UK development finance institution CDC is committing US$50mn to African Capital Alliance’s (ACA) private equity fund III (Cape III). This is CDC’s second investment under its new investment policy, which is focused on investing in the world’s poorest countries.

The fund will develop and grow mid-sized companies in Nigeria, with minority and majority investments between US$30mn and US$50mn. Up to 25% of investments will also be directed towards other parts of West Africa and the Gulf of Guinea region.

Cape III will back companies that stand to benefit from regulatory changes in Nigeria. For example, with less than 50% of the Nigerian population lacking access to energy, the electric power sector in Nigeria is in need of investment. Deregulation and reform in the sector are providing opportunities for new entrants to this market, and it is here that Cape III will make some of its investments.

Jean-Marc Savi de Tove, CDC’s portfolio director, Africa, comments: “As the global downturn bites, companies are finding it increasingly difficult to get access to the finance that is central to their development. Cape III’s capital injection into promising businesses in Nigeria and its neighbours will allow for stronger capital structures and also help investee companies obtain debt financing from banks – another important driver of economic growth.

“With fiscal, banking and transparency reforms, the opportunities for putting private capital to work have never been brighter in Nigeria’s history. We have invested with ACA since they launched their first fund, Cape I, in 1998, which proved successful in providing capital to small and medium sized enterprises. The team has a strong track record of working with entrepreneurs and management teams to build value in companies, which ultimately drives economic growth.”

Under CDC’s new investment policy, which came into effect on January 1, 2009, 75% of CDC’s new investments will provide capital to the world’s lowest income countries with an annual gross national income per head of less than US$905.