Private equity fund as a vehicle for entrepreneurship

Government’s 2022 Budget was anchored on the theme: ‘Building Sustainable Entrepreneurship’. This signals the high-priority of entrepreneurship in the nation’s economic plan as a pathway toward solving the teeming unemployment. The unemployment statistics are quite dire; notably a 32.8 percent and 19.7 percent unemployment rate among the 15–24 and 15–35 year age brackets, respectively. Nonetheless, with a 70 percent reported start-up failure rate in Ghana, the ‘sustainable’ tag is quite apt, denoting a concerted focus not just on entrepreneurship but, more importantly, addressing both the systemic and company-specific factors that shorten the life-span of businesses or limit their sturdy growth.

Inadequate access to capital and managerial failures are well catalogued as the dual-pronged dominant factors leading to business failures in Ghana or limiting the sustainable growth of businesses in the country. This report seeks to examine a financing vehicle that serves the dual purpose of access to capital and managerial solutions toward maximising it for business start-ups and scale-ups in Ghana’s economy.

Common business funding in the economy

Formal business capital, beyond the enterprises’ internal funding, is fueled mostly by debt capital, with resident universal banks and microfinance institutions being the main intermediaries in the capital aggregation and subsequent transfer. Client deposits, by virtue of intent, regulation and risk management, are largely deployed as loans and also investments into low-risk assets.

Nevertheless, the stock of domestic credit in the nation’s economy is on the lower band as signaled by a 13.20 percent credit to GDP ratio for the 2020 financial year. This pales in comparison to that of lower-middle income countries, Sub-Saharan Africa and also the leading West African economies, as attested by the graph below with data from the World Bank.

This indicates that although credit is significant in the capital structure of companies, it is sub-par relative to the economy’s size and economic resources. However, the banks and the other credit intermediaries commonly cite high risk as a key factor in the low credit regime, which is invariably reflected in the high cost of debt capital. It is signaled by average lending rates exceeding 20 percent in the 2021 financial year, compared with a 6.6 percent average for the other five leading economies in the West African sub-region. This is buttressed by the highly informal profile of Ghana’s business space, with an estimated 80 percent of the nation’s workforce stemming from the informal sector. The broad informal sector is mired in weak operational practices which have a knock-on effect on the more formal entities, fusing to pose repayment challenges on credits.

Solving the credit problem

The universal banks and most lending business models are primarily focused on extending debt capital and undertaking risk mitigation strategies to strengthen repayment. Thus, these creditors focus on near-term profitability and emphasise strong cash flows for interest coverage and settlement of principal. The high interest rate and near-term horizon, in addition to security requirements, place a strain on the borrowing entities that pass the credit checks, thereby limiting sturdy company growth over the long-term. Companies in more speculative industries and phases of the corporate life-cycle – such as start-ups, early-stage, and distressed – have a lower priority in line with risk management.

Banks generally have deep technical expertise in various lending sectors. However, this skill-set is utilised more for risk mitigation strategies and debt executions for those sectors. Their objective is not to grow businesses sustainably over the long-term or to structure them into a stronger financial position, poised for a long-term value surge.

In essence, there is a missing piece; or aptly put, though available, there’s a deficiency of that piece needed to complement the more common credit capital deployed in the economy, and fitted with strategic solutions for the operational and managerial challenges that confront businesses in the country.

Is public equity offering the answer?

Equity capital, via public offering, is considered a source of patient capital and an avenue for more risk-tolerant investors with a long-term outlook. Nonetheless, investor enthusiasm is biased to a large extent toward more established firms, underpinned by solid fundamentals or with high growth prospects signaled by strong earnings, or robust market share and more structured operations.

This is exemplified by the Initial Public Offerings (IPOs) on the Ghana Stock Exchange (GSE) over the past decade, with the successful ones satisfying the aforementioned factors. (Notably Access Bank, ADB & MTN). Additionally, listing regulations, albeit mainly skewed toward investors’ protection, provide a suite of rules, of which adherence largely steers the Publicly Listed Companies (PLCs) into more structured operations and sound corporate governance practices (which are invaluable in corporate survival and growth).

The GSE Alternative Exchange (GAX) is more aligned for penny stocks of medium and small-scale enterprises (MSMEs), early stage companies and entities with speculative earnings. However, only 6 companies have listed equities on the GAX since its inception, and with a sluggish post-listing price outturn, this shows muted investor enthusiasm for those entities. This affects the appeal of the GAX as an effective capital raising vehicle.

Is private equity to the rescue?

Private equity (PE) funds are more structured for value creation in long-term operations relative to the near-term model of credit on debt coverage and somewhat volatile sentiments of listed stock investors, swayed by near-term earnings and price movements. Strategic utilisation of PE funds in Ghana’s economy should yield the needed benefits of more inclusive economic development, sustainable job creation and attainment of key sustainable development goals (SDG).

PE funds are primarily pools of investments, seeking stakes in non-public stocks, and in limited partnerships; the funds are managed by General Partners (GPs) with unlimited liability, and funded by the Limited Partners (LPs) with limited liability up to the threshold of their investments. PE funds are alternative assets (along with real estates and commodities, among others) and thus, their profile of expected and required rate of returns, risks, tax provisions and investment horizons among others, differ from the more mainstream and traditional asset class of cash and cash equivalents, fixed income and quoted stocks.

Private equity in Africa

PE deals on the continent have grown steadily in more recent times, with capital raised for Africa-focused funds totalling US$18.1billion over the 2015–2020 period, as reported by the African Private Equity and Venture Capital Association (AVCA) 2020 annual data tracker. North America and Europe accounted for the majority of funds raised for the continent. Funds raised in 2020 dipped substantially by 69 percent to US$1.25billion, relative to 2019 with the COVID-19 pandemic being the major factor. 53 percent of the 2020 funds closed were committed into growth and buyout funds, 40 percent for more early-stage venture capital, and 7 percent for infrastructure funds. In the 2015–2020 range, 1,257 deals were closed on the continent, estimated at US$21.7billion, with tech-enabled entities accounting for 46 percent. The investors were mostly skewed toward Financial, Consumer discretionary and Industrial sectors. A total of 270 successful exits were recorded over the 6-year period. Trade buyers led the exit pack, averaging an annual 41 percent over the period, followed by PEs and other financial buyers.

However, the continent accounted for a minor share of global PE investments, signalled by a 0.6 percent of the US$4.8trillion funds raised from 2007 to the 2016 financial years.

West Africa was the most preferred region for deals execution, accounting for 23 percent and 21 percent of volume and value of transactions, respectively. Nigeria was the most favoured for deals in the region, followed by Ghana, with the two countries economies’ size and strong consumer market being the chief factors, while a stable political climate added to the latter’s appeal. South Africa was the most preferred for deal volume, constituting 18 percent which accounted for 9 percent of total value. This was based on the nation’s relatively more structured and larger economy, diverse commodities and strong availability of experienced human resources. Over the period, East Africa accounted for 16 percent and 10 percent of volume and value of deals, respectively, with Kenya being the most dominant in the sub-region, buoyed by its economy’s size and deeper financial intermediation.

Ghana’s case – the how of maximising the PE vehicle.

Ghana’s economy, albeit in middle-class status, is mired in key features of developing economies, such as high unemployment rate, low per capita income, strong dependency on primary products and their exports. The economy, although commodity-rich, still lies at the lower base of production value chains; serving more as a cheap input supplier in the global production cycle. This is at odds with the case in the developed economies dominated by corporates which utilise these primary commodities into more innovative and value-added products, thereby growing into ultra-value titans, gracing the apex tiers of global rankings such as Forbes. This, to a strong extent, is via patient funding such as PE funds, with subsequent public listings or trade sales, among others, that unlock inherent value created.

PE funds, by their structure, strategy and objectives, serve as reliable vehicles for sustained economic development. Their strategic utilisation by economic managers should spur sturdy development in identified sectors with results in a number of benchmarks over the long term.

A needed government policy

To maximise the effectiveness of PE investments, a government policy would be needed that prioritises PE funds as strategic vehicles in the entrepreneurship drive, targetting the commensurate effects of job growth, broad economic development and meeting key SDGs.  Such a policy should identify sectors with strong multiplier effects on the aforementioned policy objectives, such as Agro-processing, Infrastructure and Health.

Based on such a PE policy, the Government of Ghana (GOG) shall be expected to lead the charge in addressing some of the constraints affecting that asset class, take limited partner position in some PE funds of funds or directly in funds, and in conjunction with the industry players, actively woo and incentivise domestic and international investors to commit to the Ghana agenda. It is worthy of note, that the GOG’s most important role in the PE drive lies in creating a stable and strong economic environment, characterised by currency stability, low inflation and low yields on fixed income instruments coupled with more empowering regulations such as enabling Limited Partnerships in Ghana, which should boost fund domiciliation in the country.

The essence of PE funds in the economic space is well documented, being favourable on various metrics as signaled by an 83.7 percent jobs growth in PE-backed firms in the U.S, vis-à-vis a 27 percent jobs growth of non-PE-backed entities, over 1995–2013. Sales growth over the same period hit 134 percent in PE-backed entities versus 31 percent growth in non-PE backed entities over the same period. International Financial Corporation’s (IFC) data for emerging economies was on a similar up-trend, as its over US$4.0billion emerging market portfolio grew jobs in excess of 15 percent over 2000-2011. Additionally, a McKinsey study in India found that direct jobs in PE-backed entities grew 6 percent faster than those in non-PE-backed entities. Moreover, revenues and earnings grew faster in PE-backed firms by 28 percent and 39 percent respectively, relative to non-PE-backed comparables.

Fund raising

Globally, it is estimated that only 1 percent of PE fund raising are successful. Indeed, a 2021 AVCA PE industry survey reported that 67 percent of General Partners viewed fund raising among the biggest challenges confronting the continent’s industry. Accordingly, it would be beneficial for the GOG, in concert with industry players, to be pro-active in facilitating fund raising for funds under the recommended PE–Entrepreneurship policy. Initial emphasis should be laid on domestic fund raising, and its success should steadily attract and boost foreign investors’ commitment to Ghana-target funds.

Key prospective investors are:

The government: Ghana’s government has, over the years, invested in the Venture Capital Trust Fund (VCTF), initially funded with 25 percent earmarked from the erstwhile National Reconstruction Levy. However, with the abolishment of the levy in 2007, the fund has been starved of consistent funding from governments.

The fund has, over the years, been reported to have invested a cumulative US$100million into portfolio companies across various sectors. This is on a low rung in view of the nation’s high unemployment rate and strong opportunities from vast economic resources. It thereby paints a weak posturing of successive governments in utilising PE vehicles in the much-touted entrepreneurship drive.

The GOG should heighten its funding commitment to the VCTF and other fund of funds, whose investment policies fall in sync with the PE-Entrepreneurship policy drive, targetting investees in approved sectors, with an expected multiplier effect on jobs and other broad economic indicators.

GOG youth entrepreneurship & development vehicles:  It is well noted that a number of well-intentioned pro-job and development-targetted interventions have failed to attain the envisaged objectives. This is attributable to some inherent weaknesses in the instituted vehicles tasked with executing those programmes, such as the NYEP, NABCO, SADA, GYEEDA, among others. These like-initiatives, to a high extent, lacked the institutional experience, skill-set, and independence to attain the policy objectives. Their horizons have generally not exceeded political cycles, and their institutional decisions are, to a fault, near-term.

It would be prudent to diversify the asset mix of these entities by including PE funds in their portfolios since PE fund managers generally have the institutional experience, skill-set, independence, longevity and strong drive for capital gain in the investees. By their structure, PE funds are more suited in aligning the objectives of the GPs, and by extension, the investors (in this instance, the government’s socio-economic vehicles) with the managers of the portfolio companies. PEs are more efficient in capital deployment and their rigorous monitoring differs from the lax oversight that is more prevalent with government vehicles.

Therefore, the government, through their development vehicles, should target funds with sector focus and policies that fall in line with theirs. This could be exemplified by the Planting for Foods and Jobs (PFJ) initiative, channelling part of its investible capital into a special fund set up and managed by a PE firm toward reaching the former’s objective. The PE fund could thereby raise additional funds from other investors which identify with PFJs objectives. Another is the National Youth Employment Program (NYEP) channelling part of its capital to a fund of funds such as the VCTF, which then takes a limited partner position in a fund that matches its objectives. Others, such as the one village one dam initiative, could make capital commitments to PE funds, set up to invest in and manage entities developing and managing agriculture infrastructure, such as irrigation dams. In exiting, acquirors could include municipal assemblies, utilising municipal funds for such acquisitions toward the economic growth of their localities.

Pension funds: Pension funds, across the globe, based on their long-term horizons and in pursuit of return-outperformance over more conservative assets, have over the years been significant investors in private equity funds.

Tier I: Ghana’s Tier 1 Pension scheme is managed by the Social Security and National Insurance Trust (SSNIT) and the monopoly affords SSNIT a cache of reliable cash flow, with assets in excess of GH¢11billion as at the close of the 2020 FY. Equities accounted for 50 percent of the aggregate portfolio with unlisted equities constituting 32.89 percent of the aggregate asset slate, making it the biggest asset class. It is a strong statement of SSNIT’s affinity for unlisted equities.

However, going forward, it would be prudent for SSNIT to outsource its unlisted equity allocations and management to PE funds with strong track records. SSNIT’s return on investments paled in comparison to a number of primary metrics, such as yields on GOG instruments and the inflation rate. Over the 2016–2020 range, positive real return was solely attained in the 2017 financial year, contributed in part by equities, attested by 1.42 percent and -1.82 percent equity returns in 2020 and 2019, respectively. This does not exactly posit a sterling fund management track record. SSNIT’s unlisted equity management largely appears as a buy and hold model with undefined horizons and minimal exits over the years. This might be a contributory factor in the low portfolio returns as there’s usually more opportunity to maximise gains upon exit. It also denotes a passive strategy toward value creation, vis-à-vis the more active value creation undertakings of GPs.

Investing in unlisted equities via PE funds would avail SSNIT of the value creation strategies of the General Partners. The PEs, in pursuit of capital gains and based on competition would be more buoyed to attain returns. Additionally, the PEs would, to a greater extent, be devoid of governmental interference.

Private pension schemes: Ghana’s Tier II pension schemes are by the National Pensions Act 766 permitted to invest up to a 5 percent cap of investible funds in PEs. However, as at the close of the 2020 financial year, alternative assets accounted for a measly 0.03 percent slice of the GH¢22billion assets. The fund managers have exhibited a deep risk aversion with government instruments and bank securities accounting for approximately 90 percent of AUM.

The long-term horizon of PEs, coupled with their historically strong performance should steadily boost private pension fund managers’ appetite for that asset class. It was recently reported that Injaro Investment Advisors (a PE/VC firm) launched a fund with a number of private pension schemes among the committed investments. This is a welcome sign and should serve as a prelude to a steady shift to that asset class by pension fund managers.

Banks

Development Bank of Ghana (DBG): Development banks seek to attain specific development objectives in the economy, utilising medium to long-term funding either directly into investments or via other financial entities and vehicles. They generally seek to achieve key SDGs and thereby avail their technical expertise for their targetted sectors. Consequently, the DBG, with committed capital, reported to be in excess of US$750million, is well primed to invest in PE funds under the recommended PE-Entrepreneurship policy.

Universal banks: The universal bank business model and capital requirements, as stated earlier, are not structured for equity capital deployment. Nonetheless, they have historically attained attractive earnings from extending credit in the nation’s economy. It would be prudent for the GOG to endeavour the banks to invest a portion of earnings into PE funds under the recommended programme. This could be fitted with tax benefits, with taxes being charged on capital gains from realising the PE returns at exit. This is a win-win situation, with expected strong returns for the banks, subsequent credit availability for the efficient PE-backed firms, favourable effects on the nation’s job numbers, and development metrics. Alternatively, it could be enacted into an act, akin to the National Reconstruction Levy, where a percentage of banks’ earnings shall be invested into PE funds under the policy, targetting returns at exit. Indeed, it would be prudent to levy higher rates on erstwhile development banks such as ADB and NIB, and commit into sectors that fall in line with their former mandates, such as Agric-focus funds by the ADB. The GOG could also consider committing dividends earned from its stake in universal banks into such PE funds. Their utilisation would be more structured and measured to spur development vis-à-vis being paid into the general government kitty.

Value creation

The General Partners’ driving force is to maximise the value of the portfolio company, vis-à-vis the value at acquiring a stake. This is achieved from capital gain, based on the commensurate compensation from the carried interest (the GPs share of returns over a pre-agreed benchmark/ hurdle rate). Thus, the GPs craft value creation plans (VCP) prior to gaining a stake, as indeed, a stake with no viable value creation pathway is hardly worth pursuing.

Under the recommended PE-Entrepreneurship policy, the essence of value creation plans cannot be overemphasised. It is expected to be crafted and undertaken not solely in pursuit of capital gains, but additionally to attain the aforementioned objectives of job growth and economic development. These value creation strategies should build a number of regional corporate giants, blazing their trails across the continent with strong employment capacities and buoying economic development. These objectives are expected to guide the value creation plans with notable strategies of financial engineering, operating engineering, corporate governance, among others.

Financial engineering

Financial engineering involves quantitative and technical theories in solving problems via developing financial strategies and products. Value creation via financial engineering comes in various models. It is quite commonplace in the developed markets, characterised somewhat by firms in the more matured to declining phase of their life-cycle. Leverage is occasionally utilised in acquisitions backed by the target company’s assets and cash flows. Job cuts and sale of non-strategic assets are sometimes used among a suite of cost cutting strategies to dampen the cost margins and heighten the bottom lines, with its attendant bolster of returns and valuations. That approach, is perceived to be more rewarding for a narrow set of stakeholders – notably, investors and fund managers. This model has, to an extent, mired PE funds in unpopular tags of heartless corporate mercenaries.

However, we expect a more growth-endearing approach under the recommended PE- Entrepreneurship policy. This is because the African scenario hinges highly on a strong degree of untapped markets, where capital is mainly deployed to fuel growth and build market share. The PE firms are expected to actively and strategically optimise the portfolio companies’ capital structure and implement sturdy risk management strategies.

The PE firm’s involvement in the portfolio companies boosts the latter’s corporate image, with probable enhancement of its credit profile. The PE firms, based on their robust relationship with banks and other debt providers, shall be able to negotiate and structure more optimal debt which shall be utilised in value enhancing strategies such as retiring less favourable debt, among others. Additionally, sturdy risk management models could be crafted and developed in line with the dynamics of the investees’ industry and company-specific risks. PE firms are useful in projecting future dynamics, weighing various scenarios and thereby designing appropriate and far-sighted risk management solutions. Instruments such as options and forward contracts could be executed for commodity-based companies, among others. These could offset losses and protect value created over the fund’s horizon.

Corporate governance

The importance of corporate governance for sustainable value creation cannot be over-stated.  The nation has a high estimated failure rate of start-ups and a high informality of resident enterprises. Business owners generally perceive firms as extensions of themselves, thereby subject to the same self-interest whims, rather than separate entities subject to corporate governance principles. Indeed, the 2017-2020 banking and related sector crises brought to the fore poor corporate governance as practised among the distressed companies. Their symbols are quite familiar and serve as a strong proxy (or mirror the poor practices) in the nation’s business circles; weak board composition, conniving board members in the flouting of regulatory and ethical provisions, conflict of interest issues, among others.

A McKinsey survey across 70 firms on the dynamics between PE boards and management evidenced the outperformance of the PE investees over publicly listed companies and also private non-PE funded entities. Stronger corporate governance practice was noted as a major factor, with the portfolio companies’ governance found to be more engaging and direct.

The board is recognised as the primary agent to ensure adherence to corporate governance and, as such, the PEs would be expected to constitute boards of experienced, high integrity professionals with the proven skill-set to run the investees toward attaining the returns targets while meeting the developmental and job targets of the PE policy. The strong supervision of the PEs should, to a high extent, keep the portfolio firms in strict compliance with corporate governance rules. These should, overtime, improve risk mitigation and build a more structured corporate culture, primed for strong value creation and thereby more sustainable growth.

Operational engineering

PE funds typically undertake operational due diligence prior to acquisition to gain insight into the existing operational practice and diagnose potential kinks in the operational loop, of which resultant transformation should improve efficiency, with attendant effects on earnings, financial position and returns on investments.

It is empirically proven that PE firms that assign directors and managers with operational background (i.e. industry-specific experience) tend to outperform quoted peers. PE funds under the programme will be expected to employ the services of industry experts with the required skill-set to lead the investees, reduce operational bottlenecks, enter new markets, improve synergies, and drive efficiency via speed and quality of delivery while ensuring more cost-friendly approaches. The PE firm would be expected to bring their network and contacts to bear on the operations of the investees. This can be exemplified in the form of using their deeper reach to source inputs in greater quantum and negotiate lower costs.

Exits

Exits are the pathway for investors to realise capital gain. This is well illustrated by the pun ‘no exit, no gain’. Exit brings to the fore the valuation tradeoff as the PE funds seek the lowest possible floor valuation at gaining equity stake and seek maximisation of valuation at exit to heighten returns for its stakeholders. Exit strategies are crafted and developed within the larger investment policy of the fund. Consequently, the exit strategy and possibly the preferred buy-side parties should be in line with the objectives of the recommended government PE policy.

Exiting the business is not a straight forward process compared to listed equities on more liquid bourses where stocks change hands via a few strokes of the trading terminals. This is a low liquidity asset; consequently, trading involves a deeper deal-making process, valuations and negotiations.

Exiting is noted as quite a difficult process and even more so on the African continent, with a relatively weaker mergers & acquisitions culture. Indeed, in the 2021 AVCA survey, 76 percent and 67 percent of LPs & GPs, respectively listed exit challenges among the biggest slate of problems that PE fund managers will face over the next 3 years.

GPs generally exercise a number of exit strategies; and though these might be crafted in the limited partnership, it is nevertheless subject to the state and timing of the financial market, the economy, industry of operations, capital requirements, portfolio strategy, pricing constraints, etc.

In exiting, there is an interplay between the PE fund, the buyer and the PE-backed firm, with a delicate balancing act of their separate objectives. Key exit strategies expected to be considered under the PE-Entrepreneurship programme are:

Trade or strategic sale

This involves the sale of an equity stake to a non-financial firm, usually in a similar industry, part of the industry’s value chain (such as a real estate company gaining a PE-backed cement manufacturing company) or forming/joining a conglomerate. Unlike a financial sale, the buyer(s) usually seeks strategic benefits from the acquisition, such as increased market share (Expected to be more efficient and effective than that envisaged from organic growth), benefitting from a specialised skill or market niche expertise of the PE-backed firm, affording diversification and economies of scale, dampening costs, among others. A trade sale also provides a viable route for foreign companies to enter Ghana’s business space, purchasing entities which have been strategically grown and are poised for another phase of growth.

Initial Public Offerings (IPOs)

This route floods the dream list of many an entrepreneur. Start a business from scratch; a strong growth phase and next a high-value listing on a bourse, huge sums milked as the firm leaps into a unicorn (a US$billion plus value) and gracing the Forbes list of nothings to greats. The statistic is quite challenging as it is estimated that there is a remote 0.00006 percent chance of building a billion-dollar company. Nevertheless, the popularity of IPO exits is that they present the strongest route to maximising capital gain.

The PE firm seeks to realise gains via Initial Public Offerings on an equity bourse. The remaining investors which usually include the entrepreneur, benefit from the upsides in the stock price, with the resultant increase in value and vice-versa. The more diverse the shareholders, the less threat from shareholders, such as shareholder activists cast in the Carl Icahn molds.

Nonetheless, the IPO route, mirroring the global picture, is the least utilised, though not the least favoured. The dynamics toward successful IPO exits are quite a number, but can be mostly summed up as potential shareholders’ sentiments which are influenced by financials, product demand, market share, company visibility, among others, as investors seek to gauge the potential value-upside in the listed company.

In Ghana, a number of factors bedevil the IPO exit path. Investors’ appetite for listing is the most important factor, in sync with their expectations of returns. The picture on Ghana’s bourse has not exactly been encouraging. Over the past decade, the market registered bearish outturns in five years and the composite market returns over the range was estimated at approximately 146 percent, trailing the GOG 1-year risk-free asset by 55.94 percentage points. This certainly makes the bourse a difficult ‘poster child’ to whip up investible funds from the public and thereby increase the success of exits via IPOs.

The drive to integrate West Africa’s capital markets, expected to deepen activities on the various markets, has yet to materialise. The West African Markets Integration Council has been set up for close to a decade, and after years of long discussions and note-taking sessions, the plan has steadily gained more weight in ideas than in practice. The integration of the region’s markets would surely deepen the opportunities for IPO exits, under the recommended PE-Entrepreneurship programme.

In line with the PE programme, more strategic actions must be spearheaded by the regulators and other players to increase the strength of the bourse for exits, such as encouraging market makers to help address the age-old problem of poor liquidity. Most importantly, the government debt management must be improved over the long term. This feeds into the high rates of the GOG risk- free instruments indicated by a 10-year average of 18 percent (GOG 1-Year note). It is a high disincentive for fund managers to take up higher risks on the bourse.

In summary, the gains from elevating PE funds into the entrepreneurship agenda cannot be over-emphasised. The public finance is stretched, with a high debt over-hang; 78 percent of GDP (Mar-2022). Consequently, a PE drive presents a viable pathway to strategically boost entrepreneurship in key sectors with minimal effects on the national debt, while targetting strong returns on invested capital. The expected increase in entrepreneurship, boost in business value, and employment should steadily reflect in increased tax revenue for the GOG, strengthening the public finance.

Additionally, the touted rigorous PE monitoring approach, improved corporate governance of investees and more structured operations should steadily be the new standard-bearers or benchmark for business practice in the economy, even among non-PE-backed entities. This should gradually reduce the lax managerial practice in the nation’s business circles. The PE vehicles can be utilised to broaden businesses across the country and help in decentralising economic generation across the country. This should reduce the high urban drift and the security ills from unemployment.