Private Equity: The backbone of entrepreneurial funding in Namibia
By Arney Tjaronda
BBA Student: Banking & Finance major at the University of Namibia.
Access to funding is what most entrepreneurs struggle with. I have seen that on first hand basis when my mother needed funding for her business to survive.
Funding not only helps entrepreneurs succeed in their endeavours but it also creates jobs in Namibia. It is rare for newly established entrepreneurial ventures to get listed on the Namibian Stock Exchange Market, thus making it difficult for them to get funding for their ventures. The gap created between not being listed and the need for funding is where private equity comes in.
Understanding Private Equity
As mentioned earlier, private equity closes that gap by providing funding to companies who are not listed on the Namibian Stock Exchange. To grasp a better understanding about private equity, we define it in the least confusing way. As defined by Investopedia, Private equity (“PE”) is ownership interest or stake in an entity that is not publicly listed or traded.
They provide investment capital by purchasing stakes in private companies, which is often also associated with gaining ownership in them. The private equity industry compromises institutional investors such as pension funds like the GIPF and private equity firms funded by accredited investors like Eos Capital and IJG Namibia just to mention a few.
In a publication by Peter Johns (2018), he eluded that back in 2013 the Minister of Finance (at that time), issued regulations under the Pension Fund Act 24 of 1956. The regulations stipulate that pension funds and insurance companies must invest between 1.7% and 3.5% of the market value of their respective investments in unlisted investments in Namibia. This meant that entrepreneurs owning private companies received funding of some sort from the implementation of those regulations till to date.
How aware are you? Aware of the fact that GIPF is the largest pioneer in the private equity industry. The Government Institution Pension Fund (GIPF) does not deal directly with the funds, however since 2010 the GIPF committed over N$5 billion (US$ 340 million) to private equity funds managed by various fund managers. These fund managers are service providers that scout for private companies in Namibia they can invest in. The names of these funds will be disclosed soon, however let us draw out why private equity is beneficial to entrepreneurial ventures.
Benefits of Private Equity to entrepreneur’s ventures in Namibia
Private equity groups have deep pockets which can be used to fuel growth. They provide the capital needed to help entrepreneurs to renovate facilities, buy new equipment or launch a marketing effort. They can help supply the talent your venture is lacking, thus helping to increase economies of scale. They provide connections through events they host, for example: the Eljota Investment Summit which is a good networking platform to meet potential business partners. Private equity firms are motivated to achieving positive return on investment (ROI).
Private Equity funds under GIPF for entrepreneurs
As mentioned earlier, the GIPF does not directly deal with funds so it allots the funds to private equity managers to help fund entrepreneurial ventures.
A few of these funds are (GIPF annual report, 2020):
NamPro I & II- This fund is engaged in providing short-term working capital facilities and medium-term asset backed financing to SMEs that are awarded tenders by government, large corporations and local authorities.
Kongalend- This fund provides renewable energy and credit financing for SMEs
Konigstein Capital Investment Property Fund (KCIPF)- Provides funding for property project development with the focus on housing and land servicing.
Expanded Infrastructure Fund- this fund targets projects like toll roads, railways, telecommunications, bulk water supply, water and wastewater treatment, healthcare, etc.
Desert Stone Fund- it is mandated to invest in early-stage venture capital, development capital and buyout investments.
Those are the funds the GIPF allot funding for distribution to enterprises. For more information, it is advisable to review the GIPF Annual Report of 2020.
There are a lot of private equity funds in Namibia and most of them are determined to invest in companies for positive returns.
My opinion is that private equity funds are not given enough recognition yet they are the largest financiers of companies that are not listed on the Namibian Stock Exchange. Yet again, it is just one man’s opinion.