DGGF Financing Local SMEs impact in 2020

With a focused mandate to operate in frontier markets, an impact approach is required that assesses the broad, local impact of our activities. Having closed off 2019 broadly in line with our long-term plan, 2020 was supposed to be a continuation of this positive development, until the world was hit with COVID-19. The uncertainty that came with it affected economies worldwide, but disproportionately those in our portfolio. While the world aims to build back better in a post-COVID era, we look back at the impact observed in our portfolio in 2020.

Impact Trends

Following an extensive evaluation of the DGGF in 2020, several observations on our impact were made and further opportunities identified. For instance, our added value on serving the ‘missing middle’ SME segment in frontier markets, especially during the pandemic, has been emphasized. Several investees from both the DGGF and Seed Capital & Business Development (SC&BD) facility required emergency bridge support, such as the top-up for Cambodia Laos Myanmar Development Fund II (CLMDF II) to ensure a continuation of their efforts for entrepreneurs in marginalized communities.

Progress was made in reaching young entrepreneurs and those in fragile states. Key factors here are increased investments by funds targeting youth with a VC strategy and the expansion into fragile markets new to DGGF such as Burkina Faso. Although the number of female entrepreneurs increased in absolute terms, we have seen a relative decline in our portfolio. For the foreseeable future we intend to ramp up our efforts in outreach to women entrepreneurs and/or women-led funds, for example by targeting funds with an explicit gender-lens strategy.

Overall, we have seen a net increase in SMEs financed and jobs supported meaning most funds remain in their growing phase, even though lower than initially expected. We currently finance nearly 9300 SMEs and support nearly 60.000 jobs. The largest employment base increase has come from funds in Asia, whereas DGGF remains to have the largest exposure in Sub-Saharan Africa.

New indicators

On the other side a deepened focus on inclusive development and systemic change has been deemed necessary, also by the evaluator, to keep evolving our mandate. Therefore, we have added inclusive growth targets. Part of our portfolio delivered feedback on these targets in 2020, showing us that a significant share of SMEs is active in rural areas, while mostly employing low-skilled workers and offering basic services to populations at the bottom of the pyramid. While the pandemic has resulted in increased inequality gaps in frontier markets, DGGF’s mission is to turn this tide and target investments that raise the quality of life for all.

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In this light we have also welcomed three new investment funds from Africa, South America and the Middle East that touch upon these topics. These new portfolio additions – African River Fund III (ARF III), Andes Plus Fund (APF) and Badia Impact Fund (BIF) – will actively focus on supporting inclusive growth through for instance, a gender-lens investment strategy.

Impact outlook

The pandemic has forced us to adjust our way of working and prioritize. Instead of focusing on expanding the fund, we prioritized supporting existing investees and help them navigate through the crisis. Nevertheless, DGGF has expanded its outreach to three countries in 2020 – Burkina Faso, Malawi, and Angola. Such expansions allow us to keep fulfilling a demonstration effect for other players in this market, something that will be necessary in order to rebuild the frontier markets in a post-COVID era.