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Private Sector Development in Africa
As a driver of inclusive growth and job creation, the private
sector is responsible for 84% of GDP
and 90% of jobs in developing countries and is therefore ideally
placed to improve the lives at the
lowest economic class and growing middle class as well as deliver
on the promise of sustainable
and socially inclusive economic development.1 Micro, Small and
Medium Enterprises (MSMEs)
account for most of these jobs.
Besides playing a key role in creating economic growth and
employment, private sector
development is a major contributor to improving livelihoods:
to invest in education and skills acquisition;
improve people’s lives through increased access to goods and
services, including basic
services such as clean water, sanitation and energy;
enables governments in developing countries to generate increased
tax revenues, thereby
contributing to the funding of wider development strategies;
encourages entrepreneurship and diversification of the
economy.
To absorb a growing – and increasingly well-educated – workforce
and address unemployment2
Africa needs to create at least 120 million new jobs between now
and 2030. Most jobs, including
for women and the youth, are expected to come from MSMEs.3
Unfortunately, African MSMEs have limited access to capital that
they require to grow and
expand. Access to finance is identified by nearly half of all MSMEs
as a major constraint, and by
over 20 percent as the biggest constraint. Traditional banks find
it difficult to meet the needs of
MSMEs, particularly start-ups and innovative enterprises – the very
firms which appear most
likely to create the greatest number of jobs.4 The major barriers
are stringent requirements by
these financial institutions such as the need for high collateral,
minimum balance requirements, a
track record of several years, and high interest rates.
In the latest Global Entrepreneurship Index (GEI, 2018) Rwanda,
Senegal and Uganda ranked
respectively place 91, 103 and 131 out of 137. This research
identified ‘risk capital’5 as one of the
1 European Commission (2019), Private sector development,
https://ec.europa.eu/europeaid/sectors/economic-growth/private-
sector-development_en 2 Africa’s population is estimated to
increase to 1.7 billion by 2030 at a growth rate of more than 8 per
cent per annum
(https://www.africanews.com/2019/03/05/innovation-key-to-creating-much-needed-jobs-in-africa-says-songwe/)
3 World Bank (2016), Access to Finance for SMEs,
http://www.acetforafrica.org/acet/wp-
content/uploads/publications/2016/03/Access-to-Finance-for-SMEs-Paper.pdf
4 World Bank (2016), Access to Finance for SMEs,
http://www.acetforafrica.org/acet/wp-
content/uploads/publications/2016/03/Access-to-Finance-for-SMEs-Paper.pdf
5 Is capital available from both individual and institutional
investors?
weakest components of the entrepreneurial ecosystem Senegal and
Uganda, and the weakest in
Rwanda. The quality of this component earned a score of 6 percent
in Senegal, 7 percent in
Rwanda and 10 percent in Uganda.
The Global Entrepreneurship Index (2018) also identified the
ecosystem component ‘start-up
skills’6 as very poor in the three countries. Uganda, Rwanda and
Senegal score respectively 4, 11
and 15 percent. Not only is the population lacking the skills
necessary to start a business, MSMEs
also face challenges as lack of (affordable) professional services
(consulting, law, accounting),
limited access to mentoring skills and talent development, absence
of incubation and/or
acceleration support and lack of formal and informal business
networks.7
OVO’s contribution to Private Sector Development
MSMEs are the main drivers of job creation and economic growth in
developing countries.
Creating opportunity for MSMEs in these countries is an important
way to promote development
and reduce poverty.
OVO facilitates socio-economic initiatives in low- and
middle-income countries. We bring
companies and entrepreneurs in Belgium into contact with
initiatives of this nature. We
encourage collaboration through financing and accessibility to
expertise.
By facilitating access to finance in combination with Business
Growth Support (BGS), OVO
contributes to Private Sector Development as one of the main ways
to achieve inclusive and
sustainable growth. Our focus is at the micro level as we aim to
create economic and social
opportunities for disadvantaged sections of the population with low
or no access to financial and
other business support services. By combining financial and
non-financial support we achieve
impactful results.
Business model optimization
Business plan development
Financial planning support
Project planning support
Promoting business linkages, and 6 Does the population have the
skills necessary to start a business based on their own perceptions
and the availability of tertiary
education? 7 Idem 5
Support for technology and product development.
The overarching goal of OVO’s efforts aimed at private sector
development is to support the
private sector in its role as a driver of job creation, a provider
of goods and services and a
generator of the public revenues needed to underpin economic,
social and environmental
sustainable development.
Role OVO
OVO’s role can be defined as ‘business facilitation and
matchmaking’. To this end, it performs the
following tasks:
Identify, select and guide initiatives with social and economic
impact in Africa through its
acceleration program SusTech4Africa.
Offer tailored business support through OVO Team Investment and
on-site assistance via the
OVO Talent4Growth program.
Create ‘win-win’ linkages with the Belgian private sector and
African entrepreneurs.
Access to finance.
Knowledge transfer and expertise exchange.
Long term end-to-end business support.
In order to fulfill its role in an effective way, OVO makes a
strong appeal to entrepreneurs,
companies, organizations and other like-minded partners in Belgium
and in Africa.
Special attention goes to the African diaspora residing in Belgium.
Among the community,
awareness is rising that direct support of socio-economic
initiatives is the most effective way to
help their countries of origin move forward. The reliance of
sending remittances is not
sustainable. Therefore, it is important that we channel their
support to help facilitate the growth
and prosperity of their ancestral countries.
OVO African MSMEs Business Growth Support
OVO has developed a Business Growth Support value chain based on
intercultural interaction
with great emphasis on mutual knowledge transfer. This is a means
by which expertise,
knowledge, skills and capabilities are transferred from a
knowledge-base to those in need of that
knowledge. The purpose of the knowledge transfer is to catalyse and
facilitate sustainability,
growth and innovation of the private sector in Africa and
Belgium.
Business Growth Support for African MSMEs December 2020 5
Knowledge transfer is organized in different phases:
1. Business plan development through the SusTech4Africa competition
with focus on
Getting to know the founder and/or team behind the project
(trustworthiness,
entrepreneurial spirit and hard / soft skills), and
Making the business model economically, socially and ecologically
more sustainable.
2. Fine-tuning and strengthening the business and financial plans
by OVO’s Team Investment
This team consists of volunteers with different backgrounds and
deep experience in
the corporate and entrepreneurial environments.
External partners are involved to complement or plug gaps in order
to offer a holistic
offering to African entrepreneurs.
3. Pro bono support in function of the growth path of the company
during the term of the loan
through Team Investment and the – yet to be launched –
Talent4Growth program
Team Investment outlines the need for support for the coming years
in order to evolve
into a successful business.
This ‘expertise portfolio’ will be offered to members of the
African diaspora and
Belgian companies who are willing to deliver support.
Once projects are ‘investment ready’, OVO will fill in the
financial needs by a 3-track approach:
1. In 2019, OVO launched its Acceleration Fund. This investment
fund transforms donations from
European individuals and companies into social loans for
entrepreneurs in Africa for whom it
is challenging to get access to finance. Once the social loan has
been paid off, the money goes
back into the fund, for new projects. In this way OVO ensures a
lasting impact.
2. OVO Team Sales & Marketing connects selected projects to a
network of impact and peer-to-
peer investors that are willing to make a direct, one-on-one
investment.
3. The beneficiary entrepreneur has to contribute 25% to the total
investment; as an
entrepreneur one has to be willing to invest in the growth of the
company and to take risk.
Business Growth Support for African MSMEs December 2020 6
Target group
OVO focusses its efforts on MSMEs with a strong social dimension
that wish to start or scale up.
The maximum funding available is 50,000 euros and the company must
have the potential to be
economically profitable within 3-5 years. The innovative business
idea should include the use of
sustainable technology (conservation of resources, reuse and
recycling, reduction of pollution
etc.), or contribute to a transition to a more sustainable society
or economy (access to affordable
health care for all, access to education etc.) through the use of
technology.
Business Growth Support for African MSMEs December 2020 7
The MSMEs we’re targeting are underserved, they’re too big for
microfinance, but too small for
impact investors. Companies that have high growth potential and
social impact cannot be
neglected. Our challenge is to select the right
entrepreneurs.
Starting from 2020, we will organize four intakes a year for
entrepreneurs in four different
countries. In each country, we fine-tune the criteria to the
country context:
Belgium: intake aimed at members of the African Diaspora who want
to set up or scale up a
sustainable (social) enterprise in their country of origin through
a public call for projects.
They must be motivated by the desire to have sustainable impact on
local communities
beyond sending remittances. This target group is key given the
proximity and 'rootedness' in
both Belgium and Africa. In many ways they form a proverbial bridge
between Belgium and
Africa.
Rwanda: intake aimed at scale-ups, not start-ups, which fit the
criteria and are proposed by
one of our selected local partners. Non-public call for projects.
Additional criteria still to be
determined.
Uganda: intake aimed start-ups and scale-ups that fit the criteria
and are proposed by one of
our selected local partners. Non-public call for projects.
Senegal: intake aimed start-ups and scale-ups that fit the criteria
and are proposed by one of
our selected local partners. Non-public call for projects.
Business Growth Support for African MSMEs December 2020 8
SusTech4Africa
OVO has rolled out a business model competition called
SusTech4Africa as an effective tool to
recruit innovative and sustainable-focused entrepreneurs in the
host country with the intention to
develop a long-term partnership.
Through a ‘boost camp,’ the organizers have the opportunity to get
to know the most important
factor to become successful, the people behind the project
(reliability, mind-set, competencies).
After the ‘boost camp’ is a pitch event which kicks off the
beginning of an intensive collaboration
between African entrepreneurs and Belgian experts.
Employees of Belgian companies and Belgian (ex-) entrepreneurs are
involved in the ‘boost camp
as senior coaches for the selected African entrepreneurs. These
teams are complemented by
Belgian and local university students. They act as junior coaches.
This intercultural and
intergenerational cooperation leads to mutual learning effects that
make all those involved grow.
Equality is a key principle in this respect. This way of working
ensures a great (lasting) involvement
and motivation among the Belgian participants. Usually they
continue to coach the African
entrepreneurs in the follow-up process.
After the 3-day boost camp in the host country, the collaboration
will continue remotely. Belgian
experts of OVO Team Investment will interact with the ‘approved’
entrepreneurs to optimize their
business models and develop an ambitious but achievable business
plan and realistic financial
plan. It will take on average three to six months for an
entrepreneur to become investment ready.
Once the investment has taken place, dedicated OVO experts will
follow up and supervise the
growth of the invested company. Together we will strive for
success!
From business plan to business idea
In 2014, OVO only considered projects worked out in a complete
business plan. However, it soon
realised that a good entrepreneur is not necessarily able to write
a good business plan and that a
good business plan does not necessarily lead to success. A good
idea, the right spirit and the
necessary skills combined within a strong team are basic
prerequisites for success. It was
therefore decided to move away from a complete business plan as an
admissible criterion; a
preliminary plan will do. The further development of the business
plan is a first form of support
that is now offered by Team Investment.
Business Growth Support for African MSMEs December 2020 9
Team Investment
In 2016, Team Investment was set up in order to achieve more
extensive screening of
entrepeneurs. Today, this team consists of more than 100
experienced managers and
entrepreneurs with different backgrounds, ranging from
bio-engineers to financial experts. The
role of this team has evolved from mere screening to pro-active
coaching. On the basis of advice,
reflection, etc. project owners are 'challenged' to strengthen the
business model and to work out
a convincing, actionable business plan.
Business Growth Support for African MSMEs December 2020 10
The cooperation between OVO and African entrepreneurs is always
based on reflection and
advice. OVO only acts a co-pilot; the local project owners remain
at the steering wheel during the
entire journey.
At least three (complementary) members of Team Investment will form
a mini-committee to
collaborate with a selected African entrepreneur. One of the three
members will operate as a
single point of contact for the project owner. The tasks of the
mini-committee consist of the
following:
Determine investment structure
Reporting progress on monthly basis to the whole Team
Investment
Formulation of a joint conclusion for the final decision
Team Investment will decide if a project is investment ready, and
whether to put it in the market
(for investment) or not. The following criteria will be used to
judge attractiveness of a
project/company for investment:
Financial feasibility
Impact on the environment
Impact on the social progress of the community (income, education
etc)
Equitable relationship with the suppliers, customers,
partners.
THE ENTREPRENEUR
Phase of the growth process (start-up, pilot phase, continued
growth)
Composition and experience of the management team
Ease of communication and dialogue during the pre-contract
phase
Local follow-up of the project
Only projects that score well on all three dimensions will make it
to the next stage.
OVO enters into a long-term relationship with all the companies it
finances. OVO closely monitors
the project, at least during the term of the loan, and proactively
guides it through a continuous
Business Growth Support for African MSMEs December 2020 11
dialogue and periodic checks (field visits and reporting). During
this time, together with the
entrepreneur, we grow to the next phase of the company. Companies
with which OVO enters into
a relationship must have the potential to be profitable within
three to five years after the
investment. Within this period, the company's social mission will
also be further refined and the
ecological impact optimized. This way we can enhance the impact of
the investment.
Blended funding
All investments facilitated by OVO will be a combination of three
components: the contribution of
the entrepreneur (guide value: 25%), a direct one-on-one investment
by a consortium of peer-to-
peer investors (min. 50%) and a contribution of the OVO
Acceleration Fund (max. 50%). The latter
is fed by donations from private individuals and companies. The
Acceleration Fund transforms
these gifts into social loans for the target group of OVO. Once the
social loan has been paid off,
the money goes back into the fund, for new projects. In this way
OVO ensures a lasting impact.
By providing social loans for promising but unbankable
entrepreneurs, we help them grow and
become successful, and bankable. The conditions we offer are
generous given the high risk
associated with the investment:
Interest at 7% annually
Business growth support during the term of the loan
Small
Once OVO withdraws (as an active partner), the local entrepreneurs
have developed a solid basis
to operate successfully within the private economic framework of
their country. If appropriate,
OVO will link the entrepreneur with another organization that
supports small, impactful
companies in the next growth phase.
Business Growth Support for African MSMEs December 2020 12
Business Growth Support for African MSMEs December 2020 13
Talent4Growth
There is a great willingness within the private sector in Belgium
to directly support entrepreneurs
in low and middle-income countries. Originally, this willingness
was focused only on meeting
financing needs but over time we’ve seen an increasing demand among
Belgian companies for the
use of in-house expertise for economic projects in developing
countries.
On the other hand, we see that small businesses in developing
countries in addition to financing
also benefit greatly from the input of external expertise. They are
also very open to this. They are
convinced of the added value of collaboration with Belgian
entrepreneurs and experts.
By connecting supply and demand, OVO will create impact in Belgium
and in Africa. In 2021, OVO
launches a new service called 'Talent4Growth' (T4G). The aim is to
achieve a more structured,
organized exchange of expertise between Belgian and African
employees and entrepreneurs.
Thanks to the mutual learning effects, this should lead to a win
for all parties involved.
T4G helps Belgian companies to attract, develop and retain talent,
and this in combination with
corporate social responsibility. In this sense, they also actively
contribute to the Sustainable
Development Goals of the United Nations.
Many labor market specialists agree that employee-led volunteer
programs will become a key
asset in the competition for talent. They also strengthen the
competitiveness of the Belgian
companies involved: they stimulate innovative thinking, contribute
to the development of
leadership competencies and provide insights into the African
growth markets.
T4G will be used to further support African entrepreneurs who have
been selected via
SusTech4Africa. The deployment of Belgian experts is matched with
the need for expertise in
function of the growth path of the African company.
Business Growth Support for African MSMEs December 2020 14
OVO’s African MSMEs support results in a nutshell
Business Growth Support for African MSMEs December 2020 15
Case study
Short chain is a recipe for success for EA Fruits in Tanzania
More than double your turnover in four years and employ seven times
as many employees. You just have to do it. EA Fruits was able to
count on financing via OVO in 2015, much needed to get the business
going. Perseverance and passion for the profession did the
rest.
There is no shortage of fruit and vegetables in Tanzania. The
climate and soil lend themselves to
horticulture. Nevertheless, the country is still dependent on
imports for a large part of its food
supply. The cause? The products are difficult to get from the
countryside to the cities. Because
they are sometimes on the road for up to a week, there is a great
loss of quality. And the many
middlemen all claim part of the cake, leaving little yield for the
farmer himself.
EA Fruits pleads for short chain Elia Timotheo, a young local
entrepreneur, decided in 2013 that things could and should be done
differently. With EA Fruits, he is the only link between 1680
farmers and more than 800 end customers in the capital Dar es
Salaam. His company transports the fruit and vegetables in
refrigerated lorries so that they arrive squatted at the traders
and restaurants.
By shortening the chain, farmers save on average 30% more on their
production than before.
Moreover, thanks to their agreement with EA Fruits, they are
assured of a fixed market. As a
result, they have a higher and stable income, which also allows
them to give their families
prospects for the future.
Necessary catalyst "The success story that EA Fruits is today would
never have been possible without that first
flexible loan from OVO," says Elia Timotheo. "She was an important
catalyst to guide us as a
young company through those first difficult steps. Because our
investors believed in us and
were willing to take the risk, we were able to grow into a stable
company".
“EA Fruits' success story would never have been
possible without that first flexible loan from OVO.”
Elia Timotheo of EA Fruits
“In the future, we want to collaborate with more than
10,000 farmers and 15,000 end users”
Elia Timotheo of EA Fruits
Business Growth Support for African MSMEs December 2020 16
One of those investors from the very beginning was Hugo Van de
Voorde, active as project
screener at OVO in the 'Team Investments'. Together with a number
of other private
individuals, he invested in EA Fruits through an initial capital
round worth 65,000 US dollars.
"It was a promising project of a young starter," he remembers. "I
myself was once active in the
horticultural sector and had my own business. So, I know how
difficult it can be to find funding
for your project. I am also convinced that the solutions to certain
problems in Africa must come
from local entrepreneurship. What Elia Timotheo did was pioneering
work in Africa. Today, we
would call his business model disruptive."
Moreover, the Tanzanian entrepreneur could not only count on OVO
for financing. The strength
of the organization is that it also helps African companies with
potential to be strategically on the
right track. Timotheo: "Based on his own experiences, Hugo shared a
lot of knowledge and
insights with us that benefited the growth of EA Fruits. That too
has been invaluable".
Future Meanwhile, EA Fruits has outgrown its starter status. The
company employs 44 people and
generated a net profit of over US$ 76,000 in 2019. A new capital
round of 1.6 million US dollars
through the Impact Fund Good Well Investments, among others,
prepares the company for a
strong expansion of the organization and activities.
"In the future we want to work with more than 10,000 farmers and
15,000 end customers in Dar
es Salaam, Zanzibar and neighboring regions," Timotheo explains his
ambitions. "In addition, we
will invest in digitization. There will be regional 'collection
centers' where a representative will
maintain contact with local farmers and digitally record the
expected production. Vendors will
then go out with a tablet to conclude sales orders".
Snowball effect By continuing to grow and generate stable incomes
for farmers and small businesses, EA Fruits
hopes to pave the way for them, too, to various forms of services
such as micro-loans, insurance
and information. In this way, the company contributes to the
sustainable development of an
entire region. Catchy, isn't it?
“What EA Fruits did was pioneering work in Africa”.
Investor Hugo Van de Voorde