VCs for Africa: What Bono Should Be Talking About

// July 17th, 2007

I’m up here in the T-dot aka Toronto aka Tehranto visiting my numerous family members up here.

I saw one of my cousins last night who is pursuing his PhD in Economics and met an African friend of his from Zambia named Mundia. Mundia is also a student of economics like I was in my past life. We got to talking about aid for Africa & his thoughts on Bono, Bob Geldof & various other champions of debt relief for Africa. He believes, as do I, that aid or debt relief in & of itself is not a viable economic solution for Africa’s troubles. In our opinion, supporting private enterprise in African nations is a much more worthy pursuit.

That’s when I started thinking of the promise that establishing venture capital funds could bring to businesspeople looking for funding to build companies in African nations. The private sector, and in particular, small business, is the major engine of growth in free market economies such as the U.S. In capitalism, we believe that the private sector is more efficient & innovative in serving the needs of the public from energy, transportation, health care, education, telecommunications & anything else under the sun. Public sector companies, on the other hand, are inefficient & bureaucratic because they do not face any competition.

So why is it that one of the causes du jour is relieving debt to Africa, which is essentially aiding African governments? We all hear the stories that African governments are corrupt, but this is true of all governments. The issue at hand is that giving money to a government does not strengthen & build the economy of a nation - private enterprise does.

Of course there are pitfalls & hurdles facing venture capital in Africa as detailed here in AltAssets. Among them are the lack of private funding, the lack of liquidity through regulated stock exchanges, the fluctuation in currency, inadequate infrastructure, a lack of transparency & governance in government, political unrest, and the spectre of AIDS & HIV among the workforce.

However, there are organizations such as the Village Enterprise Fund, which has stepped up to invest seed capital, business training, and mentoring to over 7,000 small businesses in Africa. Nearly 75% of the fund’s capital has come from Silicon Valley VCs who want to make a difference.

The World Economic Forum’s Africa Venture Capital Fellows (AVCF) program aims to “promote venture capital in Africa by educating and training future venture capitalists and leaders of high-growth and early stage companies based in Africa.” The idea behind these initiatives is that VCs help create spending power & jobs by accelerating the entrepreneurial economy in Africa.

Bono is a managing director & co-founder of Elevation Partners, a private equity firm in the states. He is most likely making a fair amount of money investing in companies on top of the millions he makes from being the front man of U2. At the same time, he is quick to criticize so many political and NGO leaders, saying that they are not doing enough, when his main solution is debt relief. Relieving the debt of African nations does not necessarily stimulate the advancement of private enterprise. In America, our government operates a massive budget deficit, numbering in the trillions of dollars, but our private sector is robust, alive, and doing very well. So why is that Bono, the omniscient one, does not prescribe private equity for Africa when he adopts it for his own financial well-being?

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