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How do you raise money to expand to Africa?

Trade turnover between Poland and African countries increased by a record 29% last year and this year, looking at the mood of Polish entrepreneurs, will probably end with an even higher growth. In the wake of the war in Ukraine, both experts and government officials are increasingly vocal in Poland, saying that Africa is our hope for the diversification of export destinations, limited by the events after 24 February. There is plenty to work on as only 2% of the country’s exports currently go to the Black Continent.

An additional incentive for entrepreneurs to take an interest in Africa should be the EU’s policy towards the continent, which has clearly changed since last year – a shift from focusing on aid to Africa to investments by European companies in the region. As Ursula von der Layen pointed out during her recent speech when she announced the allocation of $150 billion ($20 billion a year) for EU investments in Africa within the Global Gateway strategy, these will concern technical infrastructure (including, among others, fibre optic networks connecting Europe with Africa), energy, health and education, with the main goal no longer being the fight against poverty, but against climate change.

The prospects for obtaining financing and securing expansion to Africa are growing, as shown, among others, by the position of representatives of Polish financial institutions (KUKE, PEKAO SA, BGK) presented during this year’s African-Polish Economic Forum in Dubai: “Representatives of Polish financial institutions confirmed their readiness to cooperate with African banks and financial institutions in order to close the gap, which at this point is $81 billion.”

Venture Capital in Africa

As we read in last year’s African Private Equity and Venture Capital Association report, the African venture capital market is thriving despite the two-year experience of restrictions imposed on African companies due to the pandemic: in 2020, it reached a record number of VC deals established in the last seven years:

Source: AVCA Report.

Worse as a result of the coronavirus was the value of VC deals in 2020, where the total was $1.1 billion for VCs:

Source: AVCA Report.

In contrast, 2021 saw a rebound, where the amount quadrupled (!) to $4.77 billion, with five startups from the region reaching unicorn status, which will not surprise us when we realize that African startups grew six times faster than the global average between 2015 and 2020.

In which African countries did startups raise the most VC funding in 2020? The graphic below provides the answer to this question:

Regions with the highest number (blue) and value (yellow) of VC deals in 2020 in Africa, source: AVCA Report.

The highest median VC deal value was recorded in 2020 in deals between several regions. It was three times higher than the median for the continent as a whole at that time:

Source: AVCA Report.

Big tech companies are interested in Africa, e.g. in 2020 Google opened Developers Space in Nigeria’s largest city, Lagos, and already at the end of last year declared that it would invest $1 billion in tech investments in Africa over the next five years, including startups.

Grants to expand into Africa

Foreign Expansion Fund

  • Joint investment in foreign companies or investment of Polish company abroad
  • Financing up to 50% of the investment value
  • Entity in charge: PFR Investment Fund Company
  • Areas of company activity favoured by the Fund include respect for human rights, combating climate change, observance of employee rights, and combating corruption
  • The Fund may also provide a loan for a foreign investment

Internationalisation of SMEs

  • Co-financing of expansion to foreign markets: investments in fixed assets, promotional activities, use of advisory services
  • Project within the framework of support for enterprises from Eastern Poland (companies operating on the territory of the Warmińsko-Mazurskie, Podlaskie, Świętokrzyskie, Lubelskie and Podkarpackie Voivodeships)
  • Application deadline: 29 June 2022.
  • Maximum co-financing: PLN 900 thousand, pool of funds: PLN 50 million
  • More information on the programme website

Polish Investment and Trade Agency

  • Funds for participation in foreign conferences and fairs
  • Consultancy
  • Relationship support

Finally, there is one more opportunity, which at the moment does not offer the chance to obtain funding for expansion to Africa, but it may be opened this year. At the moment the call for Polish Technology Bridges, because this is the program in question, is conducted for companies interested in the United States, however, only last year funds were distributed twice for activities in Africa (Senegal and Kenya, and counting also the Arabian Peninsula three – Saudi Arabia).

Loans for expansion to Africa

  • Loans for foreign expansion from BGK secured by KUKE
  • New instruments as of February (https://www.bgk.pl/aktualnosc/nowe-wsparcie-dla-eksporterow-bgk-i-kuke-rozszerzaja-wspolprace/)
  • BGK has experience in supporting investments in Africa – so far it has assisted in the expansion of Polish companies to 15 countries in the region. According to BGK, Africa is the fifth most popular destination for Polish entrepreneurs seeking funds for foreign expansion in BGK.

Export letters of credit

  • Unlike in the case of KUKE-guaranteed export letters of credit, BGK does not examine the buyer’s financial statements; instead, the key factor for BGK is the assessment of the buyer’s bank
  • An example of a successful letter of credit on African markets is the sale by a Polish energy drinks manufacturer in Nigeria. The letter of credit amounted to €30,000, the Nigerian buyer paid for the products 90 days late, but the money was transferred by BGK to the Polish company several days later.
  • Another example is Senegal, where the letter of credit was for a much longer period of time, as much as two years.

During the webinar “Your business in Africa”, the BGK representative also cited other examples of letters of credit for foreign markets, including African markets.

Insurance of expansion to Africa

Insuring receivables

  • Equally important as obtaining funds for financing your overseas operations is providing yourself with a safe cushion in case your business does not develop exactly as you expected: when the importer delays payment for received products, when he becomes insolvent, or – which, it must be stressed, is more likely on African markets than on other markets – you will have to face a political event negatively affecting your business.
  • All these elements are covered by, among others, the Policy without Borders, offered by KUKE of the PFR group. The list of African countries covered by the Policy is available here. Below is a list of political risks that the Policy without Borders insures:

Foreign Investment Credit Insurance

  • When an entrepreneur decides not to sell products manufactured in Poland, but to make an investment directly in Africa, they should consider credit insurance for the foreign investment.
  • Importantly, by choosing KUKE (The Polish Export Credit Insurance Corporation), company assets in Poland are excluded from the insurance.
  • For more information on KUKE’s foreign investment credit insurance, click here: https://kuke.com.pl/ubezpieczenie-inwestycji-za-granica

You can learn about the products of all of the above-mentioned Polish institutions and organizations that provide financing, credit, export letters of credit or insurance not only by reading their websites, but also by contacting one of the seven Business Assistance Centers, each of which offers an International Desk service.

For more advice on the potential and risks of doing business in Africa, with a particular focus on SMEs and startups, read the other articles in our series Expanding to the Black Continent.

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