Solving Africa's Connectivity Challenge through Blended Finance

With the youngest population globally, and over half of all 1.3 billion Africans expected to be under 25 by 2050, Africa’s potential is palpable. The region has the collective capacity to achieve sustainable growth and wipe out poverty, but it faces some obstacles to turn this into a reality.

Photo: Palladium

In an increasingly digital world, broadband connectivity is a central problem to many of these obstacles, severely affecting other areas of societal development. Education delivery, food security, and healthcare development are but a few of the challenges caused by the lack of connectivity. Societal impact is particularly severe when you consider that just over a third (36 percent) of Africa is connected, compared to 87 percent of Europe and 90 percent of North America.


The lack of personal connectivity not only impedes individual lives but the progression of Africa’s economy. Studies by the ITU published in 2019 found that expanding mobile broadband penetration by 10 percent in Africa would increase GDP per capita by 2.5 percent.

Connectivity is paramount to future African economic and societal prosperity. And although there have been improvements – by 2018, 77 percent of Sub-Saharan Africans had a mobile cellular subscription, a vast improvement from 32 percent ten years earlier – it’s still not enough. Connectivity provides people with access to new services and products and opens up opportunities and inclusivity.


For example, Africa’s mobile phone revolution triggered the mobile money revolution, consequently leading to Africa having more digital financial services deployments than any other region globally, with almost half of the nearly 700 million individual users worldwide.

Technological revolutions can often lead to multifaceted, exponential improvements across other sectors. Exemplified by innovations in solar power, which enable faster progress in electricity provision with mini-grids and home-scale systems, illustrate how communities can leapfrog decades of traditional infrastructure and thrive in an affordable digital economy.


Opportunity Knocks for Africa’s SMEs


Start-ups and small and medium-sized enterprises (SMEs) contribute to 60 percent of employment and makeup 70 percent of the formal workforce in Africa. Their crucial role in African economies contributes to a substantial portion of African GDP and holds the key to solving the connectivity problem and limiting the impact of a COVID-19-induced recession. These dynamic businesses are highly responsive to changing circumstances and work to solve real-world problems.


Whether these start-ups develop a single solution to provide internet and street lighting, or a mobile application that leverages remote satellite imaging to help farmers in rural locations purchase affordable insurance, nimble, high growth companies are vital to African economic prosperity.


However, very few appropriate financial structures are available in public and private sectors to scale these businesses. African SMEs are widely perceived as too risky for private investment, regardless of the financial reward and societal impact.


Therefore, innovative financial instruments are integral to focus capital where it is needed most, while also providing an attractive financial return. To meet this need, Smart Africa and Bamboo Capital Partners, the asset management arm of Palladium, recently collaborated to launch BLOC Smart Africa.


Solving the Continent’s Connectivity Challenge


BLOC Smart Africa is a blended finance technology-focused impact fund aimed to create significant positive changes. Blended finance impact investment vehicles channel investment from the private sector into markets that it has traditionally avoided.


The first tranche is sponsored by the public sector, protecting the senior private tranches of the fund. If losses occur, the first tranche takes the loss, protecting senior tranches, generating an attractive private investment opportunity, in addition to creating positive social impact.

Blended finance provides further investment from private actors whilst supporting public sector sponsors achieve their cause. Moreover, every dollar committed by the public sector will trigger additional private sector flows, furthering the economic multiplier effect.


By combining public and private capital in one investment vehicle to scale early-stage technology businesses, BLOC Smart Africa will enable start-ups and SMEs to co