How to spark growth after Covid chaos

‘In times of hardship,” the saying goes, “keep going until you see the light at the end of the tunnel.”

Well, the Covid-19 tunnel is long and dark. Within a few months of advent, it brought to surface the systemic weaknesses in most countries’ public health, economic and political systems as decision-makers came to grips with reality.

Developed nations are grappling with Covid-19 as much as poor nations bear the brunt of the socio-economic trauma. 

These shocks and disruptions will reverberate both in the short and medium-term. The aftermath of the pandemic will be confounding.

Reports of job cuts across various sectors, business enterprises downsizing and shuttering, and furloughed employees litter the global landscape on an unprecedented scale never seen before.

We know not when the normalcy we previously knew and were accustomed to will return, if ever.

In sub-Saharan Africa, the soaring levels of unemployment and abject poverty have only worsened. The tunnel is dark. 

It will take a new mindset and a radical paradigm shift on how we finance solutions to the pressing development challenges to catch a ray of light on this downward trajectory.

Experts have warned that developing nations could face a significant solvency crisis and years of austerity measures – making a recovery much harder.

One possible solution to this global challenge is the deployment of blended finance. This is the creation and deployment of catalytic capital hewed from public or philanthropic sources and combined with private capital to rejuvenate economic growth.

The genius is that the blended finance can spread and reach further in the target populations because financial institutions can lend at much softer repayment terms, allowing businesses breathing space to recuperate and roar back to life.

Private capital

Blended finance has been used to help governments respond to long-term challenges such as climate change and food security.

Canada is a leader in blended finance projects based on a parliamentary recommendation dating back to 2013. It restructured its public investments to motivate private capital towards small and medium businesses in developing countries. 

To stimulate growth in small and midsize enterprises, the government made a $15 million seed investment in a private equity fund that leveraged $170 million from the Overseas Private Investment Corporation (OPIC) and over 100 private investors.

The Department of Trade also mobilised $1 billion in local capital across developing countries, creating jobs and building prosperity.

In Kenya, the government’s recently established Credit Guarantee Scheme also leverages on this model of blended financing, owing to its power and devolved risk element.

The government has already committed the first Sh10 billion. The state’s seed capital is also set to receive contributions from development finance institutions, which are expected to boost the Credit Guarantee Scheme’s funding to at least Sh100 billion.

This promises to be a powerful re-ignition for Small & Medium Enterprises who have borne the brunt of this pandemic but contribute 40 per cent of the Gross Domestic Product and 80 per cent of employment in the country.