Comment: Sierra Leone's allure, at least to foreign investors, has always lain in its diamond deposits. The fact that they yielded "conflict" or "blood" diamonds, whose sale was used to help fund the battles that ravaged the impoverished African country, did little to dent their appeal.

Now, with the onset of peace in Sierra Leone, a new initiative called the Sierra Investment Fund is seeking to broaden the focus of foreign investors. The Sierra Investment Fund is raising a $20 million (€15.6 million) private equity fund to invest in home-grown businesses in the country.

In recent years, the importance of private equity as an investment class that stimulates growth has been widely acknowledged. Private equity has played a disproportionate role in catalysing wealth creation by entrepreneurial individuals as well as nations.

Whilst venture capital is a relatively new concept in Ireland, venture backed companies in Ireland already account for 6 per cent of jobs in the financial and business sector.

In the UK, the venture capital and private equity industry supports close to one in five private sector jobs. In the US venture capital backed companies employ one in ten employed people.

In Africa, examples are emerging of the positive impact private equity funds can have and of the wide range of ripple effects these investments create, bringing significant social benefits. As stated in the Commission for Africa Report (2005), private equity and venture capital will be "vital in bringing private sector led economic growth and sustainable development to African economies".

In Sierra Leone the 10-year civil war significantly reduced the availability of capital as investors put their money in safer locations. Since the end of the war the country has stabilised and progress has been made in reforming the investment climate. Sierra Leone is emerging as a suitable location for investment, and an opportunity exists for investors to realize returns while supporting the economy to get back on its feet.

Sierra Leone is a country full of potential. It is abundant in natural resources such as gold, diamonds and titanium, and is also able to boast the finest coastline in West Africa.

Outside of the mining sector, significant opportunities for investment exist in the regeneration of the once vibrant tourism and agricultural processing sectors. Prior to the war, Sierra Leone used to boast a Club Med resort, and had been exporting commodities such as cocoa, coffee and rice at premium rates.

However, entrepreneurs struggle to take advantage of these opportunities because of a lack of finance. Local real interest rates on credit finance are between 25-30 per cent.

To fill this financing gap the Sierra Investment Fund will use a private equity model to invest in new and existing businesses in Sierra Leone. By sharing in the risk (and returns) of investments, the private equity model will help stimulate innovation, while the long-term relationship between investor and entrepreneur allows for the transfer of managerial, financial and legal expertise.

The Sierra Investment Fund will make equity investments on strictly commercial terms. This is based on the principle that business that create wealth and employment in a country like Sierra Leone need to be profitable, so as to be sustainable.

This model will work in much the same way that state agencies like the IDA, Enterprise Ireland and Shannon Development have successfully done in Ireland over the last thirty years. The founders of the Sierra Investment Fund believe that the mobilisation of capital is the key to stimulating economic development, and that it is the only way to alleviate poverty in the long term.

In a recent state visit to Sierra Leone and Liberia, Minister of State for Development Conor Lenihan pointed to the Irish story as an example to Sierra Leone.

"If there is one lesson to be learned from Ireland's success it is that the success was not so much a 'miracle' as some commentators will tell you but rather was achieved through hard work over the course of fifty years. I believe that Sierra Leone can follow in Ireland's footsteps."

He further stated that Irish Aid would "pioneer work in involving the private sector in these two countries". The Sierra Investment Fund is looking to bring the Irish experience to bear on reviving the fragile economy of Sierra Leone through innovative cooperation with Irish Aid. Alongside the fund, a technical assistance facility called the Business Development Initiative will work with entrepreneurs to develop business plans, and build managerial capacity.

There is an opportunity for foreign investors to help lift Sierra Leone out of poverty by making sustainable investments in emerging markets and looking beyond sectors like mining that offer quick returns. As demonstrated over the last 30 years in Ireland, a country's entrepreneurs have the potential to pull it out of poverty. The private equity model allows Sierra Leone to realise this potential.

• Niall Ó Cathasaigh, from Tralee, Co Kerry, is a partner and founder of the Sierra Investment Fund. For more information on the Sierra Investment Fund, contact Niall Ó Cathasaigh at niall@thesierrafund.com.