A closer look at the entrepreneurship ecosystem in Senegal, particularly the financial actors, reveal shortcomings which need to be addressed if Senegal aspires to strengthen the foundations of private sector development and attract risk capital and innovative funding instruments. Senegal ranks 112th out of 125 countries on the IESE Business School Risk Capital and Private Equity index. This says it all. It is well known that the regulatory environment is not friendly to investment funds, fintechs and other intermediaries. Yet, severe problems need to be overcome, such as the high proportion of unbanked population and difficult access to funding.
We have drawn a network graph of funding sources to bring to the fore a number of hidden issues. First, Senegal is not attracting the significant number of investors targeting the African countries and just a couple of investment funds have been established or are present in the country. Second, Development Finance Institutions (DFIs) are not sufficiently focused on private sector development. For example, the European Investment Bank (EIB), has not been funding the private sector since the early 2000. To a large extent, government has crowded out the private sector. Third, there is little money coming in from outside the DFIs and the Technical and Financial Partners (TFPs), and the money seems to go through many intermediaries before reaching enterprises. Such intermediaries are foreign funds or ventures who almost wholly rely on DFI funding. Forth, the prevalence of actors in the spaces of micro-finance and startups still have limited social impact, though their number is high.
As the main investment funds operating in Senegal or who could possibly be lured to invest in the country are ultimately funded by the EU directly or indirectly, the interesting offering by the EU External Investment Plan (EIP) of first tranche guarantees ironically amounts to using “EU funds to guarantee EU investments. This pleads to address the root causes of lack of attractiveness of international risk capital.
The financial system in Senegal lacks depth. Yet, a lot of potential SME development power exists and could be unleashed if decisive measures are taken by the government and by the regional financial authorities. The ecosystem already comprises actors who are potentially able to provide products and services that can help companies grow and solve economic and social problems and the country it potentially attractive to investors. To be unleashed, this potential power requires bold efforts to attract risk capital from outside of the DFIs’ space. While we are seeing the emergence of local initiatives aimed at facilitating SME funding, more need to be done to strengthen the local ecosystem.