Private Equity Investment In Ethiopia Practices Challenges

Private companies are important to national economies because they contribute significantly tornemployment and GDP growth of a country. However, the source of finance to help the growth ofrnthe private sector in Ethiopia is limited to the country’s commercial banks, which lack therncapital or capacity to fund the growth needed by the private sector. Private equity can be arncomplementary source of finance to help grow the private sector in Ethiopia. The generalrnobjective of this study is to examine how the phenomenon of Private Equity investment isrnpracticed in Ethiopia and to assess challenges of private equity investment in Ethiopia , mainlyrnfrom fund manager’s perspective.In line with the stated purpose of using a fund manager’srnperspective as well as limited time and resources, pure asset owners and entrepreneurs were notrninterviewed. The study used qualitative data, which were gathered through literature study andrnin-depth interview. The thesis adopted exploratory approach. The study is qualitative and basedrnon in-depth interviews with people active in the Ethiopian PE investing space. Findings arernanalyzed and discussed based on data gatheredand through a literature study reviewed. Thernmajor findings of this study revealed that PE firm in Ethiopia is at early stage but still growingrnand also identified challenges for both privately owned companies and private equity investors.rnFor privately owned companies, the challenges include loss of ownership stake, loss ofrnmanagement control, and lack of understanding of private equity investment. For private equityrninvestors, the challenges include lack of exit options, risk of capital repatriation, difficulty tornregister capital, complexity of family-owned business, size of exiting enterprise, lack of financialrnreporting standard, and regulation restriction and modification. In addition, two majorrncategories of benefits of private equity investment were identified. Finally, the study concludedrnby providing recommendations that enable Ethiopia to benefit from private equity, whichrnincludes exit strategies, easing capital repatriation, improving registration process, supportingrnimprovement of financial reporting, and policy consistency.

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