their desired maturity. Private equity is set to be one of the most important channels for Ghana’s development, and it is important that Ghanaian policy-makers focus on creating a stable environment, to encourage private sector investors to take long-term views.

How PE Firms in Ghana Must Respond

Private equity firms in Ghana must also form an association with one voice in order to engage with government and regulators, helping them understand private equity, which is relatively less well-known in Ghana. The relatively low level of financial development means that Ghanaian-owned fund managers have limited options for raising funds. In such an environment, syndications among fund managers are recommended so as to enable greater participation in the industry. Particularly, such deal syndications may position local players in such a way as to benefit from international PE flows. Moreover, it is recommended that efforts at deepening national and regional capital markets are strengthened in order to widen exit opportunities available to PE fund managers.

How Government Must Respond

Firstly, it is imperative that the amendment of the current legal regime, the Securities Industries Law, 1993 (PNDCL 333), initiated by the Securities and Exchange Commission, is expedited to create a conducive regulatory environment for the private equity industry. The absence of an appropriate regulatory framework for private equity and alternative investments in general does not facilitate the growth of the industry.

Additionally, there needs to be an amendment of the current statute on pension funds management, the Pensions Act, 2008 (Act 766),to clearly mark out private equity as an asset class to which pension fund assets can be allocated in Ghana. 

Pension funds represent one of the major sources of long-term capital available in developed and developing economies alike. For instance, tremendous growth in the U.S. PE industry occurred when pension funds were allowed to allocate up to 5% of their fund assets to PE investments.

Public policy innovations like the Small Business Investment Companies (“SBICs”) of the U.S. have long played an instrumental role in accelerating SME growth. Building on the foundation of successes chalked by the Venture Capital Trust Fund, Government should intensify efforts at developing this emerging industry. The fund should be substantially re-capitalized (as it is now fully invested).

Government’s sovereign status could be leveraged in attracting co-investments from development finance institutions and private sector investors in this regard. Having more funds under management would allow the VCTF to scale up the impact it has achieved so far in nurturing a PE industry nucleus. It is important, however, that any changes in the fund’s operational strategy in future are informed by a comprehensive assessment of its performance so far.


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