The Board of Directors of the African Development Bank (AfDB) has approved a USD 25-million equity investment in Vantage Capital Fund II (VCF II). This second-generation multi-sector fund, designed to reach USD 250 million, will provide mezzanine financing - a combination of debt and equity instruments - to selected portfolio companies across the Africa.

The Pan-African fund, with up to 45% of its portfolio in the Southern Africa Development Community (SADC) countries, 30% in North Africa and 25% in East and West Africa, will support the growth of African businesses.

The first generation Fund, VCF I, helped create some 19,300 jobs, generated USD 91 million in tax revenue for the South African government, and added USD 281 extra capital flow to South African businesses over a period of 8 years. VCF II is expected to help catalyze some USD 735 million in aggregate capital flows to African mid-markets companies, trigger the creation of 10,000 additional jobs and bring in USD 145 million in government revenues.

The AfDB's investment in VCF II will promote the expansion of mezzanine financing as a mainstream asset class on the continent. The Fund is expected to attract institutional investors from several African countries and promote higher levels of investment in long-term instruments. As the first fund domiciled in Botswana, VCF II will help launch the nascent Botswana International Financial Service Center (BIFSC).

Mezzanine assets currently represent less than 2% of African private equity funds, compared to a world average of 10%. However, a host of factors - including sustained growth rates, the increasing needs of mid-market companies for expansion capital, sound but conservative banking sectors and increasingly favorable tax and regulatory regimes - have generated an African mezzanine market potential estimated at USD 1.6 million over the next 5 years.