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The private sector plays an important role in development. This is why the Belgian Investment Company for Developing Countries (BIO) has been investing in the private sector in developing countries since 2001. The company manages more than 1 billion euros in assets, in the form of capital and loans to companies, microcredit institutions, funds and infrastructure projects. The focus is on small and medium businesses (SMEs).
BIO is 100% owned by the Belgian state and therefore uses public money. Minister of Development Cooperation Alexander De Croo wanted to get private investors in Belgium involved too. After all, their input is crucial for achieving the UN's Sustainable Development Goals. The coronavirus crisis is only making the need even more pressing.
But with that said, most private investors are not eager to invest in or contract out to the South. The countries there are often politically and legally unstable, or they carry that image. They do not always show sufficient respect for human rights and good governance.
The SDG Frontier Fund offers a solution. This fund allows Belgian private investors to rally around BIO. As a result, they can rest assured that their money will end up in genuine funds that guarantee a high development impact.
The SDG Frontier Fund aims to raise 50 million euros, and so far it has managed to raise 25.3 million euros. That money came from 9 institutional and private investors including AG Insurance, Belfius Insurance, the King Baudouin Foundation and VDK Bank.
As with BIO's other activities, the SDG Frontier Fund strives for economic and social prosperity in developing countries. It aims to generate sustainable livelihoods and encourage good governance.
The fund will participate in 5 to 12 funds, which in turn will invest in 10 to 15 local SMEs. This means that 50 to 180 SMEs in Africa and Asia will receive support. The ambition is to combine a high development impact with an attractive financial return. In the case of similar investments, the figure for BIO is around 8%. BIO also guarantees serious risk management.
Up to now, 2 funds have already been approved. The African Rivers Fund III is a fund in formation that aims to provide growth capital to approximately 35 SMEs in the Democratic Republic of Congo, Uganda and Angola. In these 3 countries, SME finance is only available to a limited extent. The fund focuses, among other things, on the local industrial, agricultural and service sectors.
The Excelsior Capital Vietnam Private Equity Fund will in turn support established SMEs in Vietnam from various sectors in their growth. Discussions with a fund in India focusing on green energy and energy efficiency are nearing completion.
Minister De Croo is delighted with the SDG Frontier Fund. ‘The SDG Frontier Fund further strengthens the dynamics of the Belgian Development Cooperation. It couldn't have come at a better time either. Developing countries have a young and therefore enterprising population, which has access to technology that is much more accessible than before. That makes for a huge potential for entrepreneurship.’
The SDG Frontier Fund looks forward to welcoming new private investors into the next phase. In the longer term, small investors may also take up the call.