DEG invests in first Ethiopia private equity fund

DEG Ethiopia investment Schulze Fund GermanyDEG has offices in Kenya, Ghana and South Africa. (Image source: DEG/KfW Photo Archive)Deutsche Investitions und Entwicklungsgesellschaft mbH (DEG) has announced a US$10mn investment in Schulze Global Ethiopia Growth and Transformation Fund I

The Fund, which targets small and medium enterprises (SMEs), seeks to deploy between US$1mn and US$10mn per investment in order to develop future industry leaders in Ethiopia, DEG said.

Bruno Wenn, chairman of DEG, said, “This investment reinforces DEG’s commitment to making pioneering investments in new frontier markets.”

The Fund, which is the first-ever international private equity fund focussed exclusively on Ethiopia, is expected to reach US$100mn. Shares will be held for multiple years as part of a long-term strategy to develop companies that will remain prosperous after the Fund’s eventual exit, DEG said.

The equity investments will benefit numerous SME businesses across a range of sectors, including agro-processing, industrials and manufacturing. The Fund will also help to improve standards of corporate governance, accounting and transparency.

Ethiopia has the second largest population in Africa after Nigeria and the fastest growing non-energy-based economy on the continent, with an average annual real GDP growth of around 10 per cent during the past six years.

The private sector in Ethiopia is nevertheless still weak, with businesses in critical need of capital to fund their expansion, DEG claimed.

“By investing in the Fund, DEG will be among the first foreign investors not only to provide growing private sector businesses with access to much-needed capital, but also to highlight Ethiopia as an investment destination,” said Wenn.

Ethiopian banks rarely undertake cash flow or risk-based lending, meaning many companies, particularly SMEs, urgently need access to long-term risk capital investments for growth which the Fund will aim to provide, DEG noted.

The company committed US$298mn to Africa in 2011, exceeding the US$290mn it invested in the continent in 2010.

“In future a central focus will be put on the extension of the commitment in sub-Saharan Africa, as most low-income and high-risk countries are concentrated in this area,” commented Wenn.

DEG has three representative offices in Africa, which are located in Kenya, Ghana and South Africa.

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