The SGB Sector in 2018

Regional Trends

Andean

Snapshot
  • 10 members
    based in the region
  • 51 members
    with staff in the region
  • 138 members
    interested in the region
Impact Investing

The Latin American and Caribbean region is garnering renewed interest from the impact investing sector, with 40% of the Global Impact Investing Network’s 2018 survey respondents allocating funds to the region.

In the 2019 Industry Data & Analysis report, LAVCA reports venture capital investments of US $334 million across 19 deals in Colombia in 2018. This was bolstered by a $220 million funding round for the popular last mile delivery app Rappi, a so-called “unicorn” with a valuation of over US $1 billion and partnerships with over 50,000 businesses.[18] However, it is unclear how many of the venture deals in Colombia were focused on SGBs rather than larger-ticket investments into more mature ventures.

Distribution of 2017 Donor Disbursements to Andean Region by Country

Brazil

Snapshot
  • 12 members
    based in the region
  • 43 members
    with staff in the region
  • 105 members
    interested in the region
Impact Investments by Sector for Years 2016-2017
  • Total Invested (USD Millions)
  • Number of Deals
Donor Funding

In Brazil, SME-related donor disbursements made up a very small percentage (less than one percent) of total donor funding disbursed to the country[22] in 2017. Of the 20 donors that ANDE and Devex analyzed in depth, six have a focus in Latin America and two specify supporting SGBs in Brazil. One of these is the World Bank, which supports SGBs in Brazil indirectly through its support for TechEmerge, a matchmaking initiative in collaboration with IFC that connects startups to major corporations in emerging markets for a specific sector. The initiative is initially focusing on the healthcare sector in Brazil and India, where the selected startups will receive funding for the pilot launch of their local business ventures.[1]

Central America and Mexico

Snapshot
  • 17 members
    based in the region
  • 67 members
    with staff in the region
  • 122 members
    interested in the region
SME-related donor disbursements to the region annually
  • SME-related
Impact Investing

Impact investing in the Central American region (excluding Mexico) in 2016 and 2017 focused primarily on microfinance, with 84 percent of deals going towards the sector. For Mexico, the trend is slightly different, with deals in microfinance lagging behind the ICT sector. The other top sectors for impact investors active in Central America and Mexico include agriculture, financial inclusion, health, and energy. [16]

East Africa

Snapshot
  • 18 members
    based in the region
  • 115 members
    with staff in the region
  • 172 members
    interested in the region
SGB-inclusive investment vehicles with a specific focus on East Africa* have been declining for the last three years
Donor Funding

Donor funding for the SGB sector in East Africa did not change significantly from 2016 to 2017; however, this represents an improvement over recent years that saw a negative trend in terms of funding for the sector

Yield Uganda Investment Fund

Leveraging local capital to de-risk impact investments has long been a topic of conversation in the region and in the greater impact investing sector. Through its Yield Uganda Investment Fund, Pearl Capital Partners (PCP) has tackled this challenge through the support of the National Social Security Fund (NSSF) in Uganda in the form of a €2 million commitment, alongside the European Union’s (EU) €10 million through the International Fund for Agricultural Development (IFAD).

The fund, which aims to support small and growing agribusinesses, is making investments in SGBs in the range of €250,000 to €2 million. It also has a technical assistance and business development services facility that benefits the investees post investment by covering a variety of key improvement areas including ESG, out-grower farmer trainings, certifications, capacity and systems improvements, and corporate governance on a cost sharing arrangement basis funded by the EU and managed by IFAD. The impact goals are to improve rural household livelihoods, improve access to markets, create jobs, promote food security, and generate income and new export opportunities, ultimately contributing to the country’s economic growth and goal to eradicate poverty. This is the first SGB fund in the region to be capitalized by a pension fund.

East and Southeast Asia

Snapshot
  • 8 members
    based in the region
  • 66 members
    with staff in the region
  • 115 members
    interested in the region
SGB Inclusive Impact Capital Deployed by Private Impact Investors in ESEA by Deal Size*
  • Capital Deployed (USD Millions)
  • Number of Deals
Donor Funding

Vietnam has consistently received the largest portion of donor disbursements to support SMEs for the region over the past 11 years. The ANDE and Devex deep-dive into 20 donor institutions supporting SGBs found that nine of these donors had a regional focus in East Asia & Pacific; the largest of these being the Australian Department of Foreign Affairs and Trade (DFAT). DFAT’s support is relatively unique in that it is focused in Asia but generally open to SGBs in a wide variety of sectors, whereas many donors direct their SGB funding towards specific sectors.

India

Snapshot
  • 15 members
    based in the region
  • 65 members
    with staff in the region
  • 103 members
    interested in the region
The portion of SME-related donor disbursements remained the same as in 2016 and represent slightly more than half of the historic high of 4.1 percent in 2009.
  • SME-related donor funding to India (USD Millions)
  • Percent of all donor funding to India that is SME-related
Donor Funding

In ANDE’s 2019 report Fueling Entrepreneurship in Emerging Markets, India is named as a focus for 8 of the top 20 major donors. Some of the most notable donor supporters to the sector in the country include the Japanese International Cooperation Agency (JICA) that directed two thirds of its 2017 SME-related disbursements to India, the Overseas Private Investment Corporation’s 2x initiative and its US $124 million loan facility shared between India and Mongolia, and a US $18 million investment in the equity of Indian SME lender Veritas Finance from the UK CDC Group.

South Africa

Snapshot
  • 20 members
    based in the region
  • 57 members
    with staff in the region
  • 114 members
    interested in the region
Percent of investment vehicles launched annually with a focus on South Africa
Donor Funding

Although the percentage of SME-related donor disbursements shows small incremental growth over the past few years, this is largely due to the amount of total donor aid to South Africa (SME-related and non) decreasing over the past six years. The portion of SME-related donor disbursements also has not come near its peak of two percent (reached in 2007) in over a decade, which is still a small fraction of the billions disbursed to the country over the years.

This declining trend in donor disbursements to the country is consistent with ANDE and Devex’s finding that only one of the 20 major donor institutions examined for the study (the International Finance Corporation) is actively and explicitly targeting SGB support in the country.

West Africa

Snapshot
  • 16 members
    based in the region
  • 59 members
    with staff in the region
  • 139 members
    interested in the region
Investing

Investors active in Sub-Saharan Africa have indicated an optimistic outlook on West Africa, with a growing number of investors indicating that the region will continue to be attractive for private equity investment over the next three years. The African Private Equity and Venture Capital Association’s (AVCA) survey of active LPs shows that 85% share this opinion, up from 76% in 2017.[65] AVCA’s 2017 Annual African Private Equity Data Tracker shows that West Africa has attracted the greatest share of PE deals reported in Africa between 2012 and 2017.

Over the past six years, 282 PE deals have been made in West Africa for a total of US $10.8 billion. This is a promising sign for investment generally in the region; however, the median deal size during this period is US $6 million, indicating a lack of SGB-accessible capital. Additionally, a significant majority of PE deals (both in terms of number and capital disbursed) are concentrated in Nigeria. This is also reflected in VC funding, with 58 startups in the region raising a total of US $94.9 million in 2018.[66] While reflecting the strong potential of the region, this also demonstrates the risk for Nigerian start-ups to overshadow entrepreneurs from the other West African countries hoping to draw in capital.[67]

Annual SME-related Donor Disbursements to West Africa
  • West Africa
  • Anglophone West Africa
  • Francophone West Africa
Donor Funding

SME-related donor disbursements to West Africa have trended upward since 2007. In the past two years, there’s been a divergent trend between anglophone and francophone West Africa. In 2015 SME-related donor disbursements were evenly disbursed between the two; however, since then disbursements to the anglophone region have grown while those to francophone countries have declined.

ANDE research on the top 20 donors to SGBs identified a number of notable donor initiatives supporting entrepreneurship working in the region. For example, the regional co-funding initiative Youth Entrepreneurship and Innovation Trust Fund was launched by the African Development Bank (AfDB) with a contribution from the Swedish International Development Cooperation Agency (SIDA) of US $2.8 million in 2017. The goal of the initiative is to create 25 million jobs and allow 50 million young men and women to join the formal sector through training and skill development, by 2025. This effort reflects a broader donor interest in fostering youth entrepreneurship in the region; according to the National Bureau of Statistics 2017 third quarter report, 67 percent of young people in Nigeria were either unemployed or underemployed. Many policy makers and organizations working to spur economic development in West Africa see entrepreneurship as a potential means to provide employment opportunities for this youth bulge.