Developing innovative solutions to boost the SME world is a major concern for African economies. Yet, accessing financing remains a headache for sector players.
On Tuesday, November 15, the International Finance Corporation (IFC) announced the launch of a new vehicle dedicated to supporting venture capital systems in Africa, the Middle East, Central Asia, and Pakistan. This $225 million fund will provide seed funding for startups that address development issues in areas such as climate, health, education, agriculture, e-commerce, etc. through technological innovations.
“Support for entrepreneurship and digital transformation is essential to economic growth, job creation, and resilience. It will help innovative tech companies in Africa, the Middle East, Central Asia, and Pakistan expand during a time of capital shortage and create scalable investment opportunities. We want to help develop homegrown innovative solutions that are not only relevant to emerging countries but to the rest of the world,” said Makhtar Diop, IFC's Managing Director.
The already difficult access to funding for startups in low-income countries has worsened with the global slowdown in venture capital investment, the Covid-19 pandemic, rising food and supply chain costs, rising interest rates, and currency devaluations. However, countries still have a huge potential for development. In Africa, for example, the digital economy could contribute up to $712 billion to the continent’s GDP by 2050, according to a report published on June 9 by the international network of high-impact entrepreneurs Endeavor.
The IFC sees in its new platform a way to boost nascent venture capital markets in regions that have shown early growth potential but face challenging global economic conditions. The international organization says it will make equity and quasi-equity investments in tech startups and help them grow into scalable companies capable of attracting traditional equity and debt financing. It will also use the platform to collaborate with other World Bank Group teams to build and support venture capital ecosystems through regulatory reforms, sector analysis, and other tools.
An additional $50 million will be provided by the International Development Association's Private Sector Window Blended Finance Facility, which helps reduce the risk of investments in low-income countries.
Samira Njoya
