The United Kingdom’s publicly owned impact investor, CDC Group, has announced the commitment of $39.2 million to support small and medium enterprises (SMEs) in West Africa.
CDC is backing Verod Fund III and Adiwale Fund I, West-African based private equity funds targeting SMEs in the region, with commitments of $19.2m and $20m respectively.
Access to finance is cited as the top barrier for doing business in Nigeria and Ghana. Increasing access to capital to this market is a core element of the CDC’s Africa strategy by backing well-networked, experienced local teams.
In West Africa, banks and low levels of private equity activity are currently struggling to meet the financing needs of SMEs, hampering their potential as engines of economic growth in the region.
It is expected that the committee would, in turn, support private sector development, economic growth and long-term sustainable employment, particularly for the semi-skilled and low-skilled workforce in the region, therefore contributing to Sustainable Development Goal 8: decent work and economic growth.
Specifically, Adiwale Fund I is an SME fund primarily targeting investments in West Africa focusing on Cote d’Ivoire, Senegal, Burkina Faso, and Mali. It is the first fund raised by Adiwale Partners and will make investments in selected industry sectors (FMCG, business services and manufacturing) with commitments of $3-10 million.
CDC has had a long-standing relationship with the Adiwale founders for a number of years and, following its creation in 2016, provided advice on setting up Adiwale’s ESG structures, business integrity team and processes, and compliance policies.
Verod Fund III, on the other hand, is the second fund being raised by Verod Capital to invest in West African SMEs. The fund manager has built a strong investment track record over the last decade, committed capital to 18 companies in Nigeria and Ghana and concluded 10 successful exits.
Fund III is targeting investments in consumer-facing SMEs in Nigeria and Ghana. The fund will be focused on sectors such as consumer goods and services, agribusiness and financial services with investments of up to $20 million concentrating on themes including regional expansion and import substitution. Verod has attracted $200m in total commitments for Fund III, with a significant share (40%) of commercial capital, reaching its target despite the current challenges in fundraising for African private equity.
Chief Executive Officer of CDC Group, Nick O’Donohoe, commented: “In West Africa, SMEs should be the engine room of regional economies but they are being held back by the lack of access to finance. As the largest private equity investor in Africa, CDC is committed to boosting access to finance for these businesses. Investing in SMEs enables our capital to go further and we expect that positive returns will generate an important demonstration effect and help mobilise further capital into these markets, encouraging more commitments towards the United Nations Sustainable Development Goals.”