This spring close to one thousand delegates from more than seventy countries will convene in Washington D.C for the 22nd Annual Global Private Equity Conference. Hosted by the International Finance Corporation, a sister organization of the World Bank, the conference brings people together from a broad array of institutions in order to explore “private investment opportunities across emerging and frontier markets.” It’s encouraging to see events like this taking place—private equity has the potential to truly transform lives and create inclusive prosperity, especially in Africa where many industries are still quite nascent. But it begs the question: why have some of the world’s largest private equity funds floundered on the continent?

Understanding private equity

Private equity refers to any capital that’s not listed on a public exchange or stock market. Private equity fund managers, in contrast with other types of investors, generally have operational expertise in specific sectors that enables them to improve the operations of a business. In addition, they often provide the portfolio companies they invest in with a longer time frame for executing organizational improvements, which is critical since organizational change often takes time. While the typical private equity fund might have a lifespan of ten years, the typical holding period for a stock is less than one year.

Considering that Africa currently accounts for 16% of the world’s population and less than 1% of global private equity capital, private equity can play a significant role not only developing Africa’s developing industries, but also generating superior returns for investors. From food production and processing, to education and healthcare, opportunities for investments abound. But success hinges on the ability of private equity fund managers to make intelligent investments that can create new markets on the continent. So far, large private equity funds have failed to live up to their potential.

In 2017 for instance, KKR, a large US private equity firm, “disbanded its Africa deal team” because of lack of opportunity. Then in 2019, Blackstone, the largest private equity firm in the world, pulled out of its pledge to invest $2.5 billion in infrastructure projects in Africa. The African market, it seems, just wasn’t big or profitable enough to merit their investments. But what if these companies looked at the opportunity in Africa differently?

It turns out the vast majority of investments focus on the consumption economy. The consumption economy is composed of customers who have the income, time, and expertise to purchase and use existing products or services on the market. It is the part of the economy that economists, forecasters, marketing managers, and most private equity funds focus on. 

The nonconsumption economy, however is just the opposite—it’s composed of people who are unable to consume products and services that they would benefit from consuming due to cost, complexity, and other factors. Nonconsumption opportunities are difficult to “see” because most analyses focus on estimating growth in the consumption economy. Yet our research reveals that investors who prioritize going after nonconsumption by creating new markets create significant wealth and trigger a domino effect of development in a region. Consider the opportunities in Africa, where more than 700 million people lack stable and affordable electricity, and 258 million youths and adolescents are out of school. Africa is a continent of nonconsumers. And each iota of nonconsumption points to vast market creation opportunity. The question is how.

From zero to one billion: How private equity targeted nonconsumption and created a massive new market

In the late 1990s, when Mo Ibrahim first conceived of setting up a mobile telecommunications company in Africa, some of his colleagues thought he had lost his mind. At the time, there was vast nonconsumption of mobile telecommunications in Africa. Nigeria had more than 120 million people but fewer than 500,000 phone lines. In fact, fewer than 5%of people on the continent had access to phones. Understandably, when Ibrahim’s former colleagues at major telecommunications companies assessed the opportunity in Africa, they noted the level of poverty, lack of infrastructure, fragility of governments, and lack of human capital. To them, opportunity lied solely in the consumption economy, but Ibrahim proved them wrong. 

In order to create this new market, Ibrahim had to raise significant amounts of capital to acquire licenses, build infrastructure, and operate and manage the phone networks. In the market-creation stage of an industry, companies tend to do more than their “core competency.” He looked to banks, but most didn’t pay him any attention as they were too conservative and typically served the consumption economies. So, he focused on attracting private equity capital. In five years, he raised more than $400 million from Emerging Capital Partners, Capital Group, Actis, and several other private equity investors. These investments have paid off handsomely for Ibrahim, the private equity funds, and for Africa. 

Ibrahim sold Celtel in 2005 for a whopping $3.4 billion, and made a healthy sum for his private equity investors. But his success was just a tip of the iceberg. Today, Africa is home to a sophisticated mobile telecommunications industry, with numerous mobile phone companies (including Globacom, Maroc Telecom, Safaricom, MTN, Vodacom, and many others) supporting close to one billion mobile phone subscriptions. The industry is forecast to support four million jobs, provide $20 billion in taxes, and add more than $200 billion in economic value to African economies. The success of mobile telecommunications companies in Africa was fueled in large part by private equity capital.

There are countless other companies that have succeeded in Africa, including Tolaram, MTN of South Africa, and Wadi Group of Egypt. These companies share a common theme: they leveraged private equity capital to target nonconsumption and create a new market in the world’s poorest continent. Private equity capital has a role to play in Africa’s development, but its strategy must focus on targeting the nonconsumption economy.


  • Efosa Ojomo
    Efosa Ojomo

    Efosa Ojomo is a senior research fellow at the Clayton Christensen Institute for Disruptive Innovation, and co-author of The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty. Efosa researches, writes, and speaks about ways in which innovation can transform organizations and create inclusive prosperity for many in emerging markets.