New financing avenues in Cote d'Ivoire open up for smaller businesses

In 2016 Jean-Louis Billon, Côte d’Ivoire’s former minister of commerce, noted that while 80% of all firms operating in the country could be categorised as small and medium-sized enterprises (SMEs), the segment was receiving just 12% of total investment.

Côte d’Ivoire defines SMEs as companies with fewer than 200 employees and a turnover of under CFA1bn (€1.5m). Lack of financing is a major impediment to segment growth, with the Ministry of Economy and Finance estimating that 70% of SMEs are unable to obtain bank credit. The findings are backed by recent research undertaken by the IMF, which found that 45% of small businesses consider accessing funding to be their biggest challenge.

However, new avenues are beginning to open up. At a forum hosted by the African Development Bank (AfDB) in Abidjan in November 2016, Ivorian lenders pledged to dedicate CFA1.34trn (€2bn) in financing to SMEs in 2017. A survey by consulting firm Entrepreneurial Solutions Partners released at the AfDB forum put the funding requirements of the country’s SME segment at CFA3.6trn (€5.7bn), with banks and financial institutions supplying around 40% (CFA1.46trn, €2.2bn) of this currently.

Local Bank Loans

Approximately 25% of the loans provided by Côte d’Ivoire’s banks go to private sector companies, 15% to individuals and households, and the remaining 60% to the state and public companies. Loans to private firms are primarily secured by large companies that are well known by the banks. SMEs frequently lack the necessary transparency, legal documents and organisational structure to earn the trust of lenders.

However, in January 2016 the Central Bank of West African States signed a $100m agreement with the private sector arm of the Islamic Development Bank to access a fund to help finance very small, small and medium-sized enterprises. The Islamic Corporation for the Development of the Private Sector – which is based in Saudi Arabia – will contribute $30m, with the additional funding coming from other investors.

Funds

SMEs are also benefitting from the launch of several SME-oriented funds, which indicates growing appetite for private equity capital. Ivorian fund manager PCM Capital Partners, which already runs the $50m SME-oriented West Africa Emerging Markets Growth Fund, is in the process of setting up a second $100m fund to broaden its SME portfolio. Meanwhile, in September 2016, Oasis Capital Ghana closed its first Oasis Africa VC Fund, a $27m initiative focused on SMEs in Ghana and Côte d’Ivoire. The industry is now calling for further regulatory changes that will give private equity added momentum. “Granting fiscal, legal and economic incentives could be instrumental in improving Côte d’Ivoire’s attractiveness to SME-focused fund managers,” Laureen Kouassi Olsson, financial institutions head and West Africa office head of private equity firm Amethis Finance, told OBG.

Listings

The country is also part of a regional initiative to diversify financing tools for SMEs, with the Bourse Régionale des Valeurs Mobilières (BRVM) – the regional bourse for francophone West Africa – moving closer to launching an SME-specific exchange. Edoh Kossi Aménounvé, managing director of the bourse, told OBG that an alternate trading board for SMEs is nearing completion, and that the BRVM also plans to set up a $2bn fund aimed at encouraging SMEs to go public. “Creating a conducive ecosystem around SME financing is key to allowing these smaller companies effective access to capital markets,” he told OBG. The government is working on establishing a guarantee fund that will encourage Ivorian banks to lend to SMEs, and is also looking to create a ratings system similar to those used by international ratings agencies, which SMEs could use to show both a sound organisational structure and a transparent mode of functioning.

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The Report: Côte d'Ivoire 2017

Economy chapter from The Report: Côte d'Ivoire 2017