How Africa’s Capital Markets Are Shaping A New Kind Of Venture Capital

February 9, 2015

Investing in any emerging market is complex, but perhaps none are quite as challenging as sub-Saharan Africa (SSA). Unlike the vast nations of China and India, whose respective economies are governed by a single fiscal policy and regulatory framework, sub-Saharan Africa is a patchwork quilt of vastly different economies and cultures.

It is a continent dotted with a myriad of colonial histories, religions, languages, currencies and political systems. But Africa is, of course, evolving. In countries such as Angola, the banking sector is liberalised and operates in a free market and there is a much greater impetus from government to promote lending to SMEs.

There are other challenges however. Unlike economic blocks such as the GCC or the EU, Sub-Saharan Africa has no singular regulatory body.

So, companies looking for a pan-African approach need to work differently in each country. In Africa, one size never fits all, which makes it difficult for foreign companies or entrepreneurs to connect with the right kind of Venture Capital Company.

All of these challenges raise fair questions – can we find a reliable local source of capital? Who can we partner with in the local market – and how? Who can introduce us to the right people in the supply chain? Are their venture capitalists we can rely on to help us succeed? Such questions might make investors think twice – but they shouldn’t.

One of the first steps towards entering SSA and building a sustainable business is to understand the socio-economic needs of the region’s constituent countries.

The key here is sustainability. African policymakers are acutely aware of the dangers they face from global companies that simply wish to swoop in, take advantage of their natural resources and then disappear. Investors should understand that any foreign company looking to invest in Africa will be scrutinized for the long-term social and economic impact that they have on the country.

This doesn’t mean that businesses need to operate as charities in Africa, but they do need to bring something useful and long-lasting to the table. Foreign companies need to demonstrate that they are bringing innovation, skills and/or experience.

Some countries regulate which type of companies can invest. Angola stipulates a minimum investment of $1 million and all companies entering the market are obliged to hire a quota of local workers.

Source: AFK Insider

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