Private Equity Investment in Ethiopia :Practices &Challenges
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Date
2019-10
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Publisher
A.A.U.
Abstract
Private companies are important to national economies because they contribute significantly to
employment and GDP growth of a country. However, the source of finance to help the growth of
the private sector in Ethiopia is limited to the country’s commercial banks, which lack the
capital or capacity to fund the growth needed by the private sector. Private equity can be a
complementary source of finance to help grow the private sector in Ethiopia. The general
objective of this study is to examine how the phenomenon of Private Equity investment is
practiced in Ethiopia and to assess challenges of private equity investment in Ethiopia , mainly
from fund manager’s perspective.In line with the stated purpose of using a fund manager’s
perspective as well as limited time and resources, pure asset owners and entrepreneurs were not
interviewed. The study used qualitative data, which were gathered through literature study and
in-depth interview. The thesis adopted exploratory approach. The study is qualitative and based
on in-depth interviews with people active in the Ethiopian PE investing space. Findings are
analyzed and discussed based on data gatheredand through a literature study reviewed. The
major findings of this study revealed that PE firm in Ethiopia is at early stage but still growing
and also identified challenges for both privately owned companies and private equity investors.
For privately owned companies, the challenges include loss of ownership stake, loss of
management control, and lack of understanding of private equity investment. For private equity
investors, the challenges include lack of exit options, risk of capital repatriation, difficulty to
register capital, complexity of family-owned business, size of exiting enterprise, lack of financial
reporting standard, and regulation restriction and modification. In addition, two major
categories of benefits of private equity investment were identified. Finally, the study concluded
by providing recommendations that enable Ethiopia to benefit from private equity, which
includes exit strategies, easing capital repatriation, improving registration process, supporting
improvement of financial reporting, and policy consistency.
Description
A research project submitted to Addis Ababa
University, college of business and economics,
Department of management in partial
Fulfillment of requirements for degree in
Masters of business administration
Keywords
Ethiopia, Investment, Private Companies, Private Equity