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During last week's Finance in Common summit, one digital gathering looked to Africa in particular. At the event, “Africa: Towards a Sustainable Recovery for the Private Sector”, organized by EDFI (European Development Financial Institutions) , high-level players announced they will mobilize at least $4 billion for African small and medium-sized enterprises by the end of 2021.

There is no getting away from it. The Covid-19 crisis that is hitting most countries around the world hard is jeopardizing decades of private sector growth and job creation in Africa. And it is already causing major setbacks in terms of unemployment, inequality and poverty across the continent. The prospects for micro, small and medium-sized enterprises (MSMEs) give particular cause for concern.

Further reading: Finance in Common Summit, all our articles

Yet these MSMEs are the lifeblood of Africa’s economy and provide vulnerable populations with essential jobs. This was reiterated by all the participants at the high-level event at the Finance in Common Summit dedicated to a sustainable private sector recovery in Africa. These businesses account for “90% [of the entrepreneurial fabric] in Sub-Saharan Africa”, says Sergio Pimenta, Vice President for the Middle East & Africa at the International Finance Corporation (IFC, World Bank Group). 

For example, in Nigeria, the most populous country in Africa, they “account for 86% of employment”. Yet “many African MSMEs are currently suffering. One of the responses to the crisis must be financial: short and long-term debt, local currency, equity, subordinated debt and so on”, says Aziz Mebarek, co-founder of Africinvest Group, which is specialized in investment and financial services in North and Sub-Saharan Africa. Sergio Pimenta also stressed the importance of strengthening the business environment and political dialogue to give businesses new opportunities in markets and value chains.  

The current crisis is exacerbating the barriers faced by these MSMEs in the field, which often prevent them from accessing financing and thereby realizing their full development potential. “What do African entrepreneurs need?”, asks Ifeyinwa Ugochukwu, Chief Executive Officer of the Tony Elumelu Foundation, which works for the empowerment of African entrepreneurs. “Banks need to trust them. Entrepreneurs cannot develop without capital or capacity building with training and technical assistance. With the Covid-19 pandemic, MSMEs need the support of public development banks more than ever”.  

Supporting inclusive financial solutions for African MSMEs

In response, Bruno Wenn, Chair of the Association of European Development Finance Institutions (EDFI), announced the launch of a plan to support African MSMEs with at least $4 billion mobilized by the end of 2021. “SMEs generate by far the majority of jobs in Africa”, he said. “This is why creating, promoting and financing these businesses is critical for development”.  

In addition to the EDFI Association’s 15 European Development Finance Institutions (DFIs), the first members of this coalition include the African Development Bank (AfDB), West African Development Bank (BOAD), Islamic Corporation for the Development of the Private Sector (ICD), FinDev Canada and the U.S. International Development Finance Corporation. Other institutions are also expected to join the coalition. 

Putting Capital in the Hands of Entrepreneurs

This ambitious plan aims to provide inclusive financial solutions for African MSMEs. Diane Karusisi, Chief Executive Officer of the Bank of Kigali, the largest commercial bank in Rwanda, believes that urgent action is needed: “We must put money in the hands of entrepreneurs and scale up partnerships with DFIs to build the growth of the next 20 years in Africa”, she says. Karusisi also called for support and training for young Africans, who are the entrepreneurs of tomorrow.

By 2030, more than 80 million young Nigerians will enter the job market, added Kola Masha, co-founder and Managing Director of the social enterprise Babban Gona, which trains and supports young farmers on a local level. “For young people on the job market, we need to come up with the resources to finance all entrepreneurial initiatives, including in the informal economy”.    

Building the Post-Covid Recovery

The private sector will be at the center of any African economic recovery. Marjeta Jager, Deputy Director-General for International Cooperation and Development at the European Commission, pointed this out when she announced a total commitment of the European Fund for Sustainable Development (EFSD) of €1.5 billion, with massive amounts re-channeled towards a response to the Covid-19 emergency for the private and non-sovereign sectors. 

The aim is to mobilize over €40 billion of investments. Taking risks and guaranteeing financial intermediaries to help them overcome their reluctance to lend to entrepreneurs is crucial for the European Commission, Member States and development banks and the European Union is planning to extend its action in this field in 2021.