Ghana Private Equity and Venture Capital Ecosystem Study

This paper discusses the landscape for private equity and venture capital financing in Ghana. It provides an overview of the private equity and venture capital market in the country, describing key players, including funds, fund managers, investors, and public sector entities. The paper provides an analysis of key market drivers and impediments, as well as legal, regulatory, and taxation drivers and impediments that affect Ghana?s private equity and venture capital industry.


Emerging and Developing Economies (EMDE) PE Markets
Data from the Emerging Markets Private Equity Association (EMPEA) show a general increase in emerging market and developing economies' (EMDE) private equity activity from 2013 to 2014, a continuation of the strong growth trajectory the segment has seen in recent years. The five regions considered "emerging" by EMPEA -that is, Emerging Asia, Central and Eastern Europe and the Commonwealth of Independent States (CEE and CIS), Latin America, the Middle East and North Africa (MENA) and Sub-Saharan Africa -all recorded increases in fundraising totals in 2014. Total fundraising in these regions increased 16 percent from US$39 billion in 2013 to US$45 billion in 2014, meaning that EMDE grabbed a larger portion of the global whole as fundraising across the board fell between 2013 and 2014. Capital invested in EMDEs reached a record US$34 billion in 2014, up from US$27 billion in 2013, and the largest annual total since EMPEA began tracking investment data in 2008. This progress was achieved amid the ripple effects of the U.S. Federal Reserve winding down quantitative easing and associated currency adjustments in many countries; China's economic downturn; the crises in Ukraine and the Syrian Arab Republic; general elections in Brazil, India, South Africa, Indonesia and Turkey; and the continued decline of global oil prices.
Nevertheless, while resilience in the face of challenges propelled the EMDE private equity market forward in 2014, some burgeoning trends could pose a threat to future growth. The prevalence of large regional funds has become a hallmark of EMDE PE growth, and it has caused an increasing proportion of capital to be concentrated in the hands of fewer managers. For funds that closed in 2014, 11 had a final fund size of more than US$1 billion, collectively raising US$26 billion, or 56 percent of the total capital raised for all closed funds. This is the biggest share large funds have had in the EMDE segment since 2008. On the other hand, smaller funds had a more challenging time fundraising in 2014; only 32 funds reached a final close of less than US$100 million, the fewest since before 2008. According to EMPEA analysis, the proliferation of large regional funds suggests that limited partners may be increasingly willing to invest large sums with only the most established fund managers, which could in turn pose a threat to the market's long-term growth.

Sub-Saharan Africa/West Africa PE Markets
The African continent has witnessed a surge in private equity activity in recent years, following from a global trend of investors looking for new growth markets with higher yields. Specifically, within Sub-Saharan Africa, there has been considerable growth in the PE industry. In Sub-Saharan Africa, both capital raised and capital invested increased over 2013 and 2014. Fundraising activity jumped from US$1.5 billion in 2013 to US$4.4 billion in 2014, while investment rose from US$1.9 billion to US$2 billion. In 2015, both Helios Investment Partners and the Abraaj Group 10 raised roughly US$1 billion each in Africa-focused funds. These trends are part of a larger investment wave hitting Africa, as investors are increasingly attracted to its middle class of over 300 million in a continent of US$1 billion, increased competitiveness in the private sector, economic diversification and the spread of stable governments. Moreover, investors are eager to take advantage of good investments with low capital input. 11 While concerns around exits remain, managers have found opportunities -95 percent of African PE investments are exited through strategic acquisitions, and 5 percent through IPO.
South Africa has long been Sub-Saharan Africa's financial hub; however, since 2004, PE funds have expanded activity in West African markets such as Nigeria and Ghana. While Kenya joins Nigeria as what are considered the most sought-after PE markets in the Sub-Saharan, according to EMPEA, West Africa, in particular, has seen remarkable growth in recent years. These countries have witnessed a surge in PE activity from firms such as Helios Investment Partners, Adlevo Capital, Actis, and Emerging Capital Partners (ECP). Funds raised in West Africa's PE market increased exponentially from 2013 to 2014, from US$40 million to US$271 million. Meanwhile, PE/VC investments in the West African market represented US$848 million, up from US$392 million in 2013.
Ghana is a major player in West Africa's PE growth, although investment in Ghana is often made through regional or pan-African funds, as discussed later in this report. According to EMPEA data, fund managers invested US$178.9 million and completed 15 deals in Ghana in 2014 (see Annex 2 for list of deals). When it comes to funds raising capital in Ghana-specific vehicles, there is a dearth of recent data. But this is unsurprising because the majority of investors access PE/VC investment opportunities in Ghana via regional funds. Because of the paucity of Ghana-specific vehicles, it is difficult to discern a trend within Ghana-specific fundraising. While a few country-dedicated funds have reached closes (one close of US$4 million in 2010 and one of US$1 million in 2012), the dearth of Ghana-specific fundraising speaks more to investor preference for regional vehicles rather than a decline or increase in fundraising for Ghana.

HISTORY OF DOMESTIC PRIVATE EQUITY/ VENTURE CAPITAL IN GHANA
Ghana Venture Capital Fund, 1991 12 Private equity has been prevalent in Ghana since the early 1990s. In late 1991, USAID 13 sponsored a venture capital fund in Ghana, along with the Commonwealth Development Corporation (CDC), 14 to invest in private sector companies in Ghana with the potential to achieve high growth and profit. The initiative set up two companies, the Ghana Venture Capital Fund, and the Venture Fund Management Company, which were incorporated in Ghana and started operating in November 1992.
The Ghana Venture Capital Fund (GVCF), a non-bank finance company, was set up as a 10-year 15 closedended local currency (cedi) fund amounting to almost US$6 million, with a target return of 20 percent in US dollars. GVCF was to invest the cedi equivalent of between US$100,000 -US$500,000 in each investee company, both start-ups and more mature companies, through both equity and unsecured loans. GVCF was to exit these investments through a range of options, including listing on the Ghana Stock Exchange. CDC Capital Partners was the anchor investor in GVCF, committing US$2 million, and raising an additional US$3.8 million through additional investors, namely DEG, 16 PROPARCO,17 SSNIT,Barclays Bank Ghana 12 This section draws from Extract: The Manager's Completion report to Shareholders, February 2006. 13 US agency responsible for administering foreign aid. 14 UK Development Financial Institution (DFI) supporting the private sector in many emerging markets, with a more recent focus on Africa and South Asia (post-2011). 15 With the possibility to extend by up to 2 years with approval from 75% of the shareholders. 16 A German Investment and Development Corporation (development financial institution or DFI) and subsidiary of KfW (German development bank), which finances private companies in developing countries. 17 A DFI partially owned by Agence Française de Développement (French development agency) which invests in developing countries. Limited,18 InterAfrique Holdings,19 Merchant Bank Ghana Limited 20 , CAL Bank Limited 21 and Ecobank Ghana Limited. 22 A separate management company which formed the fund manager for GVCF, the Venture Fund Management Company (VFMC), later became Aureos Ghana Advisers Limited. The management company was originally owned by the shareholders of GVCF, except DEG and PROPARCO; it later became fully owned by Aureos Capital (which was formed in July 2001 as a joint venture of CDC and NORFUND). 23 Management fees for VFMC amounted to 3% of the committed capital. USAID was responsible for providing the operational expenditures of VFMC, amounting to a total of over $1mn through a USAID grant.
GVCF made 13 investments in Ghanaian companies focused on manufacturing, food products and services, of which 9 achieved positive IRR in local currency terms. Investment included the likes of Achimota Brewing, Pioneer Aluminium, Voltic (GH) Ltd, and Leasafric. Some of these initial investee companies, such as Voltic and Leasafric, have expanded since the initial investment, with Leasafric becoming a significant player in the leasing industry. Pioneer Aluminium was later listed in the GSE. However, the local currency performance of the GVCF portfolio was offset by the steep depreciation of the cedi against the US dollar over the life of the fund -over 1,700% by December 2005. The GVCF's commercial success was affected by this and a number of factors, including deal structuring: the equity component of the investments suffered from the lack of minority protection rights such as tag-along rights that would allow minority shareholders to sell their stake at the same terms and conditions as majority shareholders; in addition, the local currency loans provided to the investee companies shrank in value by the time of repayment. 24

Venture Capital Trust Fund Act, 2004
The next key event concerning private equity in Ghana was the establishment of the Venture Capital Trust Fund Act ("The Act") of 680 in 2004. 25 The Act came about as part of the 2003 Budget to Parliament, wherein the Ministry of Finance and Economic Planning declared an initiative to kickstart a domestic private equity ecosystem. The Act created an agency, the Venture Capital Trust Fund (VCTF) under the purview of the Ministry of Finance (not regulated by the SEC), which was funded by a 25 percent levy from the National Reconstruction Levy (derived from banks and financial institutions). The National Reconstruction Levy Act 2001 (Act 597) was introduced by the government to mobilize financing for national development through a 1.5 -7.5 percent levy on the profits before tax of all companies (other than 18 Subsidiary of Barclays Bank engaged in retail and corporate banking in Ghana. 19 A Ghana-based management and investment services company, with investments currently in Ghana and other countries in West Africa. 20 Currently Universal Merchant Bank. 21 A Ghana-based commercial bank. 22 A member of the Pan-African Ecobank regional chain of commercial banks. 23 Until 2008, when there was a Management Buyout (MBO) of Aureos Capital from CDC and Norfund. Aureos Capital, now the Abraaj Group, still operates in Accra. 24 Part of the issue was structural -the GVCF, as mentioned, was a local currency fund, with 10% of capital being equity denominated in local currency, and 90% a shareholders loan also denominated in local currency. Initially, loan repayments were to be made using the cedi amount contributions as the basis; however, six years into the fund life investors had to change this cedi basis to US$ basis because investors who contributed the same amount in US$ but at different times were to have received different amounts from a loan repayment. In addition, all investments were to be made in local currency which made it difficult for the fund manager to mitigate foreign exchange risk. 25 Note: Following the GVFC, a $5 million Fidelity Equity Fund was apparently established in 2000 by Fidelity and FMO (the Netherlands DFI). 25 The main investors in the fund were FMO, and Rovalue Africa Capital B.V. (Rovalue Africa Capital B.V is a Dutch investment company).
http://www.sifem.ch/portfolio/portfolio-composition/53-fidelity-equity-fund-i, accessed September 26, 2015. those exempted). VCTF was set up as a fund of funds, seeding venture capital funds focused on investing in SMEs in Ghana. In addition, the Act elaborated the rules under which VCTF funding could be accessed: by venture capital funds incorporated under the Companies Code 1963 (179) investing in SMEs in Ghana through equity and quasi equity financing; the fund managers of these funds had to be registered with the Ghanaian capital markets authority, the Securities and Exchange Commission (SEC). , to deepen the venture capital and private equity market in Ghana. GAIN, which currently has a network of 25 angels, 28 was to provide a platform for high net worth (HNW) individuals to invest in and nurture early-stage companies, which generally do not have access to traditional sources of capital. VCTF has also taken on a quasi-regulatory role, in supporting the SEC more recently to draft upcoming regulations and guidelines for the industry. While this role provides an interim solution until a permanent regulatory body is put in place, best practices would call for the creation of a more fulsome regulatory solution housed within an independent body. VCTF also finances various commodity value chain developments in Ghana, such as through the West Africa Sorghum Value Chain Development Project (see Table 1 above for the breakdown in VCTF use of funds).
In 2012, the Government of Ghana provided VCTF with an additional GHC5 million funding.
Box 1: VCTF Program 29  Objective: "To provide financial resources for the development and promotion of venture capital finance for Small and Medium Enterprises (SMEs) in priority sectors of the economy as shall be specified from time to time." These priority sectors were to be recognized according to the government development plan outlined by the National Development Planning commission every year.  Structure of VCTF: Cedi 17.5 million (US$17.5 million) of the initial capital was allocated towards capital infusion into venture capital funds; and cedi 2 million (US$2 million) was to set up a technical assistance fund, provided as grants to allow investee companies to get expertise in areas such as corporate governance or financial management. 30 1993(PNDCL 1993. The minimum equity capital for a participating VCFC was US 1.5mn, although in actuality not all the fund managers provided this minimum equity capital. 34  Investments/ SME definition. The investee funds were required to invest in a balance of companies across the seed, start up and expansion stages. The VCTF Act 2004 defined SMEs as "an industry, project, undertaking or economic activity which employs not more than 100 persons and whose total asset base, excluding land and building, does not exceed the cedi equivalent of $1 million in value." In general, the VCFC could not invest more than US$500,000 in any one investee company without the Board's permission. All VCTF funds had to be onshore and invest in Ghana, with the exception of Fidelity which was allowed to invest outside.  Governance: VCTF had a 9 member trustee board, appointed by the President of Ghana, which included a representative from the Ministry of Finance, and representatives from Ghana Bankers Association, and the Insurance Association. As part of its mandate, the VCTF was required to form the secretariat of the Steering board, and convene quarterly meetings. In its role as representing the Government of Ghana as an investor, the VCTF supervised the VC Fund manager's reports and evaluated the funds in its portfolio. While the Board of VCTF was not expected to have a role in investment decisions of the investee funds, the Board could refuse investments deemed to be too risky (as stated in the VCTF guidelines of 2006).  Fee structure: Typically, management fees started at 4%, then reduced to 2 -2.5 percent and then further to 1 percent. Carry was 20 percent and the hurdle rate 8 percent.  Draw down of capital. VCTF funds to VCFCs were in the form of loans with an interest rate equal to 50 percent of the Bank of Ghana Prime Rate.
The VCTF made headway in achieving its objectives in a number of ways. Since its establishment, VCTF invested US$17 million in 5 funds (see below), which in turn invested in roughly 50 portfolio companies (see Table 2 34 For example, Activity and Bedrock fund managers did not provide management commitment into the fund. SIC was the fund manager for Bedrock and was also an investor into the fund, and therefore did not want to duplicate their investment.
VCTF was also able to attract local banks as co investors, to form a more unusual investor base in these funds, since local institutional investors in the PE/VC asset class typically tend to be pension funds or insurance companies. One of the fund managers involved in the VCTF program, Oasis Capital, is currently raising a second fund, reflecting its success in managing the first fund which VCTF invested in. In addition, Samba Foods, formerly a portfolio company of Bedrock VCF Company Ltd. was listed on Ghana's junior stock exchange, GAX, in early 2015. However, despite its impressive objectives, and the significant headway the VCTF made in paving the road for a domestic private equity and venture capital industry, a confluence of events occurred to jeopardize the outcomes of the program described above. First, in 2007, the National Reconstruction Levy, which served as the main source of funds for the VCTF, was repealed because of the negative impact it was perceived to be having on businesses. The premature demise of this funding source underscores the challenge of building an alternative assets sector based on taxing the private sector rather than securing dedicated government or DFI funding, as is done in many other emerging private equity markets. Given that the VCTF was funded by the Levy only for three years, and after the Act was repealed, VCTF's budget became inconsistent and there were no other actors to sustain the market, particularly on commercially viable terms. VCTF did not make any investments in funds after 2009. With the change in government in 2008, the political will surrounding the establishment of VCTF apparently diminished. Nana Osei Bonsu, who was the original architect of the VCTF program and became the first CEO of VCTF, was replaced in 2010, signaling a perceived shift in focus within the VCTF.
In addition, a number of structural challenges affected the VCTF objectives (additional challenges are discussed in the section on legal/regulatory framework). a. Dollar-denominated funds. The VCTF program set up dollar-denominated funds which invested in both US dollars and Ghana cedis, exacerbating currency risk as the Ghana cedi depreciated. b. Lack of fund manager's input into fund design. The funds were generally created before selecting the fund manager, which meant the manager had little input into designing the fund. c. Fund manager lack of experience. Most fund managers selected by VCTF lacked experience in PE/VC (as expected in a nascent environment), which presented challenges in selecting and structuring deals. d. Competing affinities for fund managers/misaligned interest. In some cases, the fund managers also managed broader asset management platforms or had competing affinities which channeled focus away from the activities of the fund they managed. 47 Not all the fund managers put in their own capital into the fund, which may also have resulted in misaligned interest. e. Bank-dominated investor base. The bank-dominated investor base for VCTF funds became problematic. These investors in many cases were represented on the investment committees of the fund, and reportedly were inclined to view investments in the manner of institutions underwriting loans rather than patient capital investors. For most of the funds, the investment committees were reportedly not represented by those knowledgeable about PE/VC.

f. Weak legal recourse for fund managers.
Shareholder agreements guiding the setup of the funds were evidently not robustly drafted such that the fund managers have legal recourse for failed capital contributions or management fees. g. Lack of continuity. In addition, when government / leadership changed the leadership of the state financial institutions, who were investors in these funds, also changed, leading to a lack of continuity or institutional knowledge with respect to the VCTF program.
The VCTF funds were also set back by trials that are common to PE/VC in developing markets. In general, the SME terrain is difficult for PE/VC funds. As one fund manager put it, the investees tended to be "locally ambitious, not globally ambitious." SMEs in developing markets are less knowledgeable about the asset class and reluctant to dilute their ownership or cede control. SMEs generally struggle with producing robust financial statements, resulting in uncertainty about valuing the enterprise and assessing its risk. SMEs also need significant capacity building to nurture growth and effect attractive returns. In addition, the industries servicing these funds -legal, accounting etc. -were new to the PE/VC asset class and had a learning curve to surmount. Technical assistance tends to be a vital factor in deploying capital for SME investments, but given the small sizes of these funds, the VCTF fund managers did not generally have sufficient resources to commit to their investees for areas like centralized accounting, legal services, etc.
VCTF's reputation in the ecosystem was eventually marred because the Trust Fund (and some of its coinvestors) failed to honor capital calls to some of their investee funds. This reportedly crippled both some of the managers of these funds and potential deals, since the investment process became delayed against a backdrop of local currency depreciation. Two out of the five VCTF fund management contracts were eventually terminated for uncertain reasons: SIC Financial Services Ltd, which formerly managed Bedrock, was terminated in 2012 (with 11 investments that had not been exited); and Blackstar Advisors, which formerly managed Activity Venture Finance Company, was terminated in late 2014. Currently a third fund manager, Boulders Advisors Ltd., is in the midst of a termination related dispute. Thus, only two investment managers can be deemed "successful" from the VCTF funds -these are Oasis Capital, which manages Ebankese and is currently raising a new SME fund of $70mn; 48 and Mustard Capital, which currently manages Fidelity Equity Fund II. As of the writing of this report, it is unclear which of the fund managers that were terminated have been replaced. Some of the abandoned portfolio companies are being managed by VCTF staff. 49 In summary, the planning, development, and support of a private equity and venture capital ecosystem represents a collaboration between public and private sector actors that must closely align with market realities and limitations. As the experience of Ghana attests, flaws in program design or a lack of alignment of actors and incentives, when coupled with overall macroeconomic or environmental challenges, can be greatly compounded. Thus, launching a PE and VC industry absent a supportive industry context almost assures that significant headwinds will prevail.

INTERNATIONAL EXPERIENCE WITH GOVERNMENT INTERVENTION IN THE PE/VC ECOSYSTEM
Government intervention in PE/VC is not unusual; typically, intervention in the PE/VC ecosystem manifests itself through three key approaches. The first is a more traditional role for the government, where it helps create a conducive legal/regulatory and tax framework for PE/VC funds. The second, and more interventionist approach, is when the government recognizes that a lack of risk financing is, for example, undermining the innovation ecosystem and preventing innovative ideas with commercial potential from reaching market. In this case, the government may elect to play the role of a venture capitalist, justifying its intervention because early stage financing, while able to deliver huge impact, is well known to be consistently under-supported. In fact, academic research finds government VC expands the total pool of financing for the market as well as at the enterprise level. 50 A third mode of intervention, which the VCTF exemplifies, is the government-sponsored Fund of Funds, providing seed capital to PE/VC funds in the ecosystem, and building the capacity of both domestic fund managers and co-investors in the process. (See Box 2 for details on three successful government interventions that have supported the development of SMEs via investment from VC and PE funds.)

The US Small Business Investment Company (SBIC) program
The SBIC program is a highly successful example of a venture lending program. SBICs fill the market niche left vacant by VC; in the US for example, only 5% of the 500 fastest growing SMEs receive VC money. The other 95% of SMEs require money from different financial institutions and investors. SBICs are privately managed firms licensed by the U.S. Small Business Administration (SBA) to make equity/debt investments. SBICs borrow money from the SBA at low interest rates and re-lend money at a higher interest rate with most, but not necessarily all investments having an equity component. The SBA does not invest directly into SMEs through the SBIC Program. Today, via its partners, the SBA manages in excess of US$25 billion of investment capital.

Israel's Yozma Program (1993-98)
Confronted with severe and potentially devastating economic stagnation in the mid-1970s and early 1980s, the Israeli government adopted an economic stabilization plan and subsequently focused on strengthening its role in facilitating financing for budding entrepreneurs. In the early 1990s, Israel created the Yozma venture capital program which leveraged Israeli government investment (US$100 million) with mostly outside (non-Israeli) venture capital in ten new venture capital funds. In each fund, investment decisions were made by the outside professional investors and the Israeli government, via Yozma, served as a minority investor. Yozma turned out to be a runaway success. Between 1992 and 1997, the Yozma-sponsored funds raised over US$200 million dollars with the help of government financing. When the funds were privatized five years later, they were managing almost $3 billion in capital spread over hundreds of Israeli companies.

Brazil's Inovar Program
In 2000, Brazil's Agency for Innovation, Financiadora de Estudos e Projetos (Financial Backer for Studies and Projects-FINEP) collaborated with a range of partners, such as the Multilateral Investment Fund (MIF), to launch INOVAR, a project to address concerns that Brazil's entrepreneurs were being deterred by capital constraints and an underdeveloped venture capital industry. INOVAR is primarily an incubator of funds, in which a few of Brazil's major pension funds invest. However, the program also helps venture capitalists and entrepreneurs find one another, while educating investors in due diligence and best practices. As of 2012, INOVAR has cost US$13 million in operating costs and facilitated more than approximately US$1 billion invested in private equity (including VC) funds. As a result, a 2013 Ernst and Young report noted that Brazil ranks 9th out of the G20 countries in access to funding-much higher than its Latin American neighbors Mexico and Argentina. 51

CURRENT PLAYERS IN THE PRIVATE EQUITY/ VENTURE CAPITAL ECOSYSTEM IN GHANA
While the Ghanaian ecosystem for private equity and venture capital remains relatively nascent despite the early ventures, the existing key market players go beyond the local play described above. In fact, the market consists of a dynamic array of local funds, regional funds, and pan-African funds. Each of these categories 50 "The Effects of Government-Sponsored Venture Capital: International Evidence" by James A. Brander, Qianqian Du, and Thomas Hellman. Review of Finance (2015). 51 http://www.americasquarterly.org/content/brazils-inovar-building-entrepreneurship-ecosystem.
of funds attracts a particular type of fund manager and investor; fund sizes and investment ticket sizes also typically differ correspondingly. Many of the global players in the ecosystem have helped increase the capacity of the PE/VC industry in Ghana. Given the market is embryonic, there is no PE/VC trade association in Ghana.

Investors
PE/VC investors in Ghana are a mix of Ghanaian, pan-African and European institutional investors or corporates; development-oriented institutions; as well as international family offices and foundations. More specifically, the four key categories of investors are: a) Local financial institutions (banks, insurance companies, SSNIT) who invest in Ghanaian funds. b) Institutional investors or corporates, such as South Africa's Public Investment Corporation or Colina Group which have invested in West African or pan-African Funds. These also include French investors such as Banque Populaire, the Wendel group etc. c) Development-focused institutions, including DFIs such as FMO, Proparco, and IFC; and development banks, such as the African Development Bank, which invest mostly in West African and pan-African funds. d) Family offices and foundations (such as the Lundin Foundation, Soros Economic Development Fund etc.) which also invest in West African or pan-African funds. The presence of Ghanaian institutional investors is mainly restricted to the earlier generation of VCTF funds set up between 2006 -2009, versus the more recently established funds operating in the ecosystem. As discussed earlier, the investor base for VCTF funds had attracted an unusually high proportion of banks, which typically do not constitute a significant part of the investor base for PE/VCs. VCTF co-investments also attracted insurance companies such as Ghana Union Assurance and SIC Insurance Company Ltd., as well as the state pension agency, SSNIT. But Ghanaian institutional investors have been conspicuously absent in the more recent funds entering the ecosystem, which tend to draw an investor base from DFIs and other investors in pan-African or regional funds.

Family offices/ Foundations
As in many emerging market PE/VC ecosystems, development financial institutions play a prominent role in Ghana as investors in PE/VC, although DFIs now prefer regional funds to Ghana-focused funds. One of the striking legacies of the GVCF initiative from the early 1990s is the continued presence in the ecosystem of some of the early DFI investors, such as DEG and Proparco. However, these players have moved away from early experience investing in Ghana-focused funds to investing mainly in regional funds with an allocation to Ghana.

Fund Managers
Fund managers operating in Ghana range from the local VCTF fund managers with generally more limited track record, to those that have gained their early experience in the 1990s through the GVCF fund, to some seasoned fund managers of large pan-African or global funds. PE/VC Fund managers consist of three broad categories of players: a) Domestic fund managers registered with the SEC, managing VCTF funds; b) Fund managers with a history of investing in GVCF, who have moved on to managing regional or pan-African funds (e.g. Abraaj Ghana Advisers and PCM Capital Partners); and c) Regional, pan-African or global fund managers, some of which retain offices or sub-offices in Ghana.  The larger group of regional funds are pan-Africa-focused generalist funds. These entities tend to be registered in Mauritius and are typically larger in size than local or West Africa-focused funds. The first group of such funds are those that have representative offices in Ghana. These include: Most pan-Africa-focused funds are registered in Mauritius, exceptions include Vantage Mezzanine Fund II, which is registered in South Africa; and Actis Real Estate Fund II, which is registered in the UK. Pan-African regional funds tend to be larger than both the local Ghanaian funds and the West African funds. These funds tend to have an investor base consisting of DFIs, development banks, as well as institutional investors and global family offices/ foundations. The pan-African funds are typically not managed by Ghanaian fund managers, although DAFML, a subsidiary of Databank, is an exception, having won the RFP to manage AAF SME. The ticket sizes of these funds vary: IPAE and AAF SME invest in the range of US$2 million to US$3 million; Adeniya Capital III and Aureos Africa Fund invest between US$3 million and US$20 million; DPI funds invests in the range of US$20 million and US$50 million; while Helios, ECP and Actis funds generally invest higher than US$50 million per deal. Rather than providing significant cash, these intermediaries "invest" largely through in-kind contributions such as workspace, basic infrastructure, advice, technical resources, mentorship, sector expertise, and other types of capacity building.
In Ghana, the early stage ecosystem consisting of incubators, accelerators, and angel networks is nascent, although several programs and initiatives provide promise. estate, and are thus not relevant to early stage entrepreneurs. There are several government programs in place that seek to support SMEs through facilitating or providing financial support. However, the target beneficiaries are often micro-enterprises (or even sole proprietors) rather than small or medium-sized businesses. Although the size of businesses government initiatives target is not explicitly mentioned, government policies that focus on SME development in practice seem to emphasize micro-enterprises. In many cases SMEs cannot access finance because their business is not considered viable or too risky, yet results of the Rural Enterprise Programme also highlight that in some cases it is rather an issue of perception and uncertainty that prevents SMEs from applying for a loan or grant. 79 While GAIN, the single angel investor network in Ghana, actively interacts with the local incubators and accelerators, this network has struggled to find investable deals, though it is unclear if this is inadequacy of the investment targets or risk aversion on the part of GAIN's investors.

MARKET DRIVERS AND IMPEDIMENTS
As a frontier emerging market, Ghana is generally touted as an attractive investment destination in Sub-Saharan Africa because of its relatively long history of stable democratic government and comparatively strong business environment. Ghana has had above average economic growth in the past, although growth peaked at 9 percent in 2011, and slowed to just over 4 percent in 2014. The country's strong business environment is reflected in its ranking of 70th of 189 countries in the 2015 World Bank Doing Business Study, above both Kenya (136) and Nigeria (170). Ghana ranks particularly high in terms of Registering Property (#43), Getting Credit (#36), and Protecting Minority Investors (#56), although Ghana ranks less well for enforcing contracts (#96) and for resolving insolvency (#161). As an English-speaking country 80 with a legal system based on common law, Ghana is also an attractive investment destination for many investors. The Government of Ghana has also been supportive of the venture capital ecosystem, as described above, including with programs, such as the VCTF specifically focused on venture capital.
However, private equity/venture capital investors also face impediments stemming from the overall macroeconomic context in Ghana. Ghana has had a recent poor record of government finances and fiscal management; inflation was as high 17 percent in December 2014; and there has been significant depreciation of the Ghana cedi. Government funding costs have been high, with 91-day and 182-day T bill rates remaining above 25 percent. The country's economic growth has been jeopardized by acute electricity shortages. These circumstances resulted in an IMF loan of US$918 million in April 2015 to restore macroeconomic stability with better fiscal discipline and slower inflation. The macroeconomic challenges have also dampened the investor environment. Ghana's electricity crisis has made investors reluctant to invest in sectors such as manufacturing. Volatility in the Ghana cedi have made business fundamentals seem less attractive for investment, and also dampened returns for investments made in local currency. High government rates of borrowing make it harder to justify investment in riskier and more illiquid alternative assets by domestic institutional investors. High interest rates also make it more difficult to use leverage in a PE/VC transaction. Thus, using debt to finance private equity deals is not common in Ghana. 81 While the impediments discussed above are unique to Ghana, many impediments are common to PE/VC in most developing countries. As discussed earlier, the SME terrain, for instance, is difficult, as it is in many developing countries. SMEs lack the financial literacy to recognize the value added of PE/VC; they are usually family owned businesses that are reluctant to cede control or ownership to outsiders; SME financials are often not in order; and the SMEs are also reluctant to reveal financial information, which causes problems for valuation. Domestic institutional investors in Ghana's market, as in several other developing 79 REP Interim Evaluation IFAD, 2011. 80 English is the official language in Ghana. 81 This is also because Ghanaian law prohibits leveraged acquisition transactions as discussed in the section on legal and regulatory framework.
countries, are not comfortable with the PE/VC asset class in general and lack the capacity to invest in the sector. As discussed earlier, banks have been more active players in PE/VC in Ghana, while both pension funds and insurance companies are less comfortable investing in the asset class (see discussion below on investment guidelines restrictions). As in other developing countries, the environment for seed and early stage financing is also embryonic, and thus has not been able to boost investable deals in the ecosystem. In addition, without technical assistance to address some of the constraints faced by SMEs (such as financial management, corporate governance), small PE/VC funds find it difficult to discover investable opportunities and to deploy capital effectively.
In addition, the capacity of both fund managers and professionals servicing the PE/VC industry --e.g. due diligence, legal services --tends to be weaker in nascent markets. Many of the fund managers tend to be first-time managers or have sparse track records. This reality is of critical importance since the private equity and venture capital businesses are both businesses that require an "apprenticeship" approach whereby professionals receive training and gain experience by working with more senior colleagues. In the absence of such experience -or learning by doing -investors lack the context to manage through the ongoing challenges that face an investor in private companies. The remedy to this issue is to either: (i) grow capacity within the local investor base or (ii) attract experienced overseas talent to move to Ghana and add to the base of talent in the industry.
Exit is another constraint common to PE/VC funds in developing countries, although Ghana's junior stock exchange provides a promising development in the market. IPOs are typically not a viable exit strategy in most emerging economies with underdeveloped capital markets; thus PE/VC funds tend to rely on sales to strategic and financial sponsors, and self-liquidating instruments to facilitate exit. The Ghana Stock Exchange (GSE) 82 is a 25-year old non-profit self-regulatory organization, licensed by the SEC, which currently has only 35 listed companies and 38 instruments. 83 There have been few IPOs recently, although the Agricultural Development Bank has been in the process of an IPO this year. However, in the first quarter of 2013, the Ghana Alternative Exchange (GAX) was launched as a parallel market operated by the Ghana Stock Exchange (GSE) with the support of the African Development Bank. 84 GAX provides an avenue to raise capital for SMEs and start-ups with reduced requirements and fees, shortened processing times, 85 and with other incentives. 86 GAX targets four listings per year. As of February 2015, four SMEs were in the pipeline for GAX listing, and, of note, Samba Foods (a former Bedrock Fund portfolio company) was listed earlier in 2015. While GAX provides an attractive ecosystem intervention for some players, others fear that a GAX exit could limit companies to a Ghana-only play, which can affect the company's international opportunities.
Several government programs, particularly under the Ministry of Trade and Industry (MOTI), provide support for SMEs, but fund managers do not appear to avail of these opportunities. For instance, the National Board for Small Scale Industries (NBSSI), under MOTI, provides business development services (BDS) loans to SMEs and links these enterprises to banks for financial support. GRATIS Foundation, another agency under MOTI, provides technology support for SMEs. The Rural Enterprise Projects, financed by IFAD and ADB, which operates with NBSSI, runs a fund for SMEs and trains rural enterprises. 82 Currently there is integration of the West Africa stock market. In the first phase, sponsored assets; in the second phase, broker in country A has access to country B platform; in the 3 rd phase, virtual market. But with West Africa markets, bigger markets to exist. GSE has real time link between three systems -trading, settlement and depositary. 83 1 company preferred shared; deposit shared; New Gold ETF -cross listed. 84 AfDB has set up a revolving fund of roughly $600K in collaboration with VCTF and GSE to provide funds for SME preparation costs. 85 Maximum 2 weeks after application is filed. 86 The minimum capital requirement for GAX is $250K, versus Ghana cedi 1mn with the main exchange. On the main exchange enterprises have to float 25% of shares to the public, and have 100 minimum shareholders; while with GAX, it is 25 shareholders. On the main exchange, companies are required to have 3 years audited statements; while with GAX it is only 1 year. GAX companies also have only annual reporting requirements versus quarterly requirements.
The Economic Development and Agricultural Investment Fund (EDAIF), established in October 2000, is an export-oriented fund under MOTI which provides funding for SMEs and larger businesses that focus on agricultural exports. In addition, the Ghana Export Promotion Authority supports exporters in gaining access to international markets.

Context for recent increased global regulatory oversight of PE/VC
Since the 2007-08 global financial crisis there has been a trend in increasing oversight of previously unregulated entities such as private equity funds and hedge funds. The G20's November 2008 summit was a defining point, leading to the decision to require all significant financial market participants to be regulated to preserve financial stability and to ensure investors are protected. Increased regulatory oversight of the asset class also engenders investor confidence. Institutional investors, particularly in markets where PE/VC is nascent, are less comfortable investing in an asset class which is unregulated. Thus, a greater degree of oversight can increase the flow of capital into the asset class from such investors.

General regulatory considerations for PE/VC
The pivotal aspect guiding the regulation of investment funds is who the fund is being offered to: if offered to retail investors, the fund is typically subject to much higher regulatory scrutiny than if offered to sophisticated or "qualified" investors. Typically, investment funds are regulated by a legal/ regulatory framework under a Financial Sector Law, Securities Market Law or a separate Investment Funds law. Generally, funds being offered only to a limited number of qualified or sophisticated investors will be exempt from the regulatory requirements of funds (such as open-ended mutual funds) that are offered to retail investors, and are typically not required to register with the capital markets authority. For example, PE/VC funds in the US will seek exemptions from certain requirements of the Investment Company Act of 1940, the Securities Act of 1933, and the Investment Advisers Act of 1940, which funds offered to retail investors would be required to comply with. PE/VC funds are therefore not registered with the US SEC.
For PE/VC funds offered to sophisticated/qualified investors, regulatory frameworks typically focus more on the fund manager than the fund. The framework usually focuses especially on those fund managers that control assets above a certain threshold size. This focus is because fund legislation has to address the principal-agency risk that is fundamental to fund management -namely that the agent who manages the fund does not own the assets of the fund. Thus, for example, the EU AIFM Directive focuses on regulating the Alternative Investment Fund Manager (AIFM) rather than the AIF. The fund managers are usually required to register with the appropriate capital markets authority. In the US, although private funds are not required to be registered, fund managers for private funds with assets under management over $150mn are required to register with the SEC. 89 These fund managers are regulated under the principle-based regime of the Investment Adviser Act of 1940, which provides broad directions to ensure that investment advisers have a fiduciary duty to act in the best interest of their investors (or clients). The legislation seeks to govern the relationship and disclosure requirements between investor (client) and advisor, rather than the investment activity of the fund. Broad principle-based legislation has the added advantage of not requiring everything to be spelled out but being able to flexibly deal with an evolving market through regulations and guidelines.
The regulatory framework generally also provides other tax and structural incentives to PE/VC funds and their investors. PE/VC funds are typically formed as tax-transparent, limited partnerships (LPs) or limited liability companies (LLCs). These closed-ended entities are formed as LPs or LLCs so that their investors (other than the general partner) are not held personally liable for the liabilities of the fund, and instead their liability is only limited to the capital they invested. By international standards, these vehicles are considered tax transparent or "pass through" entities, which do not pay corporate income tax. Thus, income and gains cumulated in the fund are passed to the investor, who pays tax. This pass-through tax treatment is therefore a critical aspect of the formation of a PE/VC fund, and jurisdictions that do not afford such treatment are not considered attractive destinations to register a PE/VC fund. In contrast, favorable tax regimes with robust legal systems, such as Luxembourg and Mauritius, are well-known international fund jurisdictions.
Other levers for oversight of the PE/VC fund include the contract between the fund manager and the investors, and self-regulatory initiatives. The relationship between the manager and the investors is guided mainly by the contractual agreement, typically the Limited Partnership Agreement, which seeks to align the interests between principal and agent by, among other things, specifying investment strategy and guidelines, compensation agreements, and measures to deal with conflict of interest. Since the industry itself is motivated to foster trust and a good reputation, self-regulatory mechanisms can also bring important standards and controls which may be more easily perpetuated than legislation (which often takes longer).  93 In order to qualify for financing, the VCFC must also invest in small businesses 94 through equity and quasi equity instruments; and be managed by an investment adviser licensed by the SEC.

Ghana's legal/ regulatory framework guiding funds and fund managers
The VCTF Act was unorthodox because it combined the legal framework to create a financial actor (the Fund of Funds) with a legal framework for a subset of PE/VC funds in the ecosystem. Given the current Securities Industries Law is silent on PE/VC, this has led to gaps in the regulatory environment for PE/VC funds. The legal/regulatory environment in Ghana for private equity and venture capital funds and fund managers is, for the most part, non-existent. The current Securities Industry Law, 1993 (PNDCL 333), as amended, which regulates the activities of entities in the securities business, does not give the SEC purview over private equity/ venture capital funds or fund managers; this purview is only extended to publicly offered unit trusts and mutual funds and their fund managers (Section IV of this Act). 95 The VCTF Act as currently written pertains to venture capital, not private equity. This leaves open the regulatory space for private equity funds formed outside the VCTF Act because venture capital fund managers running VCTF funds are regulated, while other PE/VC fund managers are not. There are no legislative or regulatory requirements for non-VCTF PE/VC funds, whether related to the allowed legal structures of these funds, the licensing/registration requirements for their fund managers, or disclosure and reporting requirements. Another gap is that neither the current Securities Industry Law, 1993, nor the VCTF Act, defines the "qualified" investors that can invest in PE/ VC or be marketed to by PE/VC funds. The Securities Industry Law, 1993, Section IV, was written specifically to regulate open-ended collective investment schemes in general. It does not distinguish between privately offered funds and publicly offered funds. It also does not distinguish between "qualified investors" who can be targeted by privately offered funds versus retail investors who must be protected when being offered publicly offered funds. Therefore, there are no specific requirements or restrictions pertaining to HNWs, or for any other institutional investors except for pension funds and insurance companies (discussed below).
The VCTF Act effectively bifurcated the legal/regulatory framework for PE/VC funds registered in Ghana, introducing confusion and lack of clarity in terms of compliance requirements for PE/VC funds and their managers. For instance, although the Securities Industry Law, 1993, as amended, does not specifically require fund managers of venture capital or private equity funds to be licensed by the SEC, several industry players believe that PE/VC fund managers operating in Ghana are required to be licensed by the SEC. This may be partly because all fund managers managing funds that receive capital from VCTF have to be 92 The law stated that "The Financial Institutions (Non-Banking) Law, 1993 (P. N.D C L 328) is hereby amended by the deletion of paragraph 6 on Venture Capital Funding companies from the schedule." 93 While Ghana has a Partnerships Act, 1962, this is not conducive to the traditional private equity/ venture capital LP/GP structure because it does not allow for limited partnership The limited partnership structure which is conducive to private equity/ venture capital allows the general partner to have unlimited liability for the fund's losses or debts, while the limited partner has limited liability protection -that is, they cannot lose their personal assets --against the fund's losses or debts. 94 The VCTF Guidelines of 2006 defined small businesses as "industry, project, undertaking or economic activity which employs not more than 100 persons and whose total asset base, excluding land and building, does not exceed the local currency equivalent of $ 1 million in value." In addition, the investee ideally had to be incorporated under the Companies Code; had to be in the seed, start up or expansion stage of development; the majority of its staff and assets had to be in Ghana etc. In addition, the participating VCFC could not invest in LBOs, and could not invest in companies that were involved in lending, factoring, or other forms of capital provision to others etc. 95 Section IV of this law prohibits a unit trust or mutual fund from being established or soliciting funds from retail investors unless the unit trust/fund is licensed by the SEC (and in the case of a unit trust, incorporated under the Companies Code 1963 (Act 179)). Thus, the Act seeks to regulate only publicly offered funds, even though the unit trust and mutual fund are not defined in this Act, leaving room for interpretation. licensed by the SEC; but also because the current Securities Industry Law does not clearly define unit trusts or mutual funds --although they are widely understood to mean open-ended collective investment schemes --but requires fund managers of such funds to be licensed by the SEC. 96 Importantly, this bifurcation has led to creating a non-level tax treatment for PE/VC funds because non-VCTF funds cannot qualify for income tax and capital gains exemptions given to VCTF funds. The VCTF Act lacks clarity in terms of whether its provisions, including tax incentives, apply broadly to venture capital funds or to only a subset of funds applying for VCTF funding. The Act stipulates, for instance, that a venture capital financing company would enjoy tax incentives as provided by the Internal Revenue Act, 2000 (Act 592), as amended, which effectively makes the venture capital financing companies tax transparent. While it is clear that to qualify for the tax incentives, the VC fund must qualify for funding under the VCTF Act, it is not clear whether they must actually receive funding from the VCTF to qualify for the tax incentives. This has resulted in confusion in the industry, where venture capital funds aiming for tax transparency, as specified by the Act, seek to mimic the requirements of the VCTF Act, regardless of whether they apply for VCTF funding or not. The Internal Revenue (Amendment) Act, 2006 (Act 700) also states that a financial institution which invests in a venture capital financing company can deduct the full amount of the investment from taxable income in the year of assessment. 97 This tax incentive is written such that it can pertain to investments in VC funds (not other private equity vehicles) even if not eligible for funding under the VCTF Act of 2004. However, investors in VCTF Funds can also carry forward losses from disposing shares for up to 5 years beyond the tax exemption period. 98 Such provisions create an un-level playing field because it does not provide similar tax incentives for investors that are not co-investing in private equity/ venture capital alongside VCTF.
Combined with the low capacity of the SEC to regulate PE/VC, the current environment has led to an unconventional arrangement where the VCTF cumulates the functions of owner and manager of the VCTF fund, as well as quasi regulator of VC funds, within the Ministry of Finance. The SEC lacks the capacity currently to regulate the PE/VC industry: only 1 staff member of 51 focuses on the entire fund industry with over 100 fund managers. The VCTF therefore has become a de facto quasi regulator in the ecosystem, supporting the SEC, for a subset of local funds. The agency is, for instance, tasked with helping the SEC draft regulations and guidelines for the upcoming Securities Industries Act that is currently being reviewed by Parliament. The combined proxy owner/manager function of the VCTF is also problematic as it can introduce interference in the investment execution of the Fund of Funds which would be mitigated if the VCTF were managed by a private manager operating at arm's length.
A new Securities Industry Bill, which refers to alternative assets, is currently awaiting approval from Parliament; this Bill may need to be reviewed to ensure it provides necessary exemptions for closed-ended collective investment schemes. Part I of the Bill gives the SEC the power to register, license, authorize and regulate alternative investment funds, such as hedge funds, private equity funds and venture capital funds. Article 215 of the Bill allows the Ministry of Finance to issue regulations for collective investment schemes other than mutual funds and unit trusts. However, while the Bill seeks to distinguish between unit trusts, 96 The law states that "No person shall a) establish or operate a unit trust; b) issue any invitation to the public to acquire any units in any unit trust; or c) maintain or hold himself out as carrying on the business of dealing in units of a unit trust unless the person is licensed by the Commission." It further states that "No licence shall be granted to any person to operate a unit trust unless it is a company incorporated under the Companies Code 1963 (Act 1979 (5) shall be carried forward for a period of 5 years of assessment following the end of the exemption period." mutual funds, and private equity and venture capital funds, an initial review finds that there is lack of clarity over the use of the term "collective investment scheme" which could potentially result in unnecessary regulation for PE/VC funds and their managers. In Article 216, a collective investment scheme is defined as any entity that pools investments, invests in eligible assets, is professionally managed, and as part of which shareholders receive share in profits/ gains of the fund. This definition clearly includes closed-ended vehicles such as PE/VC funds. However, Article 216 also defines a mutual fund as "a public or external company incorporated to operate as a collective investment scheme." Given this definition does not preclude closed-ended investment schemes, the term "mutual fund" could also incorporate closed-ended investment schemes such as PE/VC funds. This would, in turn, imply that most of the legislation as it pertains to open-ended mutual funds would also apply to PE/VC funds, whose investors do not require the same protection as retail investors of mutual funds. The Bill may therefore need to be reviewed, to ensure closed-ended investment schemes are exempt from the requirements for open-ended investment schemes offered to the public. This could potentially be accomplished through regulations and guidelines accompanying the Bill. 99 The net result is that other than a subset of funds that access VCTF funds, or would like to access VCTF funds, most PE/VC funds in the ecosystem are registered in Mauritius. These funds typically target international investors such as DFIs, development banks, foreign institutional investors, who are familiar and comfortable with funds registered in a known and investor friendly jurisdiction such as Mauritius.
Funds managers registered offshore that are operating in Ghana typically have a sub-advisor in Ghana in order to have boots on the ground to source and monitor investments. However, they are not legally required to set up a sub-investment adviser in Ghana, nor does this adviser need to be licensed by the SEC. An additional benefit for such funds is that a tax loophole allows investors in funds registered offshore to avoid paying capital gains or income tax. Most non-VCTF funds operating in Ghana would either invest directly in an investee company in Ghana or use an offshore vehicle as an investment vehicle to invest in a Ghanaian enterprise. The advantage with the latter is that the investment can be sold (by selling the SPV) without triggering capital gains in Ghana because the tax law limits the chargeable asset for capital gains tax to shares in a Ghanaian company and the tax law does not have extra territorial jurisdiction. On the other hand, if the investment were to wholly own 100% of a Ghanaian company through an SPV, the investor must pay capital gains tax in Ghana. 100 For foreign investors, the Ghana Investment Promotion Act, 2013 and the Foreign Exchange Act, 2006, provide a favorable investment regime. However, the GIPC Act, 2013 has also revised upwards the capital requirement for foreign investors wanting to invest in Ghana, which can discourage smaller sized investments in smaller enterprises. The GIPC Act, 2013 guarantees unconditional transferability in freely convertible currency of capital and income, subject to the Foreign Exchange Act, 2006 (Act 723). It also provides guarantees and provisions against expropriation. Ghana does not restrict foreign investment in specific sectors, although there are additional regulatory approvals required for investment in certain sectors such as banking. 101 Instead, the GIPC Act only stipulates that foreigners cannot participate in petty hawking, and certain services such as operating a beauty salon or taxi services. Foreign ownership restrictions do occur in the local content requirements of the oil and gas sector, as per the Ghana Local Content and Local Participation Bill, 2013. This law stipulates that the oil and gas sector should fairly benefit Ghanaians, and requires, for instance, that indigenous Ghanaian companies should be given preference for licenses for oil and gas related activities; and that Ghanaians should be prioritized for jobs in these sectors. While the GIPC Act, 2013, provides an attractive regime in general, it also demands higher investment thresholds for foreign investors. The new rules require foreign investment in joint ventures to have a minimum capital of USD 200K; while for wholly owned foreign investments, the capital requirement is at least US$ 500K. 99 VCTF is currently helping the SEC to draft regulations and guidelines for this new draft law. 100 Withholding tax will be applicable to any dividends paid from the Ghana investments of the offshore SPV. 101 ICLG -Private Equity Chapter on Ghana.
Companies conducting trading 102 must have US$1 million minimum capital from a foreign participant and must employ a minimum of 20 skilled Ghanaians. 103 These rules make the required financing gap for foreign participation in PE/VC higher, which could possibly lead to less financing from foreign sources for smaller companies. On the other hand, the Act does provide exemption from import duties for manufacturing companies, which could direct more investment from foreign sources to this sector. 104

Legal/ regulatory framework guiding domestic institutional investors
The legal/ regulatory framework for domestic institutional investors does not encourage investment in private equity or venture capital; in addition, despite local financial institutions having benefited from early experience co-investing with VCTF in venture capital, domestic institutional investors are not comfortable with the asset class.

Pension funds
The National Pensions (Amendment) Act, 2014 (Act 883) was published in the official gazette in December 2014, establishing modifications to the National Pensions Act, 2008 (Act 766). 105 Act 766 was passed on 12th December 2008 to establish a three-tier pension scheme and a Pension Regulatory Authority which approves, regulates and monitors pension fund managers, trustees, custodians and other pension-related entities. The three-tier system established the following:  First tier: Basic national social security scheme, managed by SSNIT, which is mandatory for all employees in both the private and public sectors  Second tier: Occupational (or work-based) pension scheme, managed by private pension fund managers 106 , which is mandatory for all employees 107  Third tier: Voluntary provident fund and personal pension schemes, managed by private pension fund managers.
There are 25 corporate trustees, 51 pension fund managers and 16 custodians in the industry as of November 2014. The second and third tiers of the pension system have a total of 248 registered and approved pension schemes. 108 Ideally this three-tiered pension fund system, which ended the monopoly of SSNIT as the state social security vehicle, and increased the size of the private pension market, would have provided a basis for more pension fund investment into private equity and venture capital in Ghana. However, the investment guidelines do not allow for pension funds to invest in private equity or venture capital. funds not invest more than 5% of AUM in a collective investment scheme (CIS). 109 In addition, Section 4.2 of the guidelines states that the fund managers can only invest in CIS that are authorized by the SEC according to Securities Industry Law, 1993, under Part IV. This section of the law authorizes unit trusts and mutual funds but does not authorize private equity or venture capital funds. Further, 5.1.2 states that the fund must be governed by the laws of Ghana, which does not allow for pension funds to invest in PE/VC funds registered abroad. 110 In fact, pension funds wishing to invest abroad have to get presidential approval through the NPRA and the Minister of Finance and Economic Planning for these investments. 111 The investment guidelines therefore are clearly biased towards investments in Ghana, and specifically in government securities. Despite these restrictions, currently SSNIT is invested in both PE/VC funds locally (Fidelity) as well as abroad (e.g. ECP). It is unclear if this is because these investments were made prior to 2008, and these guidelines do not apply to prior investments. NPRA's position is that they are cautious about the PE/VC asset class and want to ensure the regulatory regime is robust (since the SEC does not currently regulate PE/VC) before allowing pension funds to invest in the asset class.

Insurance companies
Currently, the insurance industry is governed by the Insurance Act, 2006 (Act 724), and a new solvency regime which was introduced effective January 2015. 112 The National Insurance Commission, which regulates the insurance industry, was established in 1990 by the Insurance Law, 1989. As at June 2015, the insurance industry has 25 Non-Life companies, 113 21 Life companies 114 and 3 Reinsurance companies. 115 As of December 2013, total premium was Ghana cedi 1.03bn or US$425 million (life and non-life), comprising 42% life and 58% non-life premiums. The total assets of the industry -life and non-lifeamounted to Ghana cedi 1.7bn or US$725 million (of which 58% million was non-life and the remainder was life). The industry has been growing at a 30 -35 percent per annum in premiums for the past 5 years.
The risk-based regime imposes a 30 percent discount on PE/VC securities, which may deter investment.
The new solvency regime complies with international standards and practices and impacts a number of areas such as capital requirements, valuation and solvency levels. The regulator determines solvency level by applying different discount rates for different types of assets. While government securities have a 0 percent haircut; and money market securities have 5 percent haircut; any security not listed on a stock exchange has a 30 percent haircut. This naturally deters investments in private equity. 116 Ghanaian insurance companies usually invest in T-bills and fixed deposits. 117 Historically, among the insurance companies, Ghana Union Assurance has invested US$1 million in Ebanekese (a VCTF Fund) and Bedrock's initial investor included SIC Insurance Company. Insurance companies do not usually invest abroad, although they may hold cash balances abroad. All life insurance funds have to invest in Ghanaian assets and cannot invest abroad. 118 With the new regime, insurance companies can make foreign investments, but these investments are not considered in the solvency formula. Neither the Securities Industry Law, not the VCTF Act, defines the "qualified" investors that can invest in PE/ VC or be marketed to by PE/VC funds. Therefore there are no specific requirements or restrictions pertaining to HNWs, or for any other institutional investors except for pension funds and insurance companies (shown below). Domestic pension funds Guided by the National Pensions (Amendment) Act, 2014 (Act 883) and the Investment Guidelines for pension fund managers (NPRA/GD/INV/01/11). Pension funds cannot invest more than 5% of AUM in a CIS, but the CIS must be authorized by the SEC (which precludes private equity/ venture capital funds Mainly guided by the Ghana Investment Promotion Centre Act, 2013 (Act 865) which created the Ghana Investment Promotion Centre to create a conducive environment for investment in Ghana and encourage and facilitate investment in the country

Restrictions in foreign investments 
According to GIPC Act, 2013, enterprises which are partially foreign owned cannot invest or participate in businesses like operating taxi services or small scale trading, and other services including producing exercise books and other basic stationery; retailing finished pharmaceutical products; producing, supply and retailing sachet water etc.  Ghana Local Content and Local Participation Bill 2013, which stipulates that Ghanaians should be given priority to be employed in the petroleum sector; and requires 5 percent indigenous equity participation etc.

Minimum level of foreign investment (does not apply to portfolio investments or enterprises set up solely for export trading and manufacturing) 
Partial foreign ownership in an enterprise: Must have a partner who is a Ghanaian citizen and who has a minimum of 10 percent equity in the enterprise; foreign participant must invest a minimum of US$ 200 thousand in cash or capital goods through equity participation.  Wholly foreign ownership in an enterprise: Foreign capital must be a minimum of US$ 500 thousand in cash or capital goods by way of equity capital.  Trading enterprises (such as the buying and selling of imported goods and services). Foreign participants must invest a minimum of US$1 million in cash or goods and services; and the enterprise must employ at least 20 skilled Ghanaians. Guarantees against expropriation The GIPC Act 2013 provides guarantees and provisions against expropriation Repatriation of dividends/ capital gains Ghana Investment Promotion Centre Act, 2013 guarantees unconditional transferability in freely convertible currency of capital and income (subject to Foreign Exchange Act, 2006 (Act 723). Double taxation agreements with countries Ghana has Double Taxation Agreements with Belgium, France, Germany, Italy, South Africa, UK, 124 as well as with Switzerland, the Netherlands, and Denmark. This allows investors of these countries to avoid a situation such that the same taxpayer is not subject to tax in two countries on the same income or capital gains. There is currently no DTA with Mauritius or Luxembourg. (Withholding tax on dividends is 8%; capital gains tax from a Ghanaian source is 15%) (Act 684) during the period of tax exemption granted under section 11 (5) shall be carried forward for a period of 5 years of assessment following the end of the exemption period." 123 Under Division III -Deductions; Section 19A-Deduction in relation to Venture Capital Companies: For the purposes of ascertaining the income of a financial institution which invests in a venture capital financing company there shall be deducted an amount equal to the full amount of the investment in a year of assessment. [Inserted by the Internal Revenue (Amendment) Act, 2006 (Act 700), s.3]. See http://www.gra.gov.gh/docs/info/irs_act.pdf. 124 http://www.gra.gov.gh/docs/info/double_taxation.pdf Accessed August 28, 2015.

HISTORY OF WORLD BANK GROUP INVOLVEMENT IN GHANA'S PRIVATE EQUITY/VENTURE CAPITAL ECOSYSTEM 125
Prior World Bank support to the venture capital ecosystem in Ghana was effected through the 2005 Economic Management Capacity Building (EMCB) project. The objective of the Project was to support the Government of Ghana in its role as a facilitator for economic development through: (i) facilitating a reform initiative for improved public sector management and service delivery; and (ii) strengthening the governance and competitiveness of the financial sector. This project was later restructured in December 2007 and is now closed.
Component G of this project focused on establishing a strengthened banking and non-bank financial institutions system which provided a wide range of competitive products. This component, labeled "Access to Finance and Governance," supported a number of activities in the financial sector such as governance, PPP development, and access to finance, including venture capital. Under this component, the World Bank aimed to provide technical assistance to the Government of Ghana, which had established a legal framework for a venture capital fund of funds (the Venture Capital Trust Fund or "VCTF") capitalized through an allocation of 25 percent of the National Reconstruction Levy. The World Bank project aimed to establish a sound basis for the governance and regulation of the proposed Venture Capital Trust Fund, and to ensure its long-term sustainability through technical assistance. The VCTF (discussed below) sponsored 5 local VC funds (U$57.2 million total, along with co-investors), which invested in 46 SMEs. Through technical assistance, VCTF provided training programs, seminars, workshops and conferences for the portfolio venture capital funds to develop various capacities and skill sets needed to drive the venture capital industry. The EMCB project provided contributions on capacity building and towards Venture Capital Trust Fund's (VCTF) portfolio review of portfolio companies.
Other components of the project indirectly supported private equity and venture capital. These included: a) Component 2 which supported strengthening the Securities and Exchange Commission (SEC); b) Component 4, which provided technical assistance to the National Insurance Commission (NIC), including to revise and modernize the legal and regulatory insurance framework; c) Component 5 which provided TA and capacity building to the Ghana Stock Exchange (GSE); and d) Component 6 which supported both the strengthening of the legal/ regulatory framework for the pensions sector and the government agency, Social Security and National Insurance Trust (SSNIT).
Both IFC Fund of Funds and IFC Asset Management Company (AMC) have been active in the private equity sector in Ghana. IFC AMC invested US$15 million equity investment in UT Bank 126 through its US$182 million Africa Capitalization Fund which invests through equity or quasi equity in the African banking sector. IFC Fund of Funds does not generally support single country focused funds unless the economy is large and diversified enough to allow for sufficient deal flow for the fund managers to be selective. As a result, IFC has not supported the local fund managers in Ghana. However, IFC has invested in regional funds that include Ghana as part of their investment strategy and have full or representative offices in the country. IFC has therefore invested in regional generalist funds Adenia III, Abraaj II & III, Africinvest II & III, ACRF I, and Synergy I. 127 IFC has also invested in the real estate focused fund, Actis Africa Real Estate II. 125 Aide Memoires 2011-2013accessed through World Bank portal on the EMCB project. 126 In addition to $5mn in Senior Loan and $10mn Trade Finance Guarantee Facility. 127 All of these funds have made at least one investment in Ghana, except Synergy which is the youngest fund on the list.

CONCLUSION
Ghana is generally touted as an attractive investment destination on the continent because of its stable government and relatively strong business environment. However, there are also some market impediments related to private equity/venture capital in Ghana. Some of these impediments -such as the difficulties around investing in SMEs --are common to most developing countries. The legal/regulatory environment in Ghana for private equity and venture capital is, for the most part, non-existent. The Securities and Exchange Commission (SEC) does not regulate alternative asset classes, although it plans to with a new draft law to be reviewed by the Parliament. The VCTF Act discussed in the paper is unorthodox because it combines the legal framework for the creation of a financial actor (the Fund of Funds) with a legal/ regulatory framework for a subset of funds in the ecosystem. Scant regulation for private equity and venture capital is not necessarily problematic in a nascent ecosystem since PE/VC funds typically target sophisticated investors. However, Ghana has a bifurcated legal/regulatory framework, which creates some confusion in the ecosystem. Despite Ghana's local VC industry having been kicked off by financial institutions such as state banks and insurance companies, currently domestic institutional investors, such as pension funds and insurance companies, remain either reluctant to invest in PE/VC or are prevented from doing so by restrictive investment guidelines.