The role of private equity in national economic development: The case of Zimbabwe

Abstract

This study sought to investigate the role played by Private Equity in promoting economic development in Zimbabwe over the past decade. The study also sought to investigate factors that were constraining the growth of the Private Equity sector in Zimbabwe. The study was based on the background of the search by government to accelerate economic growth and the achievement of the country’s Millennium Development Goals (MDGs). While a lot has been said about economic development, little has been said by the government on how to address the issue of financing such development and growth. Further while several studies have been carried out in developed economies on the role of private Equity in economic development, the same has not been done in the Zimbabwean context. The study adopted a quantitative research design approach. The population of this study consisted of Private Equity firms based in Harare. Questionnaires were sent to Private Equity firms with request for information that included sales growth, profit growth and employment growth of portfolio firms. Further information was requested from firms regarding fund sizes, new investments, new products introduced etc.

The Private Equity sector is still quite small compared to global Private Equity deal flow, a situation which has constrained the sector’s overall contribution to economic growth in Zimbabwe. New investments amounting to US$67 million since 2009 were significant although coming off a low base. Most of the funds under management had foreign origin proving that the Private Equity sector in Zimbabwe is a significant conduit for Foreign Direct Investment in Zimbabwe.

While the results showed that Private Equity contributed significantly to growth in the Zimbabwean economy several factors were identified that continued to drag the sector in Zimbabwe. Most of the respondents cited high political risk in the country which made it difficult to raise funding offshore for local investments. It also emerged that the lack of depth of the local financial market was hampering the growth of the sector particularly difficulties in exiting from portfolio holdings.

Notwithstanding the challenges that the sector is facing in Zimbabwe, there is a lot to recommend in Private equity to finance economic growth in Zimbabwe. Further research is also recommended, in particular into the factors affecting the growth of Private Equity in Zimbabwe and how best the government could promote the growth of this sector.