Transition Support Facility: focusing on MSMEs for post-Covid reconstruction in Africa | African Development Bank Group

To address the unprecedented new global challenges posed by the COVID-19 pandemic, attention has focused on the importance of the private sector in building resilience in transition states and, in particular, on the critical role of supporting micro, small and medium-sized enterprises (SMEs).

The latter have exacerbated their already existing vulnerability due to the consequences of the health crisis. It is now clear that fostering a favorable environment for MSMEs is crucial for economic recovery, poverty reduction and long-term stability. Efforts are now being made to enable SMEs, especially those owned or founded by women and/or young people, to exploit their potential for job creation, boost innovation and strengthen local economies, thereby paving the way for a more resilient post-pandemic era on the African continent.

Between 2020 and 2022, the Transition Support Facility (TSF), a disbursement mechanism designed to help countries consolidate peace, build resilient institutions, stabilize their economies and lay the foundations for inclusive growth, funded in more than 10 African states in transition, countries where fragility is the main development challenge – Madagascar, South Sudan, Mozambique, Burundi, Comoros, Sierra Leone, Gambia, Central African Republic, Chad, Democratic Republic of Congo and Liberia. These TAF-funded projects are based on initiatives in favor of SME and private sector development already introduced in 2016. These projects often lasted for a minimum of 24 months and included capacity building and technical assistance measures in the areas of skills acquisition, access to markets and finance.

Strengthening resilience in African states in transition, by focusing on entrepreneurship and vocational training, access for vulnerable populations to markets and finance.

In Liberia, most of the obstacles faced by young people who want to become entrepreneurs are related to the limited availability of business development training and limited access to finance. As part of a project initiated in 2016, academic, technical, vocational and functional entrepreneurship centers and programs have targeted and improved the employability and skill level of nearly 2,000 youth in Liberia.

As of 2021, Nimba County University, one of the institutions benefiting from this project to promote youth entrepreneurship and employment, hosted a capacity building competition to boost the creation and development of new innovative business models. The reward for winners was the seed money to launch their business.

Capacity building is also essential for developing entrepreneurship and self-reliance among populations severely affected by conflict and instability, such as internally displaced persons and refugees.

In Mozambique, a capacity building project funded by the TSF promotes economic inclusion and self-reliance in camps for refugees and internally displaced persons, as well as in host communities, in the provinces of Nampula and Cabo Delgado. Through capacity building and market linkages, the project aims to promote the emergence of inclusive economic opportunities for refugees, displaced persons and the private and public sector at the local level. By empowering refugees, internally displaced persons and their host communities to better respond to market demand, the project aims to create more sustainable opportunities. At the same time, the private sector will benefit from better access to stable supply chains.

In South Sudan, a private sector development project was launched in 2021 in a fragile context. With an estimated cost of $2.145 million and run over 36 months, the project will improve employment, incomes and market access for youth and women. On the one hand, this project aims to support the creation and development of 300 micro and small enterprises (MSEs) through business development services, technical training, market couplings and access to microfinance institutions for financing. On the other hand, the project aims to strengthen the institutional capacities of government agencies and private sector entities by promoting the development of MSEs and the economic empowerment of women and youth.

This is also the case with the “Africa Business Linkages” (ABL) program, a pilot program deployed in Madagascar to improve the skills, governance and operations of micro, small and medium-sized enterprises, leveraging the ecosystem of the private sector. By developing forward and backward market couplings, the program provides MSMEs – especially those led by women (at least 40%) – access to markets and finance. This should contribute significantly to an increase in the value and number of contracts concluded by MSMEs, an increase in demand for locally sourced goods and services – especially those produced by young people and women – and greater access to finance, thanks to existing programs and the resources of local banks.

Building resilience in intra-African cross-border trade and investment

Free trade agreements, such as the African Continental Free Trade Area (AfCFTA) adopted in 2018, are often greeted with enthusiasm, with ambitious targets and programs planned over several years. However, the success of such initiatives aimed at improving the economy largely depends on the capabilities of the actors involved and their limitations. These limitations prove to be much more pernicious in states in transition or in situations of fragility. Again, SMEs and the private sector in these countries stand out as essential channels for developing their resilience and their ability to strengthen their economic participation in free trade areas.

Since early 2022, four states in transition – Burundi, Comoros, Gambia and Sierra Leone – have benefited from a TSF Pillar III-funded project (estimated cost of USD 2.9 million) aimed at boosting trade and investment through provide technical assistance and capacity building. The support is aimed at building regional trade readiness with a gender-sensitive perspective, filling capacity gaps, streamlining processes and digitizing services in national agencies dealing with trade, SMEs and investment promotion. The project is expected to run until December 2023.

The potential of SMEs to drive economic recovery, reduce poverty and promote long-term stability in transition states has been demonstrated and efforts are now focused on empowering more of them, especially those led by women and youth. In several African states, projects funded by the Transition Support Facility play a key role in building resilience, such as in Liberia, Mozambique and South Sudan.

By providing capacity building, access to markets and increased financing, and by encouraging entrepreneurship, these initiatives are delivering tangible improvements in skills, jobs and economic integration among socially vulnerable populations. Another feature of these TSF-funded projects is that they aim to improve each country’s level of preparedness for cross-border trade and investment under free trade initiatives such as the AfCFTA.

Click to learn more about the Bank Group’s third strategy to address vulnerability and build resilience in Africa, which runs from 2022 to 2026, and the Transition Support Facility (TSF) here.