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$1 trillion in annual investment to unlock the development power of small businesses
Expanding investment into small and medium-sized enterprises would help deliver inclusive economic growth and the Sustainable Development Goals, together with profits for investors.
Annual additional private investments of $1 trillion in small businesses in developing countries would play a pivotal role towards achieving the Sustainable Development Goals (SDGs). This is according to the , released recently by the International Trade Center (ITC).
Currently, just a fraction of the $80 trillion managed by global asset managers is invested in small and medium enterprises (SMEs) in developing countries. At the same time, there is great, untapped potential to channel capital held by global funds towards these profitable investment opportunities.‘There is tremendous scope to scale up the flow of private investment towards SMEs in developing countries, including in the poorest ones,’ said ITC Executive Director Arancha González. ‘Mobilizing this finance can get us closer to achieving the goals set out by UN members in the 2030 Agenda for Sustainable Development.’
According to the SME Competitiveness Outlook 2019, the main factors holding investors back from channeling more funding into otherwise profitable investment opportunities in developing countries include a lack of scalable investment projects, non-transparent investment processes, misguided perceptions of the risks of investing in SMEs, and a lack of knowledge about enterprise capacities.
The report, released to coincide with the United Nations Micro, Small and Medium-sized Enterprises Day on 27 June, sets out an agenda for overcoming these bottlenecks and connecting cash-rich investors with investor-ready SMEs. It identifies potential SME investors, the challenges they face in financing small business, and how these challenges may be overcome with the right policy responses.
Other key findings and recommendations of the SME Competitiveness Outlook 2019 include:
• SMEs are fundamentally intertwined with the SDGs: More competitive SMEs can contribute to 60% of the 169 targets underpinning the 17 SDGs. Their most prominent impact will be on sustainable growth and employment (Goal 8) and sustainable industrialization and innovation (Goal 9).
• Connecting investment promotion agencies to SMEs: Every year $600 billion of foreign direct investment flows into developing countries, mostly to large firms. Stronger investment promotion agencies, with good connections to investment-ready SMEs, are needed to enable small business to benefit.
• Bundling small business investments: Big foreign investors don’t invest in individual SMEs, they invest in thousands at a time. ‘Big Money’ will therefore only flow to ‘small business’ if local financial institutions (banks, funds, non-governmental organizations) are able to bundle SME investments into billion-dollar investment opportunities.
• Embed accelerators in innovation hubs: Accelerators can play an important role for start-up investment but will not live up to the hype unless they are embedded in effective innovation hubs.
• The report compliments ongoing discussions in the World Trade Organization on investment facilitation aimed at increasing transparency and predictability of investment procedure.
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