Policy Brief | September 2013

A New Economic Path for Sub-Saharan African Countries through Private Impact Equity

By: Pierrick Baraton and Jean-Michel Severino

Editor's Note: This brief is part of the 2013 Brookings Blum Roundtable Policy Briefs, which details the role of the private sector in the post-2015 development agenda. Read the full policy brief here.

EXECUTIVE SUMMARY

Private equity investments are on the rise in Africa and, adjusting for economy size, are as important to the continent as for the average emerging market economy. These investments are demonstrating profitability: Private equity deal multiples in Africa, based on performance over the past nine years, are estimated at roughly 8x. Equity investments can play an important role in resolving some of Africa’s most pressing development challenges: solving the financing constraints facing African firms; meeting unsatisfied demand for goods and services among the continent’s low-income households; and ushering in much-needed structural transformation for Africa’s immature economies by improving firm competitiveness. Impact investors can be especially effective. Further growth of private equity depends on achieving economies of scale—transitioning away from small deal size and small size of funds. Governments can assist by providing financing (through development finance institutions) and enabling regulation.