The problem is evident: Africa’s off-grid industry is dominated by multinational companies. Local solar companies often fail due to the lack of finance and in fact to not getting access to investors. But local small and medium enterprises (SME) are the main driver for innovation, poverty reduction, employment generation and social integration. The lack of small and medium enterprises (SME) in developing countries is a significant obstacle – commonly referred to as "the missing middle".
Good news! USAID designed a new funding opportunity specifically to address that problem. The message: USAID announces a $4m fund, specially designed for off-grid start-ups in Africa who face problems to access capital.
Good news for African Start-ups?
Let’s have a look on the two main conditions:
- Applicants must demonstrate a financial commitment from a private investor (equity or debt) that is at least twice the funding requested from USAID. For example, under an award, if an investor commits $1 million in funding, USAID could award $500,000. Preference will be given to higher ratios of demonstrated investor commitment to proposed USAID funding.
- Enterprises should be early stage or early-growth stage, with an existing track record in one or more African markets.
These are two conditions which clearly cannot be fulfilled by the companies USAID pretends to support, i.e. real African start-ups having problems to access private investors. Instead, the new funding is an excellent model for all the multinational off-grid companies, who right now already dominate the off-grid market.
No question that these companies also need money for their growth. On the other hand, however, these international companies are in a position to procure capital from investors. And they have done this very successfully in the past: double-digit millions USD were collected. USAID also already donated Millions of USD to these companies in the past months.
Of course, USAID can continue to subsidize multinational companies instead of building local solar markets. But it sounds strange if these subsidies are then announced as a support for local start-ups.
More information about USAID’s program here: https://www.esi-africa.com/news/usaid-announces-4m-fund-off-grid-pv-start-ups/