In 2020, Stripe’s acquisition of Paystack for $200m sent a strong message to the investment community about the value and viability of African led enterprises.
Paystack had a number of Nigerian seed investors that helped fund the company from inception to acquisition.
This set a precedent suggesting future significant exits are possible while underscoring the substantial potential awaiting astute local investors in the African market.
Safeguarding investor interests
Nigeria boasts an expanding group of High-Net-Worth Individuals (HNIs) and African family offices that could play a pivotal role in the venture capital and alternative investment landscape.
Coupled with expanding savings pools in pension funds (N16.1trn [$21.4bn] as of May 2023, according to Agusto & Co) and mutual funds, these entities represent a significant combined store of wealth.
However, much of this financial power is yet to be fully deployed in non-traditional investment avenues, such as alternative investments. This presents an untapped opportunity to channel local resources into private markets.
A robust regulatory framework further enhances the well-being of investors. Regulatory structures must adopt a long-term perspective while remaining flexible and responsive to market developments.
This approach ensures that innovative products and offerings adhere to the highest transparency, security, and compliance standards.
As local private markets and venture capital evolve, a steadfast commitment to engaging with regulators establishes a secure operational environment that safeguards investor interests while fostering sustainable growth.
Recent legislative developments, such as the inclusion of private equity in pension fund portfolios, signal positive momentum towards regulatory alignment with alternative investments.
It is crucial to strengthen the ecosystem by advocating for clear guidelines, heightened transparency, and measures that enhance investor protection and confidence, thereby attracting a broader spectrum of investors.
FX volatility
FX volatility will still need to be addressed, however. The impact of foreign exchange (FX) volatility and high inflation on the investment decisions of local investors cannot be underestimated.
The fluctuations and unpredictability of the Naira’s value against foreign currencies introduce elevated levels of risk and uncertainty into many investment ventures.
By combining local knowledge with international expertise, Africa can chart a more inclusive and prosperous future, solidifying its position on the global stage.
This volatility also diminishes the Naira’s acceptability as a store of value. High inflation erodes not only the purchasing power of local investors but also complicates asset valuation, profitability projections, and overall financial planning.
FX instability amplifies the perceived risk associated with domestic investment, potentially deterring international private investors or local investors with non-Naira-denominated savings seeking stable returns.
Measures to address high inflation FX instability and restore confidence in the Naira’s value are imperative to encourage increased sustainable local investment.
A future redefined
The time has come for a paradigm shift in the African investment landscape, ushering in a reality that challenges the over-reliance on external, DFI-focused support.
This approach not only promotes self-reliance and sustainability, but also fosters a deeper sense of ownership over economic growth.
By combining local knowledge with international expertise, Africa can chart a more inclusive and prosperous future, solidifying its position on the global stage.
As we navigate previously uncharted waters, I extend an invitation to investors, regulators, and all stakeholders, inviting them to embark on this journey towards realising this potential, putting African capital at the centre of African investment growth and development.
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We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.
