Developing and investing in frontier markets to achieve the SDGs

With just five years to reach the UN’s Sustainable Development Goals (SDGs), it is undeniable that progress towards achieving them is lagging worldwide. FMO is working towards a world in which by 2050, > 9 billion people live well within planetary boundaries. Through its ‘2030 Strategy: Pioneer, Develop, Scale’, FMO is maximizing its impact towards achieving the SDGs. Accelerating action to this end will require doing more of what is already being done – such as, mobilizing investor capital and leading syndications that support financial inclusion. Stepping up in other areas to address the lack of investible opportunities will also be required. FMO is acting resolutely with its market creation approach, a new and bold flywheel for investing. The aim is to develop unbankable opportunities into bankable projects, thus bridging the broader development ecosystem to address pipeline shortfall and an everwidening SDG financing gap. This entails developing both businesses and ecosystems: the former makes individual opportunities bankable; the latter addresses systemic challenges that hinder investments, which must be solved over a longer-term horizon.

For example, through Invest for Impact Nepal – which FMO established as a sector initiative together with BII and SDC – it focuses on addressing ecosystem constraints to proactively create investment opportunities and support local financial institutions and private equity funds. Investing in frontier markets is also critical to insuring the impact of DFI’s. Over half of the world’s poor live in fragile contexts, and while such markets represent a higher-risk environment FMO must fulfil its mandate. This in line with SDG 10: Reducing Inequalities – for example, with its NASIRA program (set up with the European Commission and powered by Team Europe). NASIRA gives portfolio guarantees to financial institutions, making possible lending to groups that were previously overlooked, like young and women entrepreneurs.

Increasing investment flows in frontier markets

FMO’s latest and most ambitious approach focuses on frontier markets; for example, as with the Africa Resilience Investment Accelerator (ARIA), a joint initiative between, FMO, BII and Proparco. ARIA supports the long-term economic growth of underinvested frontier markets
across Africa; together, the initiative has unlocked USD 45 m in DFI investment since 2021 and has provided more than 40 companies with technical assistance. An example of a pioneering deal recently closed consisted of a loan of USD 20 m to Ethiopia’s Dashen Bank to support agricultural development, making FMO the first foreign institution to offer long-term funding to Ethiopia’s financial services sector. The aim was to catalyze the market and foster confidence among investors to mobilize more private capital, for example, by helping to improve Dashen’s ESG standards. While the priority is to redirect and increase investment flows in frontier markets, meaningful
change will require strong partnerships. So join FMO in collective action – together with other DFIs and Team Europe actors – to provide an aligned, coordinated approach to addressing the dearth of investment projects.