In Africa, SMEs account for more than 90% of businesses and contribute about 50% to Gross Domestic Product (GDP). Obviously, the relevance of SMEs in every sector of industrial development — from manufacturing, agriculture, mining, to service industry– cannot be undermined. Micro, Small and Medium-sized business in Africa remain the engine room of economic development and without it, economies of African nations will experience financial and development constraints.
Although Africa has received huge investment in the last decade – investors from China, Holland, United States are harnessing the opportunities in Africa — the continent is still ranked by World Bank as the most difficult region to do business.
A study by Adcorp reveals that in African countries five out of seven new businesses fail in their first year. Most SMEs across Africa are truncated by inchoate regulations and policies, lack of access to credit facilities, poor management, stringent legal requirements, inflation, checkered exchange rates, and instability of price all making it difficult to make significant profits to survive.
Much has been said about the problems of SMEs in Africa but very few conversations have been on what can be done to salvage the situation and restore balance to the operations of emerging businesses across Africa. We will be delving into the facts and numbers to highlight the challenges and possible ways to solve these difficulties as a recourse for SMEs growth in Africa.
Whether in Ghana or Kenya, here are the five most prominent challenges faced by SMEs and strategies to better the current situation.
Access to Credit
This is a reoccurring challenge faced by businesses in Africa. Banks are not open to giving credit facilities to emerging business and when they are compelled by regulations, the long list of criteria to access the high-interest loans is discouraging enough for many SMEs.
A survey by World Bank shows a relationship between access to finance and growth in GDP per capita –higher access to credit, in turn, yields higher GDP per capita. The implication of this is that SMEs cannot have proper fiscal projection especially when funds play a pivotal metric for growth. What are the alternatives since banks have these barriers to fund SMEs?
Crowdfunding is one sure platform where you neither payback nor require collaterals to cash in funds for your business. To successfully raise funds via Crowdfunding platforms such as JumpStart Africa, M-Changa etc., you need to craft a good narrative explaining in details the problem you are solving and how the social impacts of your business.
There are several grants that you can apply for to fund your business. Most of these grants focus on a particular niche. Identify the ones your business fits in and endeavour to meet their criteria. For instance, the Tony Elumelu Foundation runs out $5000 for African entrepreneurs with unique ideas.
African Entrepreneurship Award is another avenue where African entrepreneurs can access funds of up to $10,000 to expand their idea. We won’t leave you scrambling to find opportunities for your niche, here is a box of funding opportunities you can benefit from.
Regulations and Policies
Government’s inputs are necessary to create an economic-friendly ambience for businesses to thrive. The harsh but true fact is that a government that fails to protect and provide regulations to strengthen its SMEs is creating an environment for extreme poverty.
Businesses in Africa compared to their counterpart across the world face difficulty in meeting regulations and rules of establishing a business. There are stringent taxation laws, unfair competition from multinational companies thereby crippling SMEs growth across Africa
Although tremendous changes have been seen in countries like Ghana, South Africa and Rwanda regarding policies and regulations but more can be done to encourage and boost the operations of emerging enterprises.
To see more tremendous changes in the business ecosystem in Africa, SMEs owners must come together to discuss how regulations and policies are affecting their business and ebbing away their potential to thrive. Government tends to listen more to pressures from organised groups.
Business Management Incompetence
Most SMEs owners are not financially savvy; they don’t take time to research into the prospects of a business by conducting a market survey, develop a business plan and draw up fiscal projections.
Good training on business management skills will enable business owners to harness technology and best management practices to sustain growth. Most enterprise owners are driven by short-term gains and pays little or no attention to long-term sustainable strategies to expand their business. Of course, business owners have competent ideas but with the poor management skills, it will result in little or no growth.
SME kits tools and Fate Foundation in Nigeria have set up training centres for entrepreneurs to acquire basic business management skills but more of this should be replicated across Africa. These trainings will groom SMEs owners on the best management practices so that they can optimize profit and minimize cost through efficient processes.
Poor International Marketing Framework
While big and multinational companies are setting aside resources and implementing processes to attract and retain paying customers across countries, most emerging businesses appear to be satisfied with their revenue as long as it pays their bills and puts food on their table.
For international marketing to thrive for SMEs owners, production processes should be standardised to take into consideration specific market segmentation which will increase their total addressable market and profit. Also for enterprise owners to harness a larger market there must be a joint venture and direct investment for massive production. An example is Ogonge women in Nigeria helping smallholder farmers’ to increase capacity by leveraging on the strength of the park.
If other SMEs owners adopt this model and form clusters of interest groups, it will help develop a sustainable international marketing framework that is cost-effective.
A business owner can buy a product for ₦500 with a fiscal projection of a set profit but the uncertainties of the market price of such commodity could mar these analyses thereby decreasing profit. As such, SMEs owners should form interest groups and associations to address this challenge. Price instability can also be controlled by government policies.
Generally, SMEs serve as a testing ground for business models. As such policymakers must as a matter of urgency create more friendly policies to ameliorate challenges impeding the growth of small businesses and make low-interest funds more accessible for them. However, the cause for change doesn’t lie in the hand of the government alone. , Upcoming businesses must also look inwards and create sustainable ways to control price and increase their efficiency.
Addressing the salient challenges and implementing the solutions discussed will usher Africa into a better economic era, and rejuvenate the hope of many poor citizens who rely on SMEs for survival.
Smepeaks is hosting Africa’s first platform to share and learn from founders’ failure stories. Reserve a seat immediately!