A private equity fund mobilised to grow new businesses in Afghanistan has confirmed its second closing at more than US$30 million.
Infrontier Afghanistan announced the close after a capital injection of US$8 million from the MASSIF fund, a vehicle managed by the Dutch development bank FMO. MASSIF aims to provide people in emerging economies with access to basic financial services with InFrontier Afghanistan identifying the country’s strongest firms. In September 2017, InFrontier announced an investment of US$3 million in Alef Technology, Afghanistan’s leading broadcast technical services and power company.
Linda Broekhuizen, FMO’s chief investment officer, said the fund represents “one of the most challenging markets in the world”.
The government of Afghanistan began a new growth strategy based on the nurturing of small enterprises in 2009. The plan has since targeted sectors of the economy that have the potential to develop alternative industries to that of imports. Afghanistan’s principle source of growth remains agriculture. According to a working paper published in 2014 by the Afghanistan Research and Evaluation Unit, small businesses face persistent pressure to prove their competitiveness, ingenuity and ability to adapt to an uncertain political environment.
Recent data from The World Bank, which has so far invested more than US$3.5 billion in development projects in the country, shows a decline in Afghanistan’s yearly economic growth from 2009 to 2011, followed by a short rise after the withdrawal of western military troops in 2011.
Since then, poverty has increased as a result of civilian casualties and widespread displacement. The bank meanwhile records a faltering business sentiment due in part to a recent hike in food prices, which has driven inflation up to 5.1 percent in 2017, compared with 4.5 percent in the previous year.
The fund, which is managed by specialist emerging market investor InFrontier, could help counteract these macroeconomic constraints and has previously secured funding of both CDC Group and the Good Growth Fund, an initiative of the Dutch Ministry of Foreign Affairs.
“Private sector investment is the most effective and sustainable form of development in a post-conflict economy such as Afghanistan,” said Felix von Schubert, director at InFrontier, after the fund’s first close was announced at US$22 million in December 2016.