Eq­uity funds for SMEs

Enterprise - - COVER STORY -

The US Agency for In­ter­na­tional De­vel­op­ment ( USAID) an­nounced a part­ner­ship with the Abraaj Group and the JS Pri­vate Eq­uity Man­age­ment at the sec­ond US- Pak­istan Busi­ness Op­por­tu­nity Con­fer­ence in Dubai. The USAID said it will pro­vide seed in­vest­ment of $ 24 mil­lion each to cap­i­tal­ize the funds. Both the Abraaj Group and JS Pri­vate Eq­uity Man­age­ment have com­mit­ted to match or ex­ceed the seed funds with in­vest­ments of their own, as well as pri­vate funds raised from other limited in­vestors. “Pooled funds will ini­tially be $ 100 mil­lion which we ex­pect will grow man­i­fold into hun­dreds of mil­lions of dollars in in­vest­ment for small and medium busi­nesses,” an of­fi­cial state­ment is­sued by the USAID said. “In ad­di­tion, the Pak­istan Pri­vate In­vest­ment Ini­tia­tive is ex­pected to demon­strate that in­vest­ing in growth- fo­cused en­ter­prises can gen­er­ate real prof­its for in­vestors. This demon­stra­tion ef­fect is ex­pected to at­tract more in­vest­ment into the en­ter­prise sec­tor through es­tab­lish­ment of ad­di­tional pri­vate eq­uity funds,” the USAID state­ment said. The en­try of the two new play­ers in the mar­ket will boost the nascent pri­vate eq­uity in­dus­try in the coun­try and take the num­ber of th­ese funds to three. At least one such fund, Cyan, backed by the Da­wood Her­cules Group as an an­chor in­vestor is al­ready in the field. The an­chor in­vestor has com­mit­ted $ 50 mil­lion and plans to raise $ 150 mil­lion from other in­vestors. The pri­vate eq­uity funds work by iden­ti­fy­ing dy­namic busi­nesses with growth prospects and in­vest­ing in them to ex­pand their mar­ket share, in­no­vat­ing prod­uct and ser­vice lines, and ul­ti­mately cre­ate jobs and in­crease in­comes. With­out ac­cess to cap­i­tal, Pak­istan’s busi­nesses can­not play a crit­i­cal role in ex­pand­ing the econ­omy and cre­at­ing jobs. Each fund will in­vest in well­run Pak­istani com­pa­nies with growth po­ten­tial. Com­pa­nies that re­ceive in­vest­ments will also re­ceive pro­fes­sional man­age­ment con­sult­ing ser­vices to strengthen their gov­er­nance, sales, mar­ket­ing and over­all busi­ness op­er­a­tions. The funds will last for 10 years: a five- year win­dow to make in­vest­ments and a five- year holdin­gand- liq­ui­da­tion pe­riod that closes out the fund’s op­er­a­tions. Still the vol­ume of ex­ports un­der the GSP fa­cil­ity rep­re­sents only a frac­tion of the to­tal Amer­i­can im­ports from Pak­istan. Pak­istan ex­ported $ 3.6 bil­lion worth of goods to the United States in 2012, yet only 5.7 per cent of that amount took ad­van­tage of the duty- free treat­ment avail­able, ac­cord­ing to US of­fi­cials.

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