There is a popular theory circulating at conferences, on Twitter, and in the group chats of well-meaning people across Africa’s investment ecosystem: that the primary obstacle to building deep, functional capital markets on the continent is a failure of local capital mobilisation. If only we could convince pension funds, family offices, and high-net-worth individuals to allocate more money to venture and SME finance, the thinking goes, the system would begin to work. This theory is half right—which is exactly what makes it dangerous.
Some people think we need to crowd more local capital in to support young, growing small businesses. Even though there is a disagreement about whether that potential local capital influx should focus on the young and growing (fast) segment versus the small, slow-growing segment. There is generally an agreement about the need to mobilise more local capital. So, the thinking goes, we can reduce dependency on foreign investors.
So everyone goes on a hunting spree to persuade, charm, debate, or, if all fails, shame the bastions of local capital—pension funds especially—into allocating more money to venture capital and small and medium enterprise (SME) finance fund managers.
