US Fund Cuts Challenge Africa to Build SME Financing Future

The US Africa Development Foundation (USADF), a critical lifeline for African entrepreneurs, has abruptly terminated $51 million in grants targeting small and medium enterprises (SMEs) and startups across 22 sub-Saharan African countries.

The cuts, enforced by the Department of Government Efficiency (DOGE)—a government agency led by Elon Musk—are part of a broader effort to eliminate “inefficient” federal spending, which has already drawn over $140 billion in savings, including USAID programs. The decision disproportionately impacts Kenya and Nigeria, the largest beneficiaries, which received $16.9 million and $20.4 million, respectively, supporting 397 SMEs and startups. High-value projects now at risk include agricultural initiatives like shea butter processing in Burkina Faso ($230,000), pineapple juice production in Benin ($240,000), and mango drying facilities in Côte d’Ivoire ($246,000), alongside tech-driven ventures such as Kenya’s WhatsApp marketing chatbot ($48,406) and Nigeria’s wellness incubator ($84,059). 

The USADF’s grants have long served as a critical source of non-dilutive financing for African entrepreneurs, particularly in sectors deemed too risky by commercial banks and venture capitalists. In Burkina Faso, a $230,000 shea butter processing initiative supported over 500 women, enabling them to access international markets. Similarly, Kenya’s $48,406 WhatsApp marketing chatbot project empowered small businesses to reach customers digitally, a lifeline in remote regions. The abrupt termination of such programs disrupts value chains, risking job losses for tens of thousands and reversing gains in food security and social stability.

In northern Nigeria, where USADF-funded agribusinesses provided alternatives to extremist recruitment, the cuts could reignite cycles of poverty and conflict. 

Women and youth, the central beneficiaries of USADF’s model, face disproportionate setbacks. Over 70% of grants targeted female entrepreneurs, such as Nigeria’s rural solar energy cooperatives and Kenya’s women-led farming collectives. These initiatives not only boosted incomes but also challenged gender norms in male-dominated industries. Meanwhile, startups in Nigeria and Nairobi, reliant on USADF’s risk-tolerant grants to prototype ideas like climate-smart irrigation tools, now confront an innovation drought. The collateral damage extends beyond economics: the loss of such opportunities exacerbates youth unemployment, a key driver of migration and social unrest. 

The funding cuts, while devastating, also highlight Africa’s precarious dependence on foreign aid. Nigeria and Kenya, which received $20.4 million and $16.9 million, respectively, must now grapple with the void left by the exit of a generous donor. Smaller economies like Benin and Côte d’Ivoire face acute challenges too. Benin’s $240,000 pineapple juice project, designed to tap into the EU’s $2 billion organic market, and Côte d’Ivoire’s $246,000 mango drying facilities were poised to elevate regional trade. Their potential collapse weakens cross-border economic integration, a pillar of the African Continental Free Trade Area (AfCFTA). 

The funding cut follows the United States’ earlier disruptions to key foreign developmental programs by President Donald Trump for 90 days.

To mitigate the fallout, African governments and stakeholders must pursue urgent structural reforms toward domestic grant programs that could create sustainable financing pools. Engaging impact investors alongside diaspora bonds leveraging Africa’s $95 billion in annual remittances offers additional avenues. Crowdfunding platforms like Kenya’s M-Changa could democratize access to capital for micro-enterprises. 

Regional cooperation must also be prioritized. The AfCFTA provides a framework for cross-border SME alliances, such as linking Benin’s pineapple growers with Kenyan processors. Regional blocs like ECOWAS and the East African Community (EAC) should advocate for expanded African Development Bank (AfDB) initiatives, such as the Affirmative Finance Action for Women in Africa (AFAWA), to fill gender-focused funding gaps. 

Policy innovation is equally vital. Governments could mandate commercial banks to allocate 10% of lending to agriculture and women-led SMEs, backed by partial guarantees to mitigate risk. Tax incentives for impact investors and streamlined business registration processes—as seen in Nigeria’s Corporate Affairs Commission (CAC) reforms—would stimulate private sector participation. Strengthening cooperatives, such as Kenya’s coffee farmer unions, could empower smallholders to negotiate better prices and share resources collectively. 

Finally, multilateral engagement remains crucial. The African Union must lobby institutions like the IMF to reallocate Special Drawing Rights (SDRs) toward SME liquidity funds, while partnerships with the UN’s International Fund for Agricultural Development (IFAD) could salvage agritech projects. 

While the USADF cuts pose immediate challenges, they also present an opportunity to redefine Africa’s developmental trajectory. Confronting dependency on foreign aid and prioritizing homegrown solutions, from digital marketplaces like Twiga Foods to regional trade networks, African nations can build resilient, inclusive economies. The path forward demands bold leadership, innovative policymaking, and collective action. Only by transforming this crisis into a catalyst for systemic change can the continent shield itself from external volatility and unlock its vast entrepreneurial potential.