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Seeing investment opportunities in post-war Liberia and Sierra Leone

Small businesses are said to be the backbone of most economies, but in post-conflict economies which have endured decades of war, the role of small and medium enterprises (SMEs) is even greater in job creation, providing essential services and rebuilding the nation’s economy.

Most businesses face difficulties accessing financing from banks because of lack of collateral. Established in 2010, the West Africa Venture Fund (WAVF) is investing in high-growth SMEs in Liberia and Sierra Leone to help kick-start the private sector.

Liberia went through two civil wars – from 1989-1996 and 1999-2003 – which left the nation of 4.2m people devastated. Neighbouring Sierra Leone also endured a decade-long ruinous civil war from 1991-2002.

Fred Balogun, country manager for the WAVF in Liberia, told How we made it in Africa the fund hopes to “stimulate the economy” of post-war emerging countries in West Africa.

The World Bank’s private sector lending arm, the International Finance Corporation (IFC), is the anchor investor of the US$40m fund. The private equity fund intends to invest in at least 40 SMEs in Liberia and Sierra Leone with a target of 25%-30% on returns. The WAVF’s average deal size is $100,000-$500,000.

“We invest in all types of businesses apart from mining, oil pump and logging. We [avoid] logging because it degrades the environment and mining because it is part of the things that caused war in those countries,” says Balogun. “We have over 28 businesses approved of which we have disbursed a total of $8m to 19 SMEs in Sierra Leone and Liberia.”

Balogun says the fund has been successful so far and great benefits are being realised in local communities. In Liberia, for instance, the fund has worked with a bakery and a modern slaughter company which provide essential foodstuffs that would otherwise have to be imported. Other businesses focus on IT, logistics and “a modern printing press in Liberia”.

In Sierra Leone the fund has invested in a poultry business which is “providing over 40,000 day-old chicks to over 200 farmers” and a water company which controls 40% of the market, as well as a rice processing company.

“Conventional banks would not lend [to these companies] without collateral. These people might not have collateral but they play a key role in expanding the economy. The IFC wanted to use this fund to stimulate the economy.”

The WAVF offers capital, business support and technical assistance and ensures that its investees have internal controls, robust IT systems, good management teams and proper corporate governance.

“By the time we [exit] the company should able to stand on its own.”

One of the challenges the WAVF has faced in Liberia is poor record keeping among its investees, a culture it is trying to cultivate.

“They are [also] averse to equity. They would prefer to be given a loan and manage the company on their own. They find it very difficult to separate the company from themselves. Typically an African person believes in being the sole owner of their company. They say ‘my company’. These big multinationals were started by one person but they opened up to other investors and advisors. If they had insisted on holding on to it the companies would have died with the founders.”

Balogun says the WAVF needs more funds to invest in more businesses and expand to neighbouring countries.

“Another challenge we face is access to manpower. You know there was war for about 14 years [and] a whole generation… [has] no education. That is a major problem we are facing. To be able to even get a chief operating officer… is difficult.”

Good returns in Liberia

Despite these challenges, Balogun says there are “great opportunities” in Liberia for foreign investors.

“When they come they will be able to surmount… the challenges gradually. There are lots of opportunities. Most of the food that is eaten there is imported. The country is import dependent and there is opportunity for those who want to produce locally. Investors who come will make good returns.”

Balogun says foreign investors moving into Liberia should have targets and map out a clear strategy to accomplish their goals.

“It is better that before you invest you should come and scan the environment [and] do your preliminary due diligence,” he says. “You have to invest and wait patiently for the returns.”

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