In a significant move towards promoting economic development in Sierra Leone, British International Investment (BII), the UK’s development finance institution, has signed a $25 million risk-sharing facility with Ecobank Sierra Leone. This agreement aims to provide much-needed financial support to the private sector in Sierra Leone, particularly targeting small and medium-sized enterprises (SMEs), and boost private sector growth in high-impact sectors of the economy.

Addressing the Financing Gap for SMEs in Sierra Leone

The private sector, predominantly made up of SMEs, plays a pivotal role in Sierra Leone’s economy, contributing to about 70% of employment. However, these businesses have long been hindered by a lack of access to finance, limiting their ability to grow and innovate. Factors such as high interest rates, short loan terms, and stringent collateral requirements have created barriers for businesses seeking capital. This financing gap has prevented many businesses from scaling up, creating jobs, and contributing more effectively to economic development.

The $25 million risk-sharing facility is poised to change this narrative. By partnering with Ecobank Sierra Leone, BII aims to increase the bank’s lending capacity, enabling more SMEs to access loans with extended tenors of up to five years. This shift is crucial in a market where long-term loans are scarce, and the availability of local currency lending remains limited. This facility will also mitigate the risk typically associated with financing in frontier markets, thereby encouraging further investments in Sierra Leone.

A Catalyst for Sierra Leone’s Economic Development

Sierra Leone’s economy faces significant challenges. A depreciating currency, high inflation, and an over-reliance on imports have contributed to a large trade deficit. Infrastructural inadequacies further exacerbate the situation, stifling potential growth in key sectors such as agriculture, manufacturing, and energy. Despite these hurdles, the country is rich in natural resources and has a young, dynamic population eager to engage in entrepreneurial activities. The new facility will target these key sectors, with a focus on fostering resilience, supporting innovation, and boosting the overall productivity of the private sector.

BII’s investment will also support Sierra Leone in aligning with global trends towards sustainable development. The inclusion of sectors like renewable energy and agro-processing in the facility’s focus areas is an indication of BII’s commitment to fostering long-term, inclusive growth. Investments in these areas are crucial for creating a more resilient economy that can withstand external shocks such as commodity price fluctuations and global economic downturns.

The Role of ARIA: Africa Resilience Investment Accelerator

This investment also marks the first transaction under the Africa Resilience Investment Accelerator (ARIA), a joint initiative between BII and FMO, the Dutch entrepreneurial development bank. ARIA is designed to increase investment in frontier markets by leveraging development finance institutions to unlock capital for critical sectors. In Sierra Leone, ARIA’s efforts have been instrumental in building an investment ecosystem that supports business readiness and engages government and donor communities in fostering economic development.

ARIA’s approach is not just about financing but about creating a supportive environment for businesses to thrive. By working with local companies to make them investment-ready and developing a pipeline of opportunities for development finance institutions, ARIA is helping to build a more resilient and sustainable economy in Sierra Leone. Through partnerships with initiatives like Invest Salone, ARIA is also working closely with the British High Commission to further boost investment in the country.

Previous Successes in the Region

This isn’t BII’s first foray into supporting economic growth through innovative financing solutions in Africa. In 2021, BII provided a $50 million trade finance facility to Ecobank, which helped the bank expand its operations in other frontier markets, including Burkina Faso, Chad, and Togo. That facility played a key role in strengthening supply chains and improving trade flows in these markets, demonstrating the impact such partnerships can have on regional economies.

The success of that initiative highlights the potential for this new facility in Sierra Leone. By improving access to finance, businesses in Sierra Leone can now look forward to expanding their operations, increasing employment, and contributing to a more vibrant private sector. This, in turn, will spur economic growth and help address some of the underlying challenges faced by the country’s economy.

UK’s Role in Supporting Sierra Leone’s Development

The UK has been a long-standing partner in Sierra Leone’s development, providing both financial and technical assistance to support various sectors. Anneliese Dodds, the UK Minister for Development, expressed her optimism regarding the agreement between BII and Ecobank Sierra Leone. She highlighted how this risk-sharing facility aligns with the UK’s broader goals of promoting sustainable economic growth and job creation in developing countries.

“This agreement will support local currency lending, bringing much-needed capital into sectors with a high development impact, thereby contributing to job creation and economic growth. This is yet another example of BII innovating to address risks and enable development in frontier markets,” said Dodds.

Boosting Ecobank Sierra Leone’s Role in the Economy

Ecobank Sierra Leone has been a key player in the financial sector, offering a range of services to businesses and individuals across the country. The partnership with BII will further enhance its capacity to provide long-term financing solutions, positioning the bank as a critical driver of economic growth in Sierra Leone.

Sebastian Ashong-Katai, Managing Director of Ecobank Sierra Leone, reiterated the importance of this facility, stating, “We are delighted to have secured the support of British International Investment in boosting Ecobank’s vital lending capacity for Sierra Leone businesses, who are the engine room for our country’s growth, economic development, and employment. This further strengthens our intent to be the bank of choice for Sierra Leone’s businesses.”

By expanding its lending capacity and providing tailored financial products, Ecobank Sierra Leone will be better positioned to support businesses in achieving their growth potential. This move also strengthens Ecobank’s mission of driving financial integration and socio-economic development in Sierra Leone, as well as the broader sub-Saharan African region.

Impact on Sierra Leone’s Future Growth Prospects

The implications of this risk-sharing facility go beyond just financial support for individual businesses. By enabling more companies to access long-term financing, this facility will foster greater economic resilience in Sierra Leone. It will help reduce the country’s over-reliance on short-term loans, which often result in businesses being unable to invest in growth and innovation.

Moreover, by facilitating local currency lending, this partnership will help businesses avoid the exchange rate risks associated with foreign currency loans. This is particularly important in a country like Sierra Leone, where currency depreciation has been a persistent challenge.

Conclusion

The $25 million risk-sharing agreement between BII and Ecobank Sierra Leone marks a significant step forward in supporting private sector growth in Sierra Leone. By improving access to finance, particularly for SMEs, this facility will spur job creation, boost economic resilience, and contribute to the long-term development of the country.

With Sierra Leone facing numerous economic challenges, such investments are critical for unlocking the country’s potential. As the first transaction under ARIA, this agreement also sets a precedent for future investments aimed at fostering resilience and sustainability in frontier markets across Africa.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

8th October, 2024