SMEs and the low carbon energy transition

In a bid to close the energy access gap across Sub-Saharan Africa, the focus has shifted towards creating conducive funding, capacity building, and an enabling environment for local and small enterprises. The CEO of the Africa Enterprise Challenge Fund, Victoria Sabula, highlighted the importance of supporting SMEs in their quest for funding. She emphasized the need for SMEs to have clear growth strategies, strong human capital, and a deep understanding of their market. Investors are looking for SMEs that can instill confidence in them regarding the return on investment and the expected impact and growth. Sabula stressed the importance of SMEs being market-savvy and prepared to absorb capital efficiently. Various accelerator programs and technical assistance initiatives are available to help SMEs enhance their capacity in strategy, finance, and human capital. However, many SMEs face challenges in meeting the stringent requirements set by investors, leading to a perception that funding opportunities favor larger corporations. Investors often overlook locally owned SMEs and smaller enterprises, opting for more familiar Western companies. This bias can hinder the growth of local businesses and limit their access to capital. Sabula called for greater flexibility from investors to appreciate the unique strengths of locally owned SMEs and their understanding of the market dynamics in Sub-Saharan Africa. She highlighted the disparity in collateral requirements, noting that women-owned businesses, in particular, face obstacles due to a lack of property ownership. The reliance on family and friends for funding further marginalizes smaller businesses that struggle to meet the demands of formal financial institutions. The Africa Enterprise Challenge Fund operates a challenge model to identify innovative solutions from SMEs. While participation rates remain relatively low, Sabula emphasized the importance of targeted outreach to the SME ecosystem, particularly to groups such as youth and women who often self-select out of investment opportunities due to feelings of inadequacy. To address this issue, the fund provides pre-investment technical assistance to support women entrepreneurs in packaging their ideas effectively and enhancing their chances of receiving funding. Blended finance approaches are seen as vital for a just and equitable transition in the energy sector. By combining philanthropic, public, and private funds, blended finance mechanisms can attract additional investment and support the financing needs of large-scale projects. However, Sabula cautioned against the exclusivity of some blended finance vehicles, which may cater more towards institutional investors with larger ticket sizes that small and growing businesses cannot absorb. To ensure equitable distribution of funds and opportunities in the energy transition, stakeholders from the public sector, private sector, and civil society must collaborate effectively. Each sector has a role to play in advocating for equitable policies and financing models that benefit all participants. By leveraging their unique expertise and perspectives, stakeholders can work towards a more inclusive and sustainable energy transition in Sub-Saharan Africa.