Conduits of Capital

CLOSING THOUGHTS
The findings of this survey demonstrate that fund domiciles
play an important role for the private equity industry in Sub-
Saharan Africa, and that the jurisdiction where a fund is
located can have a material impact on the ability of GPs to
raise and invest capital, and LPs to commit to a given fund.
Using offshore jurisdictions, such as Mauritius, is currently
standard practice, largely because offshore jurisdictions
have the legal and regulatory frameworks and supporting
infrastructure that are critical to the funds industry (e.g.,
limited liability partnerships or appropriate corporates, the
ability to contract freely, reliable and consistent approaches
to dispute resolution and enforcement, etc.). Moreover, the
tax efficiency offshore centres offer facilitates the ability of
international capital to flow into Sub-Saharan Africa.
That said, there is growing demand from institutional
investors, such as pension funds and insurance companies,
within Sub-Saharan African countries for access to private
equity. As a result, onshore fund structures are becoming
more important to the industry. However, without at least
meeting the regulatory and tax policies offshore centres—
including Mauritius—have in place, it will be hard for
onshore centres to become broadly used domiciles for
private equity funds. Moreover, as several practitioners
noted in this survey, managing dual structures could
become unwieldy given disparate approaches to regulation
on the continent, and indeed, could impact the ability of
GPs to offer their LPs limited liability. It could take years
to foster the development of onshore legal and regulatory
regimes and tax reforms that are conducive to private equity
fund activity, and still more years of experience to prove the
viability of onshore models. This is not a near-term solution
for the industry.
FMO, IFC, IFU, Norfund, OEEB, the Overseas Private
Investment Corporation, PROPARCO and Swedfund—
among others—have long recognised this critical role, and
have supported the development of private equity funds for
decades.
We hope this publication provides greater transparency
on the role of fund domiciles, and industry participants’
perspectives on what they look for in a jurisdiction. We
believe some of the findings could be useful for making
existing domiciles work even better, and helping future
onshore domiciles operate in line with internationally
accepted norms and best practices. All, of course, while
focussing on the objective of fostering investment in growing
African companies. Ultimately, sound legal and regulatory
reforms and the adoption of competitive tax policies could
be a benefit not only for private equity funds, but for broader
private sector and financial sector development within
these economies. Enhancements to the local business
environment would go a long way toward increasing global
investor confidence in—and thus commitments to—Sub-
Saharan Africa.
Taking a step back, it’s important to remember the role of a
fund domicile—it is the conduit that connects global sources
of capital with local companies. Given the scarcity of capital
available to private businesses in Sub-Saharan Africa,
there is a clear commercial opportunity for private equity
investors to provide long-term growth financing. Equally
important, however, is the opportunity for private equity to
catalyse private sector development. Development finance
institutions, including the African Development Bank, BIO,
CDC, COFIDES, the Development Bank of Southern
Africa, DEG, the European Bank for Reconstruction and
Development, the European Investment Bank, Finnfund,
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