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".
Therefore it seemed to be a good news when some days ago USAID announced to invest $4 million into eight African solar start-ups through a competition called Scaling off-Grid Energy: Grand Challenge for Development. The grants will fund the companies that are testing forward-thinking business models to help expand existing African solar markets.
But is USAID really telling a true story? If you check the companies awarded then you realise: these are definitely not "African startups". In fact, they are branches of international companies.
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 by each of the parent
Right idea – failed execution
If USAID claims to promote local start-ups and help build the African middle class, then it should actually do so. Of course, the preference for international corporations instead of local SMEs is not just a problem from USAID: Actually, the solar off-grid industry in Africa and Asia nowadays is mainly dominated by international manufacturers and distribution companies, based in Europe, US or China.
However, the establishment of local solar companies, which work independently and are majority owned by domestic entrepreneurs, is important for sustainable job creation in the off-grid industry.
USAID had the right idea but failed to fulfil what they promised to do. It would be important that the beautiful words of the promotion "African Startups" would be also followed by deeds.