Private Equity in Senegal Gets Jump-Start With State-Backed Fund

(Bloomberg) -- Senegal is jumping on the private-equity bandwagon by starting a 100 million-euro ($111 million) fund, the first time an African government has backed an investment pool of this nature and size.

“This is something we don’t see very often; a government raising a private-equity fund,” said Vasiliki Ntina, a research analyst with London-based African Private Equity Capital and Venture Capital Association. “Africa is full of opportunities, and the challenge is to continuously promote awareness.”

The West African nation is struggling to gain the attention of investors among its peers in the region, with the bulk of private-equity in 2018, with the bulk of deals in 2018 going to Nigeria, Ghana and Ivory Coast, according to data compiled by the association.

African countries also lag other developing markets due political instability and an average time of six years to get a decent return, with funds raising $2.8 billion for the continent last year, less than half that gathered for Brazilian investments, according to the Emerging Markets Private Equity Association.

“Investors all over the world are interested in Africa, but they need the right partner,” said Papa Demba Diallo, the chief executive officer of the state-owned investment holding company known as Fonsis. “Among the continents, the one where people need to invest now is in Africa.”

The continent will probably have four of the five fastest expanding economies in the world in 2019, according to International Monetary Fund estimates released in April. Senegal’s forecast gross domestic product growth of 6.9% will outpace the 3.6% average across the continent. The country’s efforts to facilitate private investments, improve its competitiveness and provide more funding are providing durable sources of growth, the IMF said in January.

‘Gap in Financing’

The fund will target mid-sized companies in industries spanning from agriculture to healthcare by providing mezzanine finance, which is typically a combination of debt and equity, Diallo said.

“We noticed there was a gap in financing for companies in the middle,” he said.

The fund will be managed by an outside team while initial capital and technical assistance is provided by development finance institutions, he said. This should help to reduce risk and encourage other local and foreign investors to get involved while Fonsis lines up some early projects for investment by the end of this year, Diallo said.

Commercial investors have shown interest and Fonsis is already considering launching two other private equity funds in the future, said Diallo, declining to give more details.

New and profitable businesses catering to a rapidly growing population in Senegal and elsewhere in Africa will offer higher returns, he said, citing booming mobile-money services as an example.

“If I were a foreign investor I would invest forward, in an area where you have some dynamism,” said Diallo, a former executive with wireless operator Sonatel SA.

To contact the reporter on this story: Alonso Soto in Dakar at asoto54@bloomberg.net

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net, Vernon Wessels, Andre Janse van Vuuren

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