As many of you know, RENEW operates under an innovative public-private partnership that allows us to do smaller investments than traditional private equity investors on the continent of Africa. This model helps bridge the financing gap and addresses the economic "missing middle" that stalls economic growth in most frontier markets. Under this type of partnership, the development community covers some of RENEW's operating expenses so RENEW can provide members of the IAN high-quality investment management services without charging exorbitant fees relative to the size of the investments being considered. Starting in 2013, RENEW began testing this business model with the U.S. Government, which resulted in seven investments and 1,100 jobs supported by the IAN's portfolio. But, that was just the start - investments take years to develop and nurture. So, thanks to the Canadian Government through Global Affairs Canada (GAC), RENEW will be able to scale up our support for the IAN and continue providing high-quality investment services in Ethiopia for the next five years under the Accelerating Business Growth (ABG) program.
The goal if this partnership is to ultimately increase awareness and understanding of private equity investing in Ethiopia, increase the number of investments being made in Ethiopian SMEs by addressing the current financing gap, and create sustainable job growth.
RENEW is pleased to officially announce the launch of a vital investment and business acceleration project. The project, formally called Accelerating Business Growth (ABG), is made possible through the public-private partnership between RENEW and Global Affairs Canada (GAC). ABG includes a number of strategic components including a national Investment Challenge, Finance Incubators and The Angel Investment Exchange (also referred to as “The Exchange”). The Exchange will be the focal point of the project and the goal of the Investment Challenge. The Exchange will bring high potential companies, called small and medium enterprises (SMEs), through an intensive executive management-training program and help them connect with international investors and markets. The goal is for businesses to scale into market leaders enabling them to play a stronger role in the Ethiopian economy.
The Exchange aims to support 50 companies, which will be selected during the Investment Challenge, over the course of the next 5 years. The Exchange will focus on building financial management, environmental social and governance best practices, legal, operations and marketing strategies. “Most companies in Ethiopia, even large companies, agree that they would benefit from additional management disciplines and training to compete in the international market. After years of working with companies in Ethiopia and making our share of mistakes, we’ve found some of the secrets to success for companies. The Exchange will be the place where we work with companies to understand these secrets. For those willing to do the hard work, success is almost guaranteed,” says Matthew Davis, partner at RENEW. These “secrets” will help companies transform into market leaders and ultimately lead to sustainable job creation for low-skilled workers, including women and young adults, through a dynamic and growing small and medium business sector in Ethiopia.
RENEW is an experienced facilitator of an innovative investment model that brings the development community, the host government, foreign investors, and local companies together around a shared common interest: to grow the private sector in African economies while creating lasting change for its communities through job creation and positive social impact. RENEW’s public-private partnership model lowers the transaction costs, which normally prevent foreign investors from investing in SMEs located in frontier markets. RENEW organizes and supports medium-sized investments made by the Impact Angel Network (IAN), the largest North American-based impact angel network for Africa. RENEW acts as the IAN’s in-country support team and provides consulting and investment services that span across all aspects of the investment process. RENEW’s model seeks to reduce the costs and risks foreign investors experience when investing in developing countries, and to increase the local awareness and strength of the business community in an effort to attract larger equity investments for its companies.
A growing school of thought proposes that SMEs in developing countries are key drivers of long-term stability and growth. By providing jobs, paying taxes, and producing, buying and selling local goods and services, SMEs act as the backbone or engine of an economy. Unfortunately, SMEs struggle to grow in many developing countries, and as a result, microbusinesses and large conglomerates dominate the country’s economic pyramid. While the excitement for SMEs is there, both from public and private sector actors, many aid-centric projects are underperforming and few investments are being made into SMEs in developing countries by private investors - leading to a financing gap or what is commonly referred to as a “missing middle”. RENEW is pioneering an innovative public-private partnership model that stimulates direct investments into promising SMEs. RENEW recently partnered with the Canadian Government to implement a novel approach that leverages the private sector to create sustainable economic development.
The public-private partnership model (where the interests of the development community so clearly align with the local private sector and the investment community) represents a new field of development that is rapidly growing. The type of financing RENEW and GAC are helping mobilize – broadly called blended finance – offers investors the opportunity to create sustainable social impact and financial returns through investments in companies that operate in high impact and fast growing countries, such as Ethiopia. These trends, along with Ethiopia's rapidly expanding private sector, could help position ABG to be a flagship project in the development sector.
Our investment strategy closely aligns with the goal and targets in the Ethiopian Government’s Growth and Transformation Plan II and the government's overall desire to help Ethiopia industrialize and become a middle-income country by 2025.
Renew Capital is an Africa-focused impact investment firm that backs innovative companies with high-growth potential. Renew Capital manages investments made on behalf of the Renew Capital Angels, a global network of angel investors, foundations and family offices who seek financial returns and sustainable social impact. For the latest on investing in Africa, subscribe and follow us at our social links below.