Every year, an increasing number of African businesses receive funding, training, and support. But few become the engines of structural transformation the continent needs. Despite the momentum behind private sector development (PSD) across Africa, as a cornerstone for sustainable and inclusive growth, the metrics that dominate—the number of grants issued, startups and small and medium enterprises (SMEs) supported, or dollars spent—rarely reflect true economic resilience or depth. International financial institutions (IFIs), governments, and investors continue to commit billions in support of small and medium-sized enterprises (SMEs) across the continent. Yet, as these interventions scale, a fundamental question persists: Are we moving capital or moving the needle?
IFIs have long partnered with African governments and local implementing partners to catalyse private sector growth, especially in SME development across sectors like agriculture, technology, manufacturing, and services. Consider the International Finance Corporation’s (IFC) record investment of $9.4 billion in 2022, which was directed at pharmaceutical, manufacturing, trade, and agricultural businesses across 36 African nations. Such initiatives spur growth, enable digital expansion, and open new markets, helping SMEs strengthen their foothold. However, despite the vast sums invested, with few success cases, systemic challenges across the continent raise the need to critically examine their true impact.
In Sierra Leone, for example, despite significant external support, many businesses struggle to scale sustainably and significantly, create jobs, or contribute substantially to the tax system. Multiple partners often support the same high-profile SMEs, with limited resources reaching Indigenous businesses that may have growth potential but lack exposure. This trend raises the question: How can we transition from quick-impact metrics to a model that builds lasting resilience, economic contribution, and structural change for more African businesses?
With the world striving toward the 2030 Sustainable Development Goals (SDGs), particularly Goals 1, 8, 9, and 17, it is essential that private sector development (PSD) initiatives on the continent become not only impactful but also transformative. To achieve this, all stakeholders must shift their focus toward interventions that go beyond surface-level metrics to promote sustainable economic growth and drive structural change on a larger scale.
What is Transformative Impact and Why it Matters?
At its core, transformative impact fundamentally reshapes the economic landscape, promoting long-term, sustainable growth that drives systemic and inclusive change. Transformative PSD goes beyond traditional support aimed at marginal expansion or being investment-ready. Transformative PSD aims for deep-rooted resilience, job creation, poverty reduction, and structural economic change. For SMEs, this would mean creating well-paying, permanent jobs, increasing exports and entering new markets, adopting new technologies, investing in R&D, reducing carbon footprints, and implementing renewable energy practices. Additionally, transformative impact would bolster education, skills development, and health outcomes, generating businesses that not only survive but are tax compliant and contribute meaningfully to the economy.
Why the Current PSD Playbook Falls Short of Transformation
The traditional approach to PSD combines financial support, capacity building, policy advocacy, and infrastructure investment. These initiatives have sparked successes across the continent but often fall short of transformative impact due to a few notable gaps. First, donor-funded projects frequently apply standardised models, overlooking the complex realities of Africa’s diverse markets. Failing to account for local variances such as the rural-urban divide, informal sector dynamics, and weak financial markets, these models often yield suboptimal outcomes.
The technical assistance provided to businesses through donor-funded projects and local implementing partners often lack a ‘systems lens’. They tend to focus on broad business development services (BDS) and investment readiness without addressing ‘systems’ issues- the capacity to apply the core ‘delivery principles’- business-delivery planning, data systems, implementation tracking routines and tools, stakeholder engagement and management across the chain /ecosystem, communication and a strong focus on measurable impact not just outputs. This is crucial for internal SME growth and adequate integration into broader economic strategies, such as national economic diversification efforts and the African Continental Free Trade Area (AfCFTA).
Many PSD initiatives prioritise quick wins and measurable outputs, such as capital disbursement or business support numbers. However, such metrics do not necessarily translate to building resilient businesses that can withstand market shifts or make meaningful contributions to the economy.
While partners can provide funding and technical assistance, the success of these interventions often depends on the enabling environment created by local governments. Unfortunately, most governments lack intentionality in supporting Indigenous businesses. Without a robust enabling environment fostered by committed local governments, non-governmental interventions often lack the grounding needed for transformative, lasting change.
Three Shifts to Drive Transformative Private Sector Growth
As African governments seek to accelerate development through initiatives targeting human capital development, technology and innovation, economic diversification, and gender equality, the transformative potential of PSD initiatives remains largely untapped. To tap into the full transformative potential of PSD, donors, local Ips, and African governments must evolve their strategies by focusing on three critical areas:
- Target Indigenous Businesses with Intentionality: In Sierra Leone, multiple partners often invest in the same SMEs, diverting resources from promising Indigenous enterprises that may lack exposure but possess substantial growth potential. IFIs and governments should actively avoid elite capture by prioritising support for these underrepresented businesses, ensuring that their growth spurs broader economic development.
- Provide System-Based Technical Assistance: Traditional business development services and investment readiness programs are not enough. To achieve transformative impact, SMEs need assistance that encompasses delivery principles, systems-based approaches, and effective public-private dialogue. Such support equips SMEs to navigate complex markets, policy uncertainty, scale sustainably, and integrate into broader economic strategies.
- Redefine What Success Looks Like: Success in PSD should not be measured solely by straightforward metrics, such as the number of businesses supported or capital invested. Instead, PSD should focus on creating businesses that have a significant impact on economic transformation- percentage revenue growth, direct and indirect jobs created, sustained changes in the income levels of beneficiaries, markets reached, business survival rate, etc. This could involve providing larger, catalytic funding and comprehensive support to a smaller number of businesses, enabling them to grow competitively.
For example, can we find a balance between breadth and depth? Between funding 10,000 small businesses with $10,000 and supporting 500 growth-ready, eligible businesses with $200,000 each, thereby catalysing growth and transformative impact?
From Outputs to Impact: A New Vision for PSD in Africa
While IFIs have made significant strides through various funding models, achieving true transformative impact will require a shift towards prioritising long-term sustainability, broader economic contributions, and resilience in supported businesses. By leveraging larger, concentrated investments, paired with systems approaches, IFIs and policymakers can implement PSD initiatives that bring not only short-term success but also deep-rooted lasting change. In rethinking the numbers we aim to move, we open the door to a private sector that drives Africa’s sustainable growth on a profound scale. Let us be bold enough to redefine success—not by how many businesses we reach but by how many lives we change. The future of Africa’s private sector depends not on just more funding but on smarter, deeper, and more transformative approaches.
