The Crucial Role Of MSMEs In The Economic Growth And Development Of Africa

Published 8 months ago
By Forbes Africa | Jill De Villiers
Business owner hanging an open sign at a cafe
Getty Images

International MSME Day on June 27 recognizes that small businesses and self-employed workers are crucial to the growth and development of economies. We also speak with Jeremy Awori, Chief Executive Officer, Ecobank Group, on the importance of this day.

Small and medium-size businesses (SMEs) are the lifeblood of Africa’s economy. They are responsible for more than 80% of the continent’s employment and 50% of the GDP, according to the World Economic Forum.

To celebrate the role played by micro, small and medium-sized enterprises and increase awareness of their contribution to the achievement of the Sustainable Development Goals (SDGs), the United Nations (UN) General Assembly designated 27 June as International MSME Day.

Advertisement

The UN recognizes that small businesses and self-employed workers are crucial to the growth and development of economies, saying that if adequately supported, MSMEs can “effectively contribute to the structural transformation of economies and drive inclusive, sustained, and equitable economic growth and jobs.”

“SMEs play a crucial role in Africa’s economic growth and development, especially when it comes to the creation of jobs which remains a significant problem across the continent,” says Jeremy Awori, Chief Executive Officer, Ecobank Group.

With operations in 33 African markets, the bank has made it a priority to nurture and contribute to the growth and success of African SMEs and encourage them to leverage trade opportunities.

The African Continental Free Trade Area (AfCFTA), a single, continent-wide market that unites 54 countries, offers significant opportunities on the continent. Among its aims are to scale African businesses through integration of regional value chains and to increase intra-African trade by 52.3% by 2030.

Advertisement

As an entrepreneur in the education sector, Catherine Awuor Oduor manages the operations of Jabali Schools in Kenya and is a Senior Finance Officer at African Union.

She is of the opinion that the private sector and policymakers working in partnership with the AfCFTA can open expansion and growth opportunities for SMEs.

“They have the potential to transform the economies and the continent as a dynamic force in the international arena,” Oduor says. “If policymakers can draft very good policies, this will help businessmen and businesswomen to ensure that their business flows without challenges. As we are aware 60% to 70% of women are involved in business and in the cross strait area. And therefore, if the laws are well-drafted and could favor women, women could do their business very well. Finally, the private sector plays a critical role in the development of Africa, and hence strategy ensures businesses across the continent have access to tools and partnerships, they will be able to play a key area in creating a resilient environment in the future.”

Financial institutions play a big role in easing the ability of SMEs, and especially women-owned SMEs, to grow and develop in the currently challenging environment, and ultimately to tap into cross continental trade.

Advertisement

Despite women-led enterprises making up about a third of all registered African small businesses, the financial gap between men and women remains.

According to the UN, women- and youth-owned enterprises are often most vulnerable and at risk of external shocks. On top of this, they have to deal with limited access to affordable finance, capacity-building support, partnership networks, and global markets. There are many challenges for them to overcome, resulting in many being confined to the informal sector and necessity entrepreneurship.

For Oduor, limited access to cash is one of the challenges for SMEs. “Right now the economy has really gone down. And many lending facilities are offering loans at high interest rates, and this has affected quite a number of businesses.”

In her experience, other challenges include access to technology, poor monitoring and evaluation systems to track feedback, market analysis and feasibility studies and setting up a good business plan.

Advertisement

“For SMEs in the informal sector, we assist them to transition to the formal sector to ensure they gain access to better growth opportunities,” says Ecobank’s Awori. “In addition to catering to their banking needs, we also provide SMEs essential non-financial support such as skills training. In recognition of the vital role of women, Ecobank has curated tailored solutions through our comprehensive Ellevate program, specifically designed for women entrepreneurs.”

For the UN, MSME Day will also focus on supporting resilient supply chains to ensure workers and the environment benefit and encourage policymakers and businesses to join forces to ensure economically viable, socially, and environmentally sustainable supply chains.