Africa aspires to be one and it is working to be one and stands to benefit from integration. In the same vein, Africa is not one. Grasping this duality of unity and diversity is often missed by the outside world when dealing with African development questions. In this regard, we must appreciate that there are different national/ regional experiences and considerations that affect policy choices and the outcomes of such policies.
Meaning there’s no singular blueprint to be copied and pasted across all countries. Therefore, to achieve impact, we must build the necessary capacity to thoroughly understand the needs and national systems of each country. That needs investments in research, building our analytical capabilities and developing very context specific policies. This equally applies to the discussion on MSMEs in Africa. There will be no single answer.
That notwithstanding, there are some macro challenges from which we could identify what needs to be done. The issues seem to be old, but it is clear they need different approaches for us to move the needle.
In developing country contexts, like our own continent, the majority of small businesses are established in response to unemployment and poverty rather than pure entrepreneurship. So, it goes without saying people behind these businesses are not in the position to adequately finance their efforts.
The lending models of commercial banks drive exclusion rather than inclusion – which brings into the equation the role of financial sector regulators on how they could build performance-based targets for the banking sector linked to the extension of credit to small businesses.
Beyond the commercial banking sector, it is important to consider how we can enhance the role of development finance institutions at national and regional levels; not to compete with commercial banks but to complement their role by addressing their clear development failures.
Unfortunately, with limited capitalisation levels, poor systems for disbursing to a complex market, etc, our development banking model in Africa is not well matured. All these limit the scale at which they can support the growth of MSMEs. Therefore, capitalising the development banking system becomes important to address the liquidity challenges and creating peer-to-peer learning to strengthen capacity.
Access to and integration of new technologies by African small businesses into how they deliver goods and services is vital for addressing productivity and moving towards greater competitiveness. Often, this is interpreted to mean technology transfer in the old model of North-South flows. However, our reality today is painting a very different picture. Every day, Africa is demonstrating its growing capacity to ferment its own technology and innovation.
MSINGATHI SIPUKA | Small businesses can be big contributors to Africa's growth
Access to and integration of new technologies vital for addressing productivity
I recently had the interesting opportunity to sit through a discussion with a group of international development partners and African policy makers, reflecting on what is needed to unlock the potential of micro, small and medium enterprises (MSMEs) in Africa.
The context for the discussion was how Africa can fast-track the implementation of the second 10-year implementation plan of Agenda 2063, specifically, looking at the economic objective of all African countries reaching middle income status within the next decade.
Inherently, such an ambition requires deep reflection from those who must deliver on it. The current landscape, unfortunately, does not offer much hope on possible pathways of transitioning roughly 25 countries into this national income category.
It is in this context that MSMEs have emerged as one possible pathway where we could extract some positives for Africa’s economy. Already, MSMEs constitute about 90% of the continental private sector and provide roughly 60% of all employment in Africa. It, therefore, seems clear why we would factor it as a big contributor to our 2034 growth projections.
It is both this referenced discussion and the broader context that has informed this piece.
Africa aspires to be one and it is working to be one and stands to benefit from integration. In the same vein, Africa is not one. Grasping this duality of unity and diversity is often missed by the outside world when dealing with African development questions. In this regard, we must appreciate that there are different national/ regional experiences and considerations that affect policy choices and the outcomes of such policies.
Meaning there’s no singular blueprint to be copied and pasted across all countries. Therefore, to achieve impact, we must build the necessary capacity to thoroughly understand the needs and national systems of each country. That needs investments in research, building our analytical capabilities and developing very context specific policies. This equally applies to the discussion on MSMEs in Africa. There will be no single answer.
That notwithstanding, there are some macro challenges from which we could identify what needs to be done. The issues seem to be old, but it is clear they need different approaches for us to move the needle.
In developing country contexts, like our own continent, the majority of small businesses are established in response to unemployment and poverty rather than pure entrepreneurship. So, it goes without saying people behind these businesses are not in the position to adequately finance their efforts.
The lending models of commercial banks drive exclusion rather than inclusion – which brings into the equation the role of financial sector regulators on how they could build performance-based targets for the banking sector linked to the extension of credit to small businesses.
Beyond the commercial banking sector, it is important to consider how we can enhance the role of development finance institutions at national and regional levels; not to compete with commercial banks but to complement their role by addressing their clear development failures.
Unfortunately, with limited capitalisation levels, poor systems for disbursing to a complex market, etc, our development banking model in Africa is not well matured. All these limit the scale at which they can support the growth of MSMEs. Therefore, capitalising the development banking system becomes important to address the liquidity challenges and creating peer-to-peer learning to strengthen capacity.
Access to and integration of new technologies by African small businesses into how they deliver goods and services is vital for addressing productivity and moving towards greater competitiveness. Often, this is interpreted to mean technology transfer in the old model of North-South flows. However, our reality today is painting a very different picture. Every day, Africa is demonstrating its growing capacity to ferment its own technology and innovation.
We see our young people across Africa taking a lead in developing new solutions and innovations grounded in African reality. We have to harness their potential by creating innovation platforms that will assist them to move beyond concept to actual development and ultimately commercialisation; then find creative ways to connect these innovations to small businesses.
This presents a clear area of collaboration with our partners, not only from a financing point of view but going beyond to build the capacity of our national innovation systems to play their roles effectively. This entails knowledge and experience sharing at policy level.
With most MSMEs operating from hand to mouth, personal crisis, such as health, must be funded from business operations/income because owners don’t have structured and secured social security at their disposal. This poses risk of continuity for most small businesses, and this is something that is mostly neglected.
In most countries this reality is true for almost all segments of society, and calls on countries to look at creative ways of establishing well designed social security systems, not least for small business owners.