Unlocking the $42 billion capital gap for SMEs in Africa

Africa is facing a significant financing gap of $42 billion that, if addressed, could revolutionize the fortunes of small and medium-sized enterprises (SMEs) across the continent. Despite commendable efforts to mobilize capital in the sector, there is a disconnect between the availability of financing and the SMEs struggling to access it. Lack of capital remains a primary obstacle for SMEs looking to scale their businesses. The agriculture sector, in particular, faces underfunding due to its high risk levels, despite the presence of institutions like commercial banks and development finance institutions (DFIs) making efforts to finance the sector. However, there is a shortage of pipeline builders and institutions offering patient capital necessary for SMEs to absorb larger financing amounts. Victoria Sabula, CEO of AECF, emphasizes the critical need for readiness among SMEs to access available capital and highlights the importance of building a pipeline to facilitate this process. She underlines the significance of investor readiness, pipeline building, and the availability of patient capital with longer-term viability. Sabula stresses the necessity of supporting businesses with technical advisory services and tailored growth strategies to help them progress to absorbing larger capital investments. Addressing the financing gap requires a collaborative effort involving DFIs, private sector investors, and development partners working towards unlocking opportunities for SMEs to thrive. Sabula points out that while there is a growing trend focusing on inclusive financing models targeting marginalized communities and youths, businesses must also demonstrate strong operational capacity to attract investors. The agribusiness sector, particularly processing, attracts more capital due to relatively lower risk compared to production. The conversation around boosting the financial ecosystem for agribusiness involves various stakeholders striving to address challenges and capitalize on opportunities. De-risking initiatives involving patient capital have shown promising results, encouraging financial institutions to engage with previously underserved customer segments. Collaborative efforts leveraging public and philanthropic capital aim to attract private investments and foster sustainable growth in the sector. In addition, guarantee facilities and revolving funds have proven effective in multiplying investment returns, highlighting the strategic utilization of public resources to catalyze further capital inflows. Sabula addresses concerns about the aging African farmer demographic and suggests rethinking farming structures to enhance productivity and create opportunities for youth engagement. She advocates for a strategic approach to farming that involves consolidating operations for increased efficiency and creating alternative avenues for youth employment. Sabula emphasizes the importance of empowering young people to explore diverse career paths aligned with their skills and interests, rather than coercing them into traditional farming roles. By optimizing farming practices and fostering innovation, the agricultural sector can attract a new generation of talent and drive sustainable development across Africa.