News South Asia

“If you want to go fast, go alone; If you want to go far, go together” – African Proverb

 

VENTURES AFRICA – Africa is at a precipice when it comes to sustaining economic growth in the SME sector, especially in Sub-Saharan Africa. But given the global change in geo-politico-economic shifts, what lies ahead for the entrepreneur who needs to plant, and those who need to grow?

 

SME’s do generally need to identify the opportunities that are really available in Africa. The challenge plays out in realising which segment of the SME market is well capitalised to take advantage of these opportunities. The challenge when speaking about SME’s compared to the rest of the world is that many Sub-Saharan countries have a large number of SMEs relative to the size of the economy. However, these SME’s are almost exclusively micro companies and they are often not part of the formal economy.

 

“According to an in-depth study conducted by the Economist Intelligence Unit (EIU) on behalf of DHL Express, approximately 40% of global SMEs (small and medium-sized enterprises) do not perceive Africa as a growth opportunity, despite the positive economic growth stories and growing middle class in the regions.”

 

Ultimately, Africa remains the place to plant your seed. How and where to grow, under the stalemate of constricted economic growth, will be a matter of how SME’s use their pawns.

 

There exists two fundamental characteristics that affect SME’s, specifically in the Sub-Saharan regions, these being; Lack of finance and unstable electricity supply that serve as severe obstacles to SME growth. Over the last decade many countries in Sub-Saharan Africa have experienced high growth. These cyclical phases have been the result many SME’s growing into prosperity and others dwindling into the abyss of SME failures.

 

Growth as the rest of the world knows it still differs widely among countries in the African regions. Angola, Ethiopia and Mozambique display strong growth, on the flip side, economies of Burundi, Malawi and not to mention Zimbabwe struggle severely. Some countries in Africa even enjoyed peaks of growth at 17 percent with the worst trough being 8 percent.

 

“The fact that SMEs expect to generate up to 50 percent of revenues internationally by 2019 is a massive positive and highlights the vast opportunities for Africa from an investment and job creation perspective”, says Charles Brewer, Managing Director of DHL Express Sub Saharan Africa.

 

The growth in sub-Saharan Africa is made up of private investment that has gained momentum since the early nineties and fuelled long term economic growth. In this same equation, growth in public spending and private consumption remains critical components to Africa’s development and growing middle-class.

 

We continue to find that differences in growth rates between countries in various regions are driven by governance and access natural resources. A closer look at the variance exposes that the agricultural sector is substantially larger in countries in Sub-Saharan Africa than in other regions of the world.

 

Identifying some of the opportunities rests in Africa exporting 70 percent of their raw materials and resources. Where the downstream sectors should be developing to convert and create downstream jobs and economies, these processes along with the revenues and job creation opportunities follow.

 

 

 

Hindering Growth

 

So we know with certainty that Africa presents a viable case for investment and SME planting. But what else is hindering the growth needed in this sector?

 

Cross-border trade in Africa is limited when it comes to growth. Lack of infrastructure that imposes the cost onto the consumer forces SME’s into unattractive international markets. Even in this case, to compete, the SME needs to have the capacity to compete and remain relevant. It goes without saying that border-locked countries in Africa suffer the most.

 

Lack of infrastructure then impacts on reliable delivery channels, not forgetting that the cost of not refining oil and producing petroleum on the continent has severe consequences for business, especially SME’s on the continent.

 

As insane as it may sound, some industries and SMEs may benefit from a certain degree of political turmoil, if their products have relevance in messy situations.

 

 

 

Looking for Growth

 

Despite Africa’s strong growth rates to peak at an average of 5 percent in sub-Saharan Africa in 2015 on the back of investment growth and household spending most SME’s see very few opportunities in Africa.

 

Can this be due to the ease of doing business in Africa which can be cumbersome? Can it be that the average size of an SME in international surveys represents revenues that far exceed those of African SME’s?

 

According to a recent study by the Economist Investigating Unit (EIU) for DHL, “Roughly 40% of both G7 and BRICM SMEs that are planning to trade internationally in the future said the continent offers no growth potential, indicating that the negative impression is set well before SMEs even establish offshore operations.”

 

“US SMEs entering Africa are spending a lot of money dealing with inadequate infrastructure”, says Danielle Walker, director of African affairs at the US Chamber of Commerce. “There are high costs associated with deliveries waiting in stifling traffic and sitting at border crossings because of inefficient customs procedures. SMEs investing in Africa, the final frontier are purchasing back-up generators because of inconsistent power supply. Their employees likely have several mobile phones from different providers, because of unreliable network coverage. If an SME is unable to hire locally because the skill set is not readily available in market, it can be very expensive in terms of taxes to bring in an American to do the work, as South Africa is the only country in sub-Saharan Africa that has a double taxation treaty with the US.”

 

Africa’s problem is intrinsically linked to technological development. The continent despite being progressive, still simply lacks the necessary infrastructure to support hi-tech electronics. “Our products need high-speed Internet connections so it’s too early to start an African business, which needs reliable Internet connectivity,” said Mr Iwasa.

 

Mr Becerra of BuffaloGrid—which launched its first offering in Uganda and is deeply familiar with the dynamics on the continent—concurs with that assessment, adding that petty corruption is also an issue. “The concerns are certainly valid,” Mr Becerra says.

 

Evidence through the latest studies is forecasting that more attention needs to be focused on identifying the hotspots to inject liquidity and support to Africa’s SME sectors. Easing the red-tape for doing business and increasing access to finance for expansion, while being creative by expanding our downstream sectors, are critical opening up opportunities for growth and planting.