Priming Africa’s SMEs for prosperity

Though 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 shows the financial sector struggles to understand and serve SMEs. Information irregularity in financial markets has also 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 affecting SMEs are bureaucratic onboarding procedures. Vetting and financial procedures can place additional pressure on small businesses, especially when they can't 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 & Commercial Bank of China, partner with business clients to showcase African agricultural products at Chinese import promotional events, such as the biannual China Africa Export & Trade Exhibition. 

The results over the past two events have included the signing of 216 projects and $43bn 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 SA, 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 SA, for example, the Standard Bank Enterprise Direct service links SMEs to business bankers via 12 call-in hubs nationwide, helping enterprise clients perform more than 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. 

About the author: Simone Cooper is head of business and commercial banking SA at Standard Bank Group.