African Small Enterprises need structured models for growth

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Delegates during the just concluded World Export Development Forum that took place in Kigali

Delegates during the just concluded World Export Development Forum that took place in Kigali

Delegates at the recently concluded World Export Development Forum examined the future of impact investments in African SMEs in one of the sessions.

 The emerging consensus was that impact investors have to adopt a structured approach to SMEs in Africa, particularly because factors used to evaluate the beneficiaries in other developing countries tend to lock out many of them.

According to Dan Awendo, a panelist on the session who discussed how to grow SMEs through impact investment, he says that most impact investors from developed countries are always looking for the exit opportunity, yet exit instruments such as the capital markets in Africa are not very well developed.

“They are then forced to target those companies that offer easy exit opportunities, leaving out budding SMEs that deserve their help,” he said.

Awendo also noted that partnering with impact investors is important but their business model needs to be aligned to African local situations to make a meaningful change in the status of local SMEs.

Jean-Louis Ekra, Chairman and President of the African Export Import Bank, pointed out that for impact investors to make a real difference, they will also need to change their perceptions about the risk profile of African businesses and therefore lower their expected rate of return on their investments.

“It is increasingly challenging for investors to derive a 25 percent rate of return on their investment in Africa. They need to be realistic and settle for similar expectations of between 3 to 5 per cent as happens in Europe and Asia”, he said.

He agreed however, that it is going to take a while for impact investors from outside the African continent to understand the real risk in investing in Africa.

Dealing with this situation requires a radical shift and Africa has a capable pool of investors that need to invest more in Africa and to provide the much needed impact funds for local SMEs.

“Africans need to trust each other more and invest in other African countries but at the same time, SMEs should look for business opportunities in sectors that can easily attract this funding such as the supply chain of extractive and commodity sectors,” said Ekra.

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About the author

Olive Ndaka is the Junior Editor for RwandaEye. An investor and young entrepreneur, she is a quick learner and has contributed many articles for RwandaEye in Kinyarwanda.

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