Three factors that make Ethiopia an attractive market for investors, CEO of PE

Forbes

Life doesn’t always go as planned. In 2004, Berhane Demissie moved from the UK back to her native Ethiopia for two years. Now, more than 15 years later, she’s still there. “The job that I was doing here was so fulfilling. It gave more than financial returns. It gave personal satisfaction. The amount of work and impact that you can have on the ground was something that really motivated me,” she said.

The reasons that Africans from the diaspora are moving back and staying back, also make markets like Ethiopia a really interesting environment for investing. For people with local market knowledge, they can overcome the opacity of emerging markets and get in on good deals.

With a background in banking and more and a decade of experience working in Ethiopia, both supporting the government as a consultant and later in Private Equity investing, Demissie knew that she could not just create an investment firm with a competitive advantage, but also “a PE fund aligned to what the country needs.” So, in 2016, she started a fund. She is the Co-founder & Managing Partner of Cepheus Growth Capital Partners, a Small-and-Medium Enterprise (SME) fund making investments of $3-15M in Ethiopia.

Demissie isn’t who people picture when they think of a Managing Partner at a PE firm. According to the IFC, only 12% of Senior Investment Professionals in Private Equity and Venture Capital in Sub-Saharan Africa are female. And Ethiopia isn’t what people picture when they think of an attractive market for investment, but Demissie is out to prove them wrong.

She believes that there are three primary factors that make Ethiopia an attractive market for investors.

1. Ethiopia’s economy has been one of the fastest growing in the world for more than a decade. From 2007-2018, the economy grew by an average of 9.9% per year. While it has recently decelerated to 7.7% annual growth, it’s still nearly double Africa’s 2019 average of 4% and more than double 2019 world average of 3.6%.

2.  There is a large domestic market. After Nigeria, Ethiopia is the most populous country in Africa with 109M people. It ranks 12^th globally in terms of population, behind Japan, but while Japan’s population is shrinking by 0.27% annually, Ethiopia’s is growing by 2.61%.

3. The most complicated factor, but the one that really excites investors looking for a large exit, is the opportunity to create industries. No industry is mature, so instead of battling incumbents, entrepreneurs are just fighting to execute. But, in markets like Ethiopia, it’s not always easy to execute as an entrepreneur or an investor.

The PE Industry exists because of the belief that experienced investors can buy a stake in a company, make changes to the people or the firm’s structure, and sell it a few years later for more than they bought it for. Think of it as flipping houses, but for companies. That’s hard to do in a market like Ethiopia. For example, since the private sector is relatively young, there are not many experienced executives you can hire to run your portfolio company. Demissie added that compounding this challenge is the fact that PE firms look to turn around a company in 5 to 6 years. They do not have the luxury of time to hire in green executives and let them move along the learning curve.

This has not stopped Demissie. She sees opportunities where others see challenges. She is the only woman running a PE firm in Ethiopia, but rather than focus on how that makes her work hard, she focuses on how it can give her a leg up. “I always see the advantages of being a woman leading this business. We have a different skill set than men. When I interact with sponsors [owners of businesses she wants to invest in], it gives them a level of comfort to talk about their business, to really tell me the inside of their issues. They could open up more to me than to my male colleagues. They don’t feel as threatened,” she said.  

The research would back up her optimism. The IFC reported that “the median gender balanced fund outperformed median unbalanced peers by as much as 20 percent in annual returns.” They attribute this success to “enhanced investment decision making” and broader, more diverse networks.

Success in investing is being right where others are wrong. It’s making a different bet that turns out to be correct. By being one of the few women running a PE firm in Africa, and one of the few PE firms in Ethiopia, Demissie is making a unique bet. Only time will tell if it’s the right one, but Demissie has a habit of defying expectations.Get the best of Forbes to your inbox with the latest insights from experts across the globe.

Source Forbes