At a forum hosted by the African Development Bank (AfDB) at its headquarters in Abidjan in November 2016, Ivorian lenders pledged to dedicate CFA1.34trn (€2bn) in financing to small and medium-sized enterprises (SMEs) in 2017. The injection of credit aims to relieve pressure on smaller companies, which have traditionally struggled to obtain funding despite forming the backbone of Côte d’Ivoire’s economy. The funding boost comes as the Abidjan-based Bourse Régionale des Valeurs Mobilières (BRVM) also sharpens its focus on SMEs as part of a bid to strengthen the stock exchange.
Removing Barriers
Côte d’Ivoire defines SMEs as companies with fewer than 200 employees and a turnover of no more than CFA1bn (€1.5m). In 2016 Jean-Louis Billon, minister of commerce, noted that while 80% of all firms in the country could be categorised as SMEs, the segment received just 12% of total investment.
A lack of accessible financing is seen as a major impediment to segment growth, with the Ministry of Economy and Finance estimating that 70% of SMEs are still unable to obtain bank credit. Its findings are backed by recent research undertaken by the IMF, which found that 45% of small businesses consider access to funding to be their biggest challenge.
Limited access to finance is not unique to Ivorian SMEs, but it is emblematic of a broader problem in the country’s banking sector. Financing to the private sector was only 70% of GDP in 2015, below the global average of 88% in 2016, according to the World Bank. Furthermore, in a challenging environment, lenders have proved hesitant to grant loans to smaller clients that are less transparent than bigger outfits. A survey by consulting firm Entrepreneurial Solutions Partners put the funding requirements of the country’s SME segment at CFA3.6trn (€5.7bn), with banks and finance institutions supplying around only 40% (CFA1.46trn, €2.2bn) of these needs currently.
Capital Market Overtures
The country is also part of a regional initiative to diversify financing tools for SMEs, with the BRVM moving closer to launching an SME-specific exchange. Edoh Kossi Aménounvé, managing director of the BRVM, told OBG that an alternate trading board for SMEs is now nearing completion. He added that the BRVM also planned 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.
SME exchanges have seen a slow take-off in African markets, However, the prospects for the BRVM are bright given its recent expansion. The BRVM has performed strongly recently, doubling its market capitalisation since 2012 to CFA7.7trn (€12.3bn) by the end of 2016. It also gained admission to the MSCI Frontier Markets index in November. The bourse registered four initial public offerings (IPOs) in 2016: Bank of Africa Mali in May; Société Ivoirienne de Banque in October; and Burkina Faso’s Coris Bank International and Ivorian agri-business firm Sucrivoire in December. More than one-third of IPOs launched in 2016 took place on the BRVM. The exchange will now be looking to the new SME platform to help maintain listings’ momentum and cement the exchange’s position as a key regional player.
Regulatory Overhaul
SMEs are also benefitting from the launch of several SME-oriented funds, indicating a growing appetite for private equity capital. The Ivorian fund manager PCM Capital Partners is in the process of setting up a second $100m fund to broaden its SME portfolio, and in September 2016 private equity firm Oasis Capital Ghana closed its first Oasis Africa VC Fund, a $27m initiative 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 appeal to SME-focused fund managers,” Laureen Kouassi Olsson, financial institutions head and West Africa office head of Amethis Finance private equity firm told OBG.
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