The Private Equity Industry in Africa: Firm Survival and Growth

Abstract

The availability of Private Equity (PE) in Africa is quite limited. And even though the literature documents that in other parts of the world, this type of financing can relieve entrepreneurial firms' financial constraints and likely benefit employment and firm growth, little is known about the effect of PE on firms operating in Sub-Saharan Africa (SSA). This paper describes the landscape of PE in this region and analyzes whether private equity helps firms survive and grow. The results reveal that recipients of external financing from PE firms have a higher probability of survival than non-recipients, and such financing strongly correlates with proxies for firm growth. These results remain robust in a further attempt to alleviate endogeneity, using propensity score matching to estimate the difference in outcomes between recipients and non-recipients. Our results suggest that PE is an essential source of external financing for SSA firms and that governments should create incentives for investors and entrepreneurs.