Small entrepreneurs in developing countries may expect a Belgian boost for their businesses. Beginning this year, the Belgian Investment Company for Developing Countries will be increasing its focus on micro, small and medium enterprises.
Belgium’s development bank, also referred to as BIO, has been tasked with investing in private sector projects in developing countries and emerging economies to support their socio-economic growth. Its investment strategy for 2015-2018 was presented last month to development cooperation minister Alexander de Croo, who expressed satisfaction with the clear strategic focus for the coming years, which also happened to hew closely to his liberal political credentials.
“If we want to promote the development and self-sufficiency of countries, they will need a well-developed private sector and a solid network of small and medium enterprises,” the development cooperation minister said.
In line with De Croo’s efforts to counter the fragmentation of Belgium’s development policy, BIO will concentrate efforts on five areas: basic services, financial sector, agriculture, infrastructure and energy, particularly sustainable and renewable energy.
“This distinction in five priorities will allow us to focus our efforts in a more specialized way,” BIO Chief Investment Officer Carole Maman told Devex. “It will help us to look where we can offer an efficient added value.”
Most of BIO’s attention will go to financial services, agriculture and energy, Maman said. Of the remaining sectors, infrastructure investments will be geared at irrigation, telecommunication and transport. Support for basic services will again focus on financial services, while investments in other areas such as health care, water, education and housing “will be considered in a more opportunity-based way,” the strategy notes.
Compared with other European development finance institutions, BIO is just a minor investor, holding a modest 3.2 percent share of the European portfolio. But it has been steadily positioning itself as a niche player. By working on small markets and with small institutions with MSME customers, it has been able to capture 13 percent of European DFI’s microfinance portfolio.
“We have always been active in supporting small and microenterprises,” Maman said. “Now we are trying to be more innovative, especially in Africa, for example by participating in financial institutions and small banks.”
Under the new strategy, BIO hopes to position itself as “a reference for the support for financial institutions that target small enterprises,” or firms applying for loans under 1 million euros ($1.2 million). In addition, the bank prides itself as being among the few that provide financing in the local currency, thus avoiding exchange rate risks for SME clients.
Next in the agenda: Private sector investments
BIO is currently working to improve the way it works with partners the increase the impact of its investments. These include national and regional partners within Belgium and the country’s development agencies.
It is also cooperating with counterparts in other European countries through the Association of European Development Finance Institutions.
“We know each other and we know each other’s strengths and expertise,” Maman said. “We participate in financing joint projects. Recently we supported a project spearheaded by FMO from the Netherlands to fund a wind turbine park in Honduras together with other European DFIs.”
The European Union is a warm supporter of such collaboration between European development actors and provides additional funding through the European Investment Bank. This is done through European Financing Partners, a company BIO and 12 other EDFI members set up. EIB finances up to 75 percent of projects submitted by EFP’s shareholders.
Attracting private investments for its projects is next on BIO’s to-do list.
“Through our work we are demonstrating that there is a lively market out there,” the bank’s CIO said. “The real risks do not always correspond with the imaginary risks of investing in Africa.”
While this has yet to result in a model that allows private investors to pool funds into BIO projects, other DFIs have managed to make this work.
But this has not yet resulted in a model that allows private investors to pool their funds into BIO projects. For instance, Dutch development bank FMO, through its emerging markets fund, has been able to mobilize 100 million euros from Dutch companies for projects in developing countries and emerging economies.
For BIO, Maman is considering two possibilities: direct private participation in the bank or co-investment by private partners in specific projects.
From 100+ to 52 active markets
Besides streamlining sectors of activity, BIO is bringing down the number of countries where it is active from more than 100 to 52: 28 in Africa, 12 in Latin America, 11 in Asia and the Palestinian territories.
In paring down its active markets, BIO considered countries where it has had a historical presence and good experiences, Belgium’s partner countries, and countries where Belgian nongovernmental organizations currently have active projects.
“This is a way to strengthen the coherence among Belgium’s development actors, and it offers the possibility to support each other’s initiatives,” Maman explained. “A project started by the Belgian development agency BTC could thus be continued with financial support from us.”
De Croo has high hopes for BIO’s new plan of action, and pledged financial support to match it. The extra 50 million euros provided to the bank last year will be supplemented by an additional 160 million euros over the next four years. This comes despite the cuts to the development budget, which the minister announced late last year.
BIO is fully financed by the Belgian state, receiving 600 million euros from the time it was created in 2002 through the end of 2013.