By Kwaku OFORI
The rhetoric surrounding the importance of Small and Medium-Sized Enterprises (SMEs) in Africa is well-known. SMEs are often lauded as the backbone of economies, the engines of job creation, and crucial contributors to GDP.
However, translating this rhetoric into tangible, practical support remains a significant challenge. As Africa navigates the post-pandemic recovery, it is imperative to move beyond lip service and implement actionable measures to support SMEs. Drawing on examples from across the continent and lessons from the US and Europe, this article explores practical support mechanisms that can make a real difference.
The importance of SMEs in Africa
SMEs in Africa account for approximately 90percent of all businesses and provide about 60percent of employment. In countries like Nigeria, Kenya, and South Africa, SMEs contribute significantly to GDP and are pivotal in driving economic growth and innovation. Despite their importance, SMEs face numerous challenges, including limited access to finance, inadequate infrastructure, and a lack of capacity-building opportunities.
Practical support mechanisms
- Access to finance
Access to finance is a perennial challenge for African SMEs. Traditional banking systems often view SMEs as high-risk, leading to stringent lending criteria and high-interest rates. To address this, several practical measures can be implemented:
- Credit guarantee schemes: Governments can establish credit guarantee schemes to reduce the risk for banks lending to SMEs. These schemes, as seen in South Africa’s Khula Enterprise Finance. Provide guarantees to banks, encouraging them to extend credit to smaller businesses.
- Microfinance and digital lending: Leveraging mobile technology and fintech can enhance access to finance. In Kenya, M-Pesa’s partnership with KCB Bank to offer microloans has revolutionized financial inclusion, allowing SMEs to access credit through their mobile phones.
- Crowdfunding platforms: Encouraging the development of crowdfunding platforms can provide alternative financing options. Platforms like Thundafund in South Africa enable entrepreneurs to raise funds from a large pool of investors.
- Capacity building and training
Building the capacity of SMEs through training and mentorship programmes is essential for their growth and sustainability. Practical initiatives include:
- Public-private partnerships: Collaboration between governments, private sector, and educational institutions can create comprehensive training programmes. For instance, the Tony Elumelu Foundation in Nigeria provides entrepreneurship training, mentorship, and seed funding to thousands of African entrepreneurs.
- Business development services: Establishing business development centers can offer SMEs access to consulting services, legal advice, and market research. These centers, such as the Small Enterprise Development Agency (SEDA) in South Africa, provide crucial support to SMEs.
- Infrastructure development
Inadequate infrastructure is a significant barrier to SME growth in Africa. Governments must prioritize infrastructure development to create an enabling environment:
- Transport and logistics: Improving transport networks and logistics can reduce operational costs for SMEs. Investment in roads, ports, and railways can facilitate market access and enhance competitiveness.
- Digital infrastructure: Expanding internet access and digital infrastructure is critical. Initiatives like Rwanda’s Vision 2020, which focuses on ICT development, have positioned the country as a regional tech hub, benefiting numerous SMEs.
- Market access and export promotion
Enhancing market access and promoting exports can help SMEs scale their businesses:
- Trade agreements: Leveraging trade agreements, such as the African Continental Free Trade Area (AfCFTA), can open new markets for SMEs. By reducing trade barriers, AfCFTA aims to create a single market for goods and services, benefiting SMEs across the continent.
- Export assistance programmes: Governments can establish export assistance programmes to support SMEs in navigating international markets. In Ghana, the Export Development and Investment Fund (EDIF) provides financial support and market entry assistance to export-oriented SMEs.
- Financial literacy and risk management
Promoting financial literacy and risk management practices among SMEs can enhance their resilience:
- Financial education programmes: Implementing financial education programmes can improve SMEs’ understanding of financial management, investment, and savings. The Central Bank of Nigeria’s Financial Literacy Framework aims to enhance financial literacy among entrepreneurs.
- Enterprise risk management support: Providing enterprise risk management services can help SMEs identify and mitigate risks. Offering free or subsidized risk management training and consulting services can strengthen their ability to navigate uncertainties.
Lessons from the US and Europe
Africa can draw valuable lessons from the US and Europe, where practical support mechanisms for SMEs have been successfully implemented:
- Small Business Administration (SBA) in the US: The SBA provides a range of services, including loan guarantees, business counseling, and training programmes. Its Paycheck Protection Programme (PPP) during the COVID-19 pandemic offered forgivable loans to SMEs to retain their workforce.
- European Union’s COSME Programme: The EU’s COSME programme aims to enhance the competitiveness of SMEs by providing access to finance, supporting internationalization, and improving business conditions. It includes initiatives like the Loan Guarantee Facility, which helps SMEs secure loans from financial institutions.
Conclusion
Moving away from rhetoric to practical support for SMEs in Africa is crucial for sustainable economic growth. By implementing measures to enhance access to finance, capacity building, infrastructure development, market access, and financial literacy, African governments can create an enabling environment for SMEs to thrive. Drawing on successful examples from the continent and lessons from the US and Europe, Africa can unlock the full potential of its SMEs, driving innovation, job creation, and economic prosperity.
>>>The writer is an expert in MicroCredit and SMEs Business and a Chartered Management Accountant (CIMA, UK). Contact: [email protected]
References:
- International Finance Corporation (IFC), 2020. “MSME Finance Gap: Assessment of the Shortfalls and Opportunities in Financing Micro, Small, and Medium Enterprises in Emerging Markets.”
- Khula Enterprise Finance Ltd, 2021. “Annual Report.”
- Safaricom, 2021. “M-Pesa: A Platform for Transforming Lives.”
- Tony Elumelu Foundation, 2021. “Entrepreneurship Program.”
- Small Enterprise Development Agency (SEDA), 2021. “Annual Performance Plan.”
- Republic of Rwanda, 2020. “Rwanda Vision 2020.”
- African Union, 2021. “African Continental Free Trade Area (AfCFTA).”
- Export Development and Investment Fund (EDIF), 2021. “Annual Report.”
- Central Bank of Nigeria, 2020. “Financial Literacy Framework.”
- US Small Business Administration (SBA), 2021. “Paycheck Protection Program (PPP).”
- European Commission, 2021. “Competitiveness of Enterprises and Small and Medium-sized Enterprises (COSME).”
