Using European funds to leverage private finance for sustainable development: How is the EU enabling small businesses in Africa and the European neighbourhood to flourish, and societies to reap the benefits?

• Author: Manservisi, Stefano

Micro, small and medium-sized enterprises (MSMEs) are the engines of growth, jobs and innovation in all economies. They have vision. They generate new business ideas. And they are the lifeblood of communities. In the European Union (EU), they account for 99% of all businesses, and 85% of all jobs. In Africa, they make up 90% of companies and 50% of output. MSMEs play an invaluable role in attaining the Sustainable Development Goals and tackling inequality.

Building on success in Europe every year, the EU makes funding available to more than 200,000 businesses in Europe, including entrepreneurs, start-ups, micro-companies, and small and medium-sized enterprises (SMEs). One such funding programme is COSME. It gives SMEs easier access to guarantees, loans and equity capital by channelling EU financing through local financial institutions such as banks, venture capitalists or angel investors. These institutions decide whether to provide EU financing and determine the terms on which it is offered, such as amount, duration and interest rates and fees. Now the EU is applying this successful model in sub-Saharan Africa and the European Neighbourhood, through the European External Investment Plan, or EIP. One of our main goals is to channel private sector finance from developed countries to small businesses. With an initial input of $4.5 billion, the EIP should leverage $44 billion in total investments by 2020. This includes 28 innovative guarantees, amounting to $1.5 billion. These will attract initial financing for projects and share the investment risk with other public and private investors. The EIP also comprises $3 billion in 'blended projects'. These use public money to cover a part of the costs of development projects. They combine EU grants with loans and other financing from development banks and private investors.

FOCUSING INNOVATIVE FINANCIAL INSTRUMENTS ON MSMEs

Much of this financing will benefit MSMEs, enabling them to contribute more effectively to sustainable development. Of the 28 EIP guarantees approved, 13 target small firms, accounting for almost a quarter of the EIP's guarantee financing. They are expected to create or support some 2.7 million jobs, many in countries affected by irregular migration.

These investments will also target businesses led by women, young people and members of countries' poorest communities. One such guarantee is the Nasira Risk-Sharing Facility, for which the EU has allocated 75 million. The lead...