Why SMEs Are Africa’s Engine for Prosperity

This article was first published on Qazini.com

Across different media channels, there has been constant optimism towards Africa’s economic growth. The persistent message is that Africa is the next global hotspot in terms of economic development and GDP growth. This is largely hinged on the continent’s vast mineral resources as well as a huge population that stands at over a billion, comprising mainly of youth (35 years and below). While Asian and BRIC countries (Brazil, Russia, India, and China) have dominated current global economic growth statistics, Africa is slowly but steadily warming up to take up the mantle.

The situation on the ground

According to the World Bank, SMEs account for 90% of all businesses, globally, providing more than 50% of job opportunities. For Africa to achieve her development aspirations, SMEs must be enabled to play this role more fervently.

SMEs are faced with a myriad of challenges that have only been exacerbated by the Coronavirus pandemic. Some of these challenges are relatively new whereas others are as old as the African nations themselves that came into free and independent existence in the late 1950s – 1990s. Perhaps, a key thing to note is the widespread poverty on the continent, the underdeveloped infrastructural network, and costly energy resources.

Additional newer and critical challenges like climate change, a stiff business climate, corruption, mounting international debt, fragile governance structures, and uncertain political leadership and institutions; as well as the newest challenge, the COVID-19 pandemic, have only made matters much harder for SMEs on the continent.

Interestingly, the impact of the pandemic in sub-Saharan Africa seems to lean more towards the economic side than the healthcare side. As a matter of fact, Africa seems to have been somewhat spared, so far, from the severe impacts of the pandemic witnessed in other parts of the world. Despite this, our fragile African economies are poised for a harsh future, disproportionately so for women and youth. According to a report by the Organization for Economic Co-operation and Development (OECD), Africa is likely to face hostile long term and short term economic effects best captured by:

  • Lower trade and investment from China in the immediate term;
  • Demand slump associated with the lockdowns in the European Union and OECD countries; and
  • Continental supply shock affecting domestic and intra-African trade.

These effects are already taking root on the continent. Millions have lost their jobs and families are struggling to put food on the table. Many have turned to small businesses to survive.

Yet, for the longest time, SMEs have faced funding challenges with banks and traditional financial institutions reluctant to finance them due to higher risks compared to larger, more established organizations. In mitigation, SMEs have resorted to internal funding options from friends and family to run their enterprises. Such financial options are not adequate, and sometimes, they are unreliable.

Remedial measures have not borne much fruit. In fact, as has been observed in countries like Kenya and Ghana, governments have sought new IMF and World Bank loans in an attempt to fight COVID-19 and stimulate economic growth. However, the Gallup surveys reported in the recent FEEDS-Africa Gallup Forum  show that the general public and SMEs have not benefited from these government initiatives. This means that small businesses have to seek alternative ways to source funds to grow their businesses and live up to their vital role in fueling Africa’s economic growth and job creation.

The way forward

Fortunately, all hope is not lost. The Annual FEEEDS-Gallup Africa Forum: Africa’s Business Economy, and The AfCFTA — the Role of SMEs virtual events focused on how new and existing African SMEs can survive and thrive in these turbulent times. The forum brought together experts on SMEs including Dr. Elizabeth Lungu-Nkumba from the US-Africa Trade Council, Stanley Straughter, chairman of the Africa-Caribbean Business Council of Greater Philadelphia, (ACBCGP), and Dr. Hippolyte Fofack the director of research and international cooperation at Afriexim Bank, among others; with the goal of highlighting how SMEs can help jumpstart Africa’s economic development in COVID-19 and beyond.

Dr. Hippolyte Fofack proposed that COVID-19 has disrupted markets and the way of doing business almost in equal measure as the emergence of the internet a few years ago. Such disruptions force markets to search for a new equilibrium which can create new opportunities for African SMEs to enter the global market. For example, opportunities such as the manufacture of PPEs, oxygen tanks, and masks have emerged because of the pandemic. Additionally, a new crop of entrepreneurs spurred by digital technology and eCommerce have emerged during this period as well. Take for instance MwalimuPlus, an online learning platform for school children, local food delivery services like Take Eat Easy and Yum delivery; and creatives are also taking their talents online.

Looking at the bigger picture, Africa’s challenges, both old and new, present new innovation opportunities for SMEs according to Mr. Straughter from the Africa-Caribbean Business Council of Greater Philadelphia. He believes that entrepreneurial minds running SMEs can benefit from the disruptions in the market as well as from looking at the challenges facing Africa differently. It is often said that necessity is the mother of invention, and with Africa facing so many challenges, it goes without saying that the many challenges are actually many opportunities for businesses and, more so, African SMEs to seize and utilise.

The event highlighted that SMEs are better placed than established businesses to drive change and innovation. This is because SME’s possess unique attributes not available to larger organisations to prosper and thrive. Some key attributes working to the benefit of SMEs are:

  • Their smaller size means that they are more agile and adaptable to market changes than larger businesses
  • They are a lower investment cost, and better placed to detect and take advantage of smaller market niches
  • They are faster at decision-making and easier to link their staff to the company given their flatter organisation structures
  • Collaboration is easier, everyone knows each other, communication and networking is more fluid
  • They are better poised to provide product and services solutions that solve Africa’s social and environmental challenges from the start. More so than existing and larger companies that are forced to re-structure, re-design, and re-engineer their existing business models towards responsible and sustainable development.

Seize the day

SMEs have the potential and opportunity to not only grow in local markets but importantly also in regional markets, on their path to internationalisation and cross-border trade. Internationalisation, which includes pan-African markets, holds numerous benefits such as increased revenue, benchmarking from competitors, as well as a new competition that can foster innovation.

In recognition of such benefits, there are numerous agencies and bodies solely dedicated to helping African SMEs advance to the international platform. While most offer financial assistance in terms of grants and loans, there are others that play advisory roles and even offer networking and facilitation platforms that link African SMEs to their peers and the regional and international markets. Ideally, the goal is to increase Africa’s participation in the global trade from the current 2% and intra-continental trade which stands at only 17% compared with 59% for Asia and 68% for Europe as reported by the World Economic Forum.

The FEEEDs-Gallup Africa Forum emphasised that there is a lot of untapped potential and opportunity for African SMEs to grow their businesses in both regional and international markets. Here is a list of some of the organisations and how African SMEs can benefit from their services, as highlighted by the event’s speakers:

  • The AfriExim Bank: Dedicated to promoting inter-Africa trade by offering financial assistance to SMEs such as short term-trade guarantee solutions, working capital, and supply chain finance guarantee solutions etc.
  • The Trade Promotion Programs -African Continent Free trade Area (AfCFTA): The African Continental Free Trade Area agreement between African states seeks to allow goods, services, investment, skilled labour, and people to move freely across the 54 countries on the continent, without the multiple checks and restrictions that exist today.
  • US-Africa Trade Council: The Trade Council provides a platform for business networking and organizes Trade Summits, trade expos, and trade delegations to explore new opportunities.
  • Federation for Economic Development Associations (FEDA): This NGO advocates and lobbies for better legislation in various countries to support SMEs.
  • Intra-African Trade Fair (IATF): Facilitates meetings and networking opportunities with major African trade actors (B2B, B2C, and B2G) and political stakeholders  all ready to make a deal.
  • Gallup Center on Black Voices:Provides key poll data on Africans and African-Americans to aid governments and businesses in decision-making and policy formulation.
  • Common Market for Eastern and Southern Africa (COMESA): Seeks to create a common market in East and Southern Africa for financial integration and standardization.

What’s next?

There is help out there to assist entrepreneurs and SMEs grow their ideas and businesses in their vital role as the engines of our continent’s prosperity and future.

But beyond this, African consumers also have a fundamental role to play with their purchasing power – the money in pockets. Consumers need to support African SMEs by choosing to buy African and therefore, build Africa.

It rests upon African SMEs to drive the continent’s development AND African consumers to buy African. The time to act is now.