Simon Merchant didn't ever expect that his passion for international development and small and medium enterprises would someday meet the big bad world of private equity. But as he makes his move from London to Accra, Ghana, next month, those two passions will finally merge.
Merchant is the co-founder and CEO of Jacana, a private equity firm focused on small and medium enterprise (SME) development in Sub-Saharan Africa. He co-founded Jacana just two years ago with a team of experienced investors who wanted to make a difference in Africa in a strategic way. Last week Jacana announced the company's second investment in Africa—in Ghana’s leading private equity firm, Fidelity Capital Partners, to help expand their team and provide hands-on support (Merchant would not disclose the amount). Fast Company caught up with Merchant to find out more about Jacana and the company’s approach to investing in Africa, as he makes his transition from being a London-based investor to a full-time on-the-ground mentor to his new investee, Fidelity.
What is the idea behind Jacana?
Jacana is a mission-driven private equity business. In essence it is about engaging the private equity world to catalyse SME growth in Sub-Saharan Africa and, ultimately, make a significant and sustainable contribution to economic development and poverty alleviation.
How did Jacana's mission evolve?
Two of my co-founders, Lord Joel Joffe (the former Chairman of Oxfam) and Stephen Dawson (co-founder of Impetus Trust, the UK’s first venture philanthropy organization) met at a conference in 2008 and had a conversation about poverty reduction in Sub-Saharan Africa. Lord Joffe was a bit frustrated by the impact that he was having in the charity sector, and was wondering whether working with for-profit organizations would be more sustainable, having been encouraged by some investments he had made in small start-up venture capital funds in Africa. Stephen Dawson has been involved in private equity in the UK for about 30 years and was looking at ways to take a venture capital approach to poverty alleviation in Africa. Since then it has continued to gather momentum.
How and why did you get involved?
I have a professional background in entrepreneurship and early-stage investment, but have also been closely involved in some development projects in Ethiopia, Burkina Faso, Ghana and Malawi. Having sold my business in 2005 I was looking for an opportunity that had the potential to combine these two passions–SME investing and development in Sub-Saharan Africa. Fortunately enough, I ran in to Stephen Dawson at the right time.
As a private equity firm, where did your interest in Ghana come from?
We focus on Sub-Saharan Africa and believe that Ghana is one of the most attractive countries in the region. The country has a stable democracy and the economy is growing steadily, particularly with the recent commencement of oil and gas production.
With your goals of helping to alleviate poverty in the country, what role does private equity play?
Job creation alleviates poverty in a very direct way. SMEs are a major source of jobs in developed countries but are currently not so significant in Sub-Saharan Africa. The major reason for this is 1) a lack of risk capital to support the growth of SMEs and 2) a lack of expertise and experience in the investment process. By partnering with local funds like Fidelity in Ghana or InReturn in Kenya, we can combine our experience and fundraising capacity with their local knowledge and deal pipeline. We believe the end result will be the growth of many healthy businesses that will provide essential jobs, skills and services and grow the tax base in the countries where they operate.
What are the most outstanding examples of SMEs making an impact in the country?
Our Ghanaian partner, Fidelity Capital Partners, has a fantastic portfolio of businesses that read like the building blocks of any healthy emerging economy or society: a school, a real estate business that specializes in affordable housing, two healthcare businesses, a microfinance institution, an internet services provider, agro-processing. And there are more in the pipeline. These are the kind of companies that will make a lasting impact on a country’s development.
What is your answer to critics who argue that aid, not the private sector, is the answer to Ghana's development challenges?
Aid certainly has an important role to play in supporting development in all developing countries. However, history shows that aid alone cannot drive development. Aid encourages dependency whereas investment encourages accountability and economic growth. There is no example of a country that has achieved sustained poverty reduction without economic growth.
How does knowledge transfer play a role in your work?
Knowledge transfer is a fundamental part of what we do, and the way we do it is actually quite unique. We have a network of ‘Expert Mentors’–highly experienced and qualified private equity or venture capital professionals–who contribute their time and expertise pro bono to add value to our partners and their portfolio companies. It is the combination of capital and expertise that makes our model.
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