Senegal is a country with great potential: it has a young and dynamic population, natural resources, and a strategic location at the western tip of Africa. To harness this potential and unleash the entrepreneurial energy of its young population, Senegal needs to address the constraints that face private sector development and the job creation. These constraints impede firm creation and dynamism. They keep most firms informal and below their productivity potential. Only 6 % of firms in Senegal have five employees or more. The share of formal firms1 with 5 employees or more is even smaller, 1.3 % of the total number of firms. Constraints can be summarized as follows: (i) high informality with low firm dynamism; (ii) low SME productivity including lack of technology adoption; (iii) low export competitiveness with market failures in key value chains; and (iv) limited access to finance.
SENEGAL: Access to finance for SMEs with the JET (ETER) project
However, Senegalese businesses are resilient. The COVID-19 crisis revealed that businesses made technological leaps to survive by digitizing their operations. A World Bank study showed that around 40 % of Senegalese firms started or increased their use of digital technology during the pandemic while 17 % of businesses invested in digital solutions. This phenomenon was more prevalent along large firms than small firms, raising the possibility of a growing digital gap.
At the end of 2020, the government of Senegal devised a COVID-19 response program to boost economic growth and job creation. In 2021, the World Bank supported a subset of this ambitious program through a Program for Results (PforR) of $125 million: The Jobs Economic Transformation and Recovery PforR. This program was informed by two World Bank analytical pieces: the first, Digital Senegal for Inclusive Growth: Technological Transformation for Better and More Jobs, argues that governments have an important supporting role to play to help enterprises create better and more jobs for all. The second, Firm-Level Adoption of Technology in Senegal, identifies the main challenges standing in the face of technology adoption: access to finance, knowledge, and access to markets and competition.
This PforR includes a set of instruments, the combination of which offers a comprehensive support to boosting recovery and increasing firms’ productivity and exports competitiveness. It operates at three levels:
- At the firm level, the program incentivizes firms’ adoption of technologies by co-financing technical assistance for the adoption of digital or sectoral technologies that aim at increasing their productivity. Firms’ adoption of adequate technologies should increase their productivity and position them to access more demanding markets, including export markets.
It also eases firms’ access to credit through partial guaranties to remedy against information asymmetry and banks’ risk aversion toward lending to SMEs. This should unleash more financing to this segment of the private sector.
Through equity and quasi equity investments, the program also finances high-potential firms and firms in value chains with export potential. To this end, the program will also support the creation of a new hybrid public-private SME fund. This fund will provide firms with long term financing solutions to meet their investment needs and allow them to participate in key value chains more actively.
- At the value chains level, the program supports a set of value chains with export potential. A new institution in charge of competitiveness, hosted at the Ministry of Economy, and financed by the PforR will undertake this task. This unit will identify the bottlenecks for each of the selected value chains and the strategic market segments where they can compete. This process will lead to the preparation of action plans for financing, regulatory reforms, technologies, logistics, skills, and infrastructures needs for Senegalese products and services to become competitive in export markets. The action plans will be implemented using the financing instruments of this program: matching grants, guaranteed loans, equity investments, and the preparation of relevant infrastructure projects.
- At the economy-wide level, the PforR will finance a PPP unit and a PPP preparation fund to fund comprehensive feasibility studies for infrastructure projects that lead to better structured projects and crowd-in private financing.
Women-owned businesses will be encouraged to apply and benefit from this competitiveness program. They should represent from 25 to 30 % of beneficiaries of the proposed financial support.
The combination of these three levels of intervention across key value chains is important as the compounded outcome should be greater than the sum of the parts.
Supported by the World Bank Group, the Competitiveness for Jobs & Economic Transformation (C-JET) is a global partnership facility that helps foster the economic transformation needed to enable better jobs for more women and men, sustainably and at scale. With initial funding from the governments of Austria and Norway, C-JET focuses its support on the establishment of large-scale, multi-sectoral World Bank lending operations, particularly in low-income and fragile countries. For more information, visit: www.worldbank.org/cjet
1. In Senegal, a formal firm possesses all registrations and licenses and the standardized West African Accounting Standard Accounting System of SYSCOHADA.