Priming Africa’s SMEs for growth – Small businesses need more than money
Although Small and Medium businesses (SMEs) account for 95% of all registered businesses and contribute about 50% to the total GDP of sub-Saharan countries, entrepreneurs still face significant obstacles to growth and prosperity which go beyond the traditional barrier of acquiring finance.
Addressing their needs and ability to reach their potential is essential to creating a prosperous Africa. About 40% of SMEs in developing countries grapple with access to finance. This indicates that the financial sector generally struggles to understand and serve SMEs.
Balanced against this must be that information irregularity in financial markets has left many small enterprises knowledge poor. Lack of available collateral or cash flow data means financial service providers often view SMEs as too risky.
Other critical factors impacting SMEs are bureaucratic onboarding procedures. Vetting and financial procedures can place additional pressure on small businesses, especially when they cannot access the warranties, assets, and resources that some financial institutions may require.
Lack of infrastructure also isolates SMEs from markets, opportunities and access to capital.
SMEs must get access to funding, markets, skills, and resources if Africa is to achieve its desired socioeconomic expansion.
They must leverage banking technology, digital skills, market insights and relationship ecosystems to enable African entrepreneurs to overcome business hurdles.
As an example, Standard Bank and its equity partner, the Industrial and Commercial Bank of China (ICBC), partner with business clients to showcase African agricultural products at Chinese import promotional events, such as the bi-annual China Africa Export and Trade Exhibition (CAETE).
The results over the last two events have included the signing of 216 projects and USD 43 billion in new trade with Africa.
Africa-China trade matchmaking sessions saw 15 African countries taking part in 11 export sessions and trade in various raw and processed agricultural goods being expedited.
In South Africa, partnerships based on digital platforms have linked marginalised fresh produce farmers with mainstream agricultural value chains.
These projects could be used in other markets to link Africa’s extensive small-farmer segment to regional and global agricultural value chains.
The critical enablers in Africa’s business and trade opportunity landscape must be based on access to digital resources, services and connectivity.
Key to achieving increased SME activity are opportunities that focus investment on developing the skills and capacity of local construction, infrastructure and logistics enterprises.
The greatest support that banks can provide to SMEs in Africa is making banking effortless through mobile technology.
In South Africa, for example, the Standard Bank Enterprise Direct service links SMEs to business bankers via 12 call-in hubs nationwide, helping enterprise clients perform over 90% of all their transactions over the phone.
The bottom line is that Africa, which has the largest youth population in the world, needs entrepreneurs and small businesses to provide future workers with opportunities which grow the economy.
A healthy and expanding African small business segment will increase employment, broaden tax bases and increase national revenues.
Robust private business formation will free African governments to focus funding on social and economic infrastructure, which is key to expanding inclusion and sustaining long-term economic growth in Africa.
By Simone Cooper – Head, Business and Commercial Banking South Africa at Standard Bank Group.
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