SMEs in Africa: A revolution is coming
Small and medium-sized businesses are likely to lead the economic recovery on the African continent, but until they can secure a genuine foothold in corporate value chains, the sector is likely to be dominated by a handful of players who had early-mover advantage and access to finance.
As a finance partner to a number of emerging businesses in Africa, we need to understand how we not only improve access to finance, but give them the right tools to facilitate access to market as they grow.
A question we often ask ourselves:
“Are we growing the corporates of tomorrow while at the same time giving opportunities to youth and women-led businesses who need a foot in the door?”
In South Africa, Absa has recently released its Procurement Portal to focus on diversifying its supplier base but we are also excited about other developments on the continent which suggest we are entering an exciting new era for small and medium sized businesses.
Botswana for instance has had a big focus on localisation which has been accelerated by COVID-19 supply chain interruptions. Government and the private sector is focusing on capacitating local suppliers to ensure that they will be less vulnerable to future shocks to the system. Instead of relying on vast quantities of imported goods and services, the country has focused on an import substitution programme to ensure local manufacturing and provision of services.
Ghana is another example of progressive thinking from government – particularly as they are benefiting from the resources boom across the globe. The mining sector is resurgent at the moment and the supply of goods and services to the mines, represents a significant opportunity for smaller businesses.
Currently 75% of our lending in Ghana is going into the Natural Resources sector and an interesting dynamic playing out here is finding a way to help smaller suppliers graduate to be able to fulfil larger contracts. Typically these contracts are higher in value than supplying a school or a small manufacturing business so – unless they have the right finance partner – emerging entrepreneurs struggle to bridge the gap to actually complete these contracts.
In Kenya the telecommunications sector is vibrant and we enjoy a great relationship with the team from Safaricom. Here is a large focus on bringing women-owned businesses into their supply chain. It is estimated that the funding gap for women-owned businesses in Africa is over $2 trillion and a lot of work needs to be done to ensure that these entrepreneurs are given equal opportunity to participate in the market.
While localisation and local manufacturing capacity is a key focus for all stakeholders in the SME sector, we can’t ignore the role that multi-national organisations have in terms of bringing foreign products into the continent. An organisation like Coca Cola may have very limited opportunities for SMEs to participate in the traditional supply chain at a manufacturing level. That doesn’t mean they are excluding smaller entrepreneurs from working with them. In Kenya we are working closely with the Coca Cola team to help them develop entrepreneurs on the distribution and transport side which has required some innovative funding models.
Lastly we can’t ignore the opportunity presented by the agriculture sector both at a primary produce and secondary market level. The International Food Policy Unit has spoken about a “quiet revolution” that has been taking place in Africa over the last few years where smaller farmers are playing a critical role in ensuring food security for all role players.
In a report released in 2019, they noted: “Many small- and medium-sized enterprises are channelling food from farms to households and creating employment for millions in this middle part of the food system which is not “missing” but “hidden” and often ignored by policy makers.”
Our colleagues across the bank are seeing this trend starting to play out in terms of new funding mechanisms being made available to support these businesses who are moving from subsistence businesses to fully-fledged entities. Food security became very topical during the COVID-19 lockdowns and with agriculture playing an important role in job creation, there has been a very progressive attitude from policy makers to build local support.
While there is no magic wand that can be waved at the small business sector, we as a bank believe that there is a revolution of sorts taking place on the continent. Access to finance and access to markets is inextricably linked and we believe that our mandate is to help facilitate both.
