In 2021, Africa, Central Asia and the Middle East collectively received less than 2% of the $643 billion global venture capital funding.
To enable access to capital in these regions, International Finance Corporation (IFC) has launched a $225 million fund to invest in early-stage companies addressing development challenges through technological innovations in climate, health care, education, agriculture, e-commerce, and other sectors.
Access to capital has been exacerbated by a slowdown in global venture capital investment, the COVID-19 pandemic, the rise in food and supply chain costs, higher interest rates, and currency depreciation.
In addition, tech ecosystems are nascent or even nonexistent outside of more established markets such as Egypt, Kenya, Nigeria, Pakistan, Senegal, and South Africa. "IFC's Venture Capital Platform will help tech companies and entrepreneurs expand during a time of capital shortage, creating scalable investment opportunities and backing countries' efforts to build transformative tech ecosystems. We want to help develop homegrown innovative solutions that are not only relevant to emerging countries but can also be exported to the rest of the world," Makhtar Diop, IFC's Managing Director, said.
Meanwhile, in the Middle East and North Africa, technology could boost GDP by 40%, or $1.6 trillion, and create 1.5 million manufacturing jobs in the next 30 years.
In Pakistan, the digital transformation can unlock up to $59.7 billion in annual economic value by 2030, equivalent to about 19% of the country's GDP.
With this fund, IFC will strengthen the nascent venture capital markets in these regions, which have demonstrated early growth potential but face challenging global economic conditions. IFC will make equity or equity-like investments in tech startups and help them grow into scalable ventures that can attract mainstream equity and debt financing.
IFC will also use the platform to collaborate with other teams in the World Bank Group to create and bolster venture capital ecosystems through regulatory reforms, sector analyses, and other tools. The platform will also focus on investments in low-income and fragile countries and help generate a pipeline of credible early-stage companies.
The fund will build on IFC's investments and efforts to build tech ecosystems in Africa, the Middle East, Central Asia, and Pakistan through initiatives such as the IFC Startup Catalyst Program. IFC has invested in companies like Twiga Foods, a Kenyan-based technology food distribution platform; TradeDepot, an e-commerce startup connecting international brands with African retailers; and Toters, a leading on-demand delivery platform in Lebanon and Iraq.
The platform will be backed by an additional $50 million from the Blended Finance Facility of the International Development Association's Private Sector Window, which helps de-risk investments in low-income countries. In addition, IFC will mobilize capital from other development institutions and the private sector to support entrepreneurs and tech companies in those countries.