June 16, 2021
World Market

SME in Africa

Doing business as an SME in Africa

SMEs first ever International Expo being hosted by "The Standard", Zimbabwe: October 28-29th, 2011.

Small to medium size enterprises (SMEs) have the potential to turn around the country's economy provided adequate funding, sound infrastructure and effective institutional structures are put in place. Globally, SMEs are being hailed for their pivotal role in promoting grassroots economic growth and equitable sustainable development.

South Africa and India are notable examples of countries with vibrant SME sectors.

The Indian SME sector has grown over the last 60 years to become one of the most powerful sub-economic sectors.

SMEs have a greater tolerance for hedging risks and the potential to reap substantial rewards in niche markets. As small business entities, they are very flexible and move fast to adapt to any environment.

Most of the SME's in Africa currently are in dire need for government and private sector assistance to secure more funding.

In recognition of the immense potential that the sector has, the Ministry of Small and Medium Enterprises and Co-operative Development has been on a drive to ensure that all businesses in the sector are registered. Absence of a secondary stock exchange for SMEs to help raise working capital and allow participation of other investors has also made expansion of such firms difficult.

Plans to establish a secondary stock market for SMEs in Africa have been on the cards for last couple of years but the stock market authorities and the government have not been able to conclude on the size of businesses that should be classified as SMEs.

Under the leadership of Hans Falkena - Chairman of the Task Group of the Policy Board for Financial Services and Regulation, has analysed and developed a supply side regulatory views for the SME's in South Africa.

The Task Group covered the following areas in its review:

  • The profile of South African SMEs and their contribution to the South African economy
  • SME's Access to equity capital and debt
  • Access to Banks and other Non-Banking Financial Institutions

The Task Group has identified a number of areas in which intervention is likely to have a positive effect on SMEs' access to finance.

Equity finance is important for young, high growth and potentially high-risk enterprises. SMEs' participation in the country's venture capital and private equity has been limited to date. This is also related to because of the insufficiently developed "exit options" and weak IPO markets.

In the USA and EU countries, SMEs contribute over 60% in employment, 40-60% to Gross Domestic Product (GDP) and 30-60% to exports.

In Asian Tigers such as India, Indonesia, China, Malaysia, Japan, and South Korea also SME's contribute between 70-90% in employment and an estimated 40% contribution to their respective GDPs.

In Africa, the SMEs sector in economic powerhouses such as South Africa, Egypt, Nigeria and Kenya, is estimated to contribute over 70% in employment and 30-40% contribution to GDP.