IFC SME Ventures: Investing in Private Equity in Sub-Saharan African Fragile and Conflict-Affected Situations

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Foreign direct investment (FDI) in fragile and conflict affected situations (FCS) represents just 1% of global FDI flows, more than five times less per capita than the world average. However, to grow businesses beyond the micro level, most entrepreneurs need financing. In fragile states, risk capital investments can have a significant catalytic impact.

Funds in these markets often help spur the emergence of new sector leaders and domestic challengers and/or partners to multinational firms. New jobs are created, providing training and formal sector social protections such as health insurance. Such investments have meaningful impact on the overall investment ecosystem, decreasing costs of doing business for others, bringing better practices into the markets, and paying taxes that support government services. The International Finance Corporation’s (IFC) Small and Medium-sized Enterprise (SME) Ventures program is one of the few initiatives supporting entrepreneurs and high growth companies through investing in private equity funds that deploy risk capital in fragile states.

This report, researched in partnership with CrossBoundary LLC, highlights the critical success factors when investing in fragile states, as well as existing innovations being developed by current investors. While the challenges of investing in FCS are well known, the most effective approaches and factors required for success are still being explored. New financial instruments, fund structures, and types of technical assistance are constantly being designed and tested. The lack of shared information, including results and best practices for developing and delivering mechanisms to invest in FCS can lead to missed opportunities for limited partners (LPs) and general partners (GPs). To this end, the study identifies good practices and recommendations based on country cases of Côte d’Ivoire, the Democratic Republic of Congo, Liberia, Madagascar, Mali, and Mozambique.

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