After earning an MBA in finance from Columbia Business School, Michelle Kathryn Essomé spent 20 years working in investment banking. She acquired experience in marketing and origination roles in equities, fixed income, and investment management at Merill Lynch, Goldman Sachs and Lehman Brothers, among others. She is now the chief executive officer of the African Private Equity and Venture Capital Association (AVCA), a pan-African industry body which aims to catalyse, promote and enable private equity and venture capital investment in Africa.
Leaders League. The African continent has a lot of stimulating challenges and opportunities. It nevertheless suffers from a lack of investment, and despite the needs for financial support from the private sector, African banks are not good lenders. How does private equity contribute to solving this issue?
Michelle Kathryn Essomé. Private equity has played a leading role in backing and nurturing promising companies in Africa, stepping in to provide funding to enterprises that have often been unable to raise funding from other sources and are eager for the business sense and expertise that experienced fund managers can provide. However, it is not just traditional PE that has played a role in stepping in to provide much-needed capital in Africa. AVCA recently published a report entitled “Private Credit Strategies in Africa: Exploring the Market’s View,” in which we explored the key opportunities and challenges facing the private credit sector in Africa –an industry whose ability to provide credit to SMEs underserved by providers such as banks, is a large part of its growing prominence.
How does AVCA promote private investment in Africa? Which instruments are the most efficient to help those companies not listed to raise capital?
AVCA promotes private investment in Africa through four key pillars: research, training, networking and advocacy. Through our research reports, our annual conference, the training that we provide to fund managers and institutional investors and our efforts to be a public voice for the industry, we seek to showcase to the world the depth and diversity of the investment opportunity that Africa represents. Regarding how unlisted African companies can raise capital, there are a wide variety of options that owners can consider, from raising senior debt from a private credit fund, to bank credit, to full private equity investment. What is important is that they tailor their strategy to their company’s needs and preferences.
“SMEs are most in need of financing in Africa”
Which sectors do the companies most in need of this type of financing come from?
It is typically SMEs that are most in need of financing in Africa, given the difficulties that they face in raising capital from traditional sources such as banks. These SMEs are often from a variety of consumer-focused sectors.
According to the AVCA Guide on PE, private equity in Africa is primarily characterized by growth capital, but also increasingly by a focus on environmental, social, and governance standards. Can you tell us more about this?
The African PE industry was founded by development finance institutions (DFIs), who continue to be a major source of funding for general partners (GPs) active on the continent. As such, there has been a long-standing focus from Africa-focused fund managers on driving sustainable development and improving environmental, social, and governance standards in the companies in which they invest. AVCA has published numerous studies exploring different aspects of how GPs seek to advance ESG standards in Africa, such as the “2018 Africa Sustainability Study: Creating Value through Corporate Governance”, and the “2017 Africa Sustainability Study: ESG, Job Creation and Job Quality.”
How do you foresee AVCA's role developing in the future?
We foresee AVCA continuing to play a leading role in catalysing private investment in Africa by introducing new research reports exploring themes and segments of the market, using our annual conference to highlight the diversity of the investment opportunities available on the continent, as well as expanding our advocacy efforts and training offerings to continue to meet the needs of the industry.