A new study has revealed that about 60% of African-focused investment vehicles are domiciled outside the continent.
The report, commissioned by the Mastercard Foundation in partnership with Mennonite Economic Development Associates (MEDA) and conducted by a team of experts from Momentus Global, Samawati Capital Partners and Stafford Law, found that this trend was a significant obstacle to the provision of capital to Medium and Small Scale Enterprises (MSMEs) in countries across the continent, particularly those owned by women and the youth.
The 190-page report, titled “Study on Africa as a Jurisdiction for Domiciliation of Investment Vehicles” identifies how the domiciliation of investment vehicles could boost economic growth across the continent.
The report covers 13 African investment destinations, including Ghana, Ethiopia, Nigeria, South Africa, Senegal and Morocco, assessing their viability for domiciliation and providing suggestions to ensure they are ready to capitalise on domiciliation opportunities for economic advancement.
Ghana, it noted, and other high-potential jurisdictions like Cape Verde, Uganda, and Rwanda had demonstrated a “proactive approach to building regulatory environments conducive to attracting foreign investment and have prioritised creating ecosystems that foster foreign and pan-African Investment Vehicles.”
The President and CEO of MEDA, Dr. Dorothy Nyambi said, “It is time to enhance Africa’s competitiveness and increase capital mobilisation through strategic investment vehicle domiciliation. Transforming the investment landscape for African-owned and women-led investment vehicles will strengthen MSMEs that generate dignified and sustainable jobs for women and youth across Africa.”
The report provided country-specific recommendations to boost domiciliation prospects and called for concerted and deliberate actions by various stakeholder groups and advocacy agents.
Among the measures recommended for implementation in Ghana were the promulgation of the Limited Partnership Law and Trust Law to expand the permissible legal structures for funds and provide alternatives for Fund managers and investors.
The report also pushed for the establishment of an Accra International Financial Centre framework to provide a dynamic and investor-friendly business environment and adaptable regulatory frameworks.
The Lead Counsel at Stafford Law, Maame Tutua Dadson, explained that domiciliation could help address youth unemployment by enabling MSMEs to procure enough capital to be able to offer sustainable jobs to young people across the continent.
“Africa’s youth face significant barriers to decent work. MSMEs are effective at producing inclusive jobs but have limited access to affordable finance. That is hindering African entrepreneurs from starting, growing and scaling high-potential enterprises,” she said.
The release of the full study is part of a three-year initiative, led by MEDA, to apply key learnings from the Mastercard Africa Growth Fund’s efforts to catalyze risk capital. Over the next year, the initiative will engage the growing African investment ecosystem in changing regulations and policies to support the expansion of domiciliation in Rwanda, Ethiopia, Ghana, Kenya, Nigeria and West Africa Economic and Monetary Union (WAEMU) countries including Senegal and Côte d’Ivoire.
In parallel, the African Crowdfunding Association will work to change regulations around crowdfunding that further expand policy options for African IVs.
“Our collaborative team will be engaging directly with decision-makers to find ways to enhance their regulatory and policy environments to be more welcoming to African domiciles that strengthen the capacity of IVs to deploy more capital and expand access to funding for women-led enterprises,” said Diana Smallridge, CEO of Momentus Global and a contributor to the study.
The release of the study was part of a pan-African webinar co-hosted by the Collaborative for Fund Domiciliation in Africa, MEDA and the Africa Impact Investing Group, with network partners African Venture Capital Association (AVCA) and the African Venture Philanthropy Alliance (AVPA).
Download a summary of the report HERE.