An Overview of Nigerian Venture Capital and Private Equity
Private Equity in Nigeria
EXECUTIVE SUMMARY 3
NIGERIA COUNTRY ANALYSIS 5
TABLES AND EXHIBITS 7
Private Equity in Nigeria
Nigeria is facing an uncertain future as outbreaks of ethnic and religious violence continue to place strains on Africa’s most populated country. With the 2003 elections approaching, the continuing battle amongst incumbent politicians and between competing ethnic and regional groups is likely to intensify. Such an environment will test Nigeria’s fragile democracy, which has never witnessed a hand over from one civilian government to another. The Nigerian government is expected to continue with economic liberalization, at a slow pace. The government’s main challenges will be to curb spending, increase the pace of its privatization program, liberalize domestic fuel subsidies, improve the nation’s infrastructure and improve homeland security. The challenges and constraints that private equity investors face in Nigeria can be grouped into three areas:
· Macro/country factors,
· Industry-specific factors,
· Company-specific factors.
These issues affect private equity investors in Nigeria differently depending on where the investor is located, the focus of their fund, and the preferred investment stage of the fund manager. It is important to have a strong understanding of the issues that private equity investors in Nigeria face in order to develop strategies for a successful Nigerian private equity industry in the future.
Venture Capital and Private Equity in Nigeria
Funds under management and commitments
Total funds under management in Nigeria are approximately $75 million (Exhibit IV). This is due to the fact that private equity is a fairly new phenomenon in Nigeria. The first private equity fund in Nigeria, a $35 million fund sponsored by Capital Alliance Private Equity (CAPE), was raised in 1998.
Nigeria’s banking industry has established the Small and Medium-Scale Industries Equity Investment Scheme (SMEIS) to fund the country’s troubled businesses. Under the scheme, launched on August 21st by President Obasanjo, all banks are required to set aside 10% of their profit before tax annually for equity investment in small and mediumsized industries for the next five years. CBN officials said that 33 banks had already set aside N4.15bn (US$37m) for the scheme, which is expected to have annual funds of around N5bn. Although the banking industry has yet to deploy the funds into companies at this time, this will only slightly increase both the commitments to and the number of private equity funds under management in Nigeria.
1 Source: Nigeria, Country Commerce, February 2001, Economist Intelligence Unit Private Equity in Nigeria
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In terms of size relative to GDP, Nigeria’s private equity industry is much smaller than the Israel (12.1% of GDP), USA (4.9% of GDP), the UK (2.3% of GDP) or South Africa (4.2% of GDP). The relatively small size of Nigeria’s private equity market (as a percentage of GDP) may indicate significant room for growth in the near future. Types of funds
Significant players in the Nigerian private equity industry include the private equity investment portfolios of government and aid agencies. Examples of these include CDC Capital Partners (previously the Commonwealth Development Corporation) and the International Finance Corporation (a division of the world bank). Independent (third party managed) funds are not yet prevalent in Nigeria at the present time. CAPE is the first independent fund in Nigeria. The fund is positioned as an independent venture fund with a particular focus on startup and development capital investments. Additionally, as a result of the SMEIS initiative, approximately three to four new SME funds will be created by the end of 2002. This bodes well for entrepreneurs who have found it difficult...