African private equities need to be longer and sustainable, advises Jean Claude Bastos de Morais
Sub-Saharan African countries are suffering from the lack of an investment infrastructure. According to Jean Claude Bastos de Morais, the founder of Quantum Global Group, there is a total estimated shortage of $93 billion in the investment-fold of African nations. This figure, which was brought forth by the World Bank, could punish African nations with a 2.1% GDP drop.
Only private equities (PE) can find a solution to this problem. A number of factors limit their initiatives, and bankability of a project is the biggest one of them. Opportunities should be worth the risks taken and investors also need to see return promptly.
A private equity’s success depends on its business model for most of the part. It starts with the formation of the fund, followed by deployment to meet target returns, and finally the harvest of the resulting fund capital. The private equity forms a 10-year limited partnership with two one-year extensions. This model is called ‘the 10+2 model’.
For maiden ventures, the fee is more than 2.5% of the Net Asset Value, but for more mature PEs, it can be less than 2%.
Africa usually has long-term infrastructure investment projects that have a strong bankability base, thanks to cautious fund managers. These managers make sure the institutional investors do not fall into a trap. Private equities with long-term cycle ensure that safe and careful fund management in weak markets.
Socio-economic conditions of an African country directly affect the bankability of a project when investors put their money in their national infrastructure, explain Jean Claude Bastos de Morais. It’s a win-win situation for both the investor and the African countries. It drives long-term productivity, economic diversification, and GDP boost. Right now, sustainability needs to be at the forefront of every investment in Africa. PEs need to be the Tortoise in a Rabbit race.
A stable revenue stream in Angola substantiates the long-term cycle. Angola’s first-ever major public-private-partnership (PPP) has been pooled by the state, Chinese funds, and private equity. The amateur nature of the African market (supported by distinct socio-economic objectives and government-backed funding) – will help reap the benefits of a PE investor that may not debut until the middle phase of the investment life-cycle.
The brunt of investment also falls on the shoulders of innovators, scientists, and entrepreneurs in the African countries. With more innovations and opportunities, private equity funds find more prospects to invest. It’s why Jean Claude Bastos de Morais pushes for innovation in the continent. His brainchild, African Innovation Foundation is helping create an environment in Africa where technology drives investments.