Why Africa’s SMEs need more than money to ensure their growth

SMEs account for 95% of all registered businesses and contribute about 50% to the total GDP of sub-Saharan countries.

SMEs account for 95% of all registered businesses and contribute about 50% to the total GDP of sub-Saharan countries. Image: Photo by Iwaria Inc. on Unsplash

Simone Cooper
Head, Business and Commercial Banking South Africa, Standard Bank Group
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  • Small and medium enterprises (SMEs) are critical to economic growth in Africa.
  • Financing is a challenge for SMEs in Africa, but other factors are also critical to SME growth on the continent.
  • A healthy and expanding small business segment in Africa increases employment, broadens the tax base, grows national revenue and frees African governments to fund social and economic infrastructure.

Although small and medium businesses (SMEs) account for 95% of all registered businesses and contribute about 50% to the total GDP of sub-Saharan countries, entrepreneurs still face significant obstacles to growth and prosperity, which go beyond the traditional barrier of acquiring finance. Addressing their needs and ability to reach their potential is essential to creating a prosperous Africa.

About 40% of SMEs in developing countries grapple with access to finance. This indicates that the financial sector generally struggles to understand and serve SMEs. Balanced against this must be that information irregularity in financial markets has left many small enterprises knowledge poor. Lack of available collateral or cash flow data means financial service providers often view SMEs as too risky.

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Another critical factor impacting SMEs is bureaucratic onboarding procedures. And, vetting and financial procedures can also place additional pressure on small businesses, especially when they cannot access the warranties, assets and resources that some financial institutions require.

A lack of infrastructure isolates SMEs from markets, opportunities and access to capital. Business owners, because of unaffordable wage costs, are often forced to undertake tasks that are not within their skill sets. Inevitably, aspects of the business vital to growth are ignored at a high cost to sustainability.

What must be done by financial institutions to reverse these trends? How can African small businesses become the forces of economic change, financial transformation and innovation that SMEs are in other parts of the globe?

Part of the answer is a creative, strategic enterprise development approach that leverages technology, insight and relationship ecosystems to enable African entrepreneurs to overcome the access and skills hurdles that typically prevent business formation and growth on the continent.


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SMEs must get access to funding, markets, skills and resources if Africa is to achieve its desired socioeconomic expansion. They must leverage banking technology, digital skills, market insights and relationship ecosystems to enable them to overcome business hurdles. As an example, Standard Bank and its equity partner, the Industrial and Commercial Bank of China (ICBC), showcase African agricultural products at Chinese import promotional events, such as the biannual China Africa Export and Trade Exhibition (CAETE).

The results of events over the past two years have included the signing of 216 projects and $43 billion in new trade with Africa. Africa-China trade matchmaking sessions saw 15 African countries taking part in 11 export sessions and trade in various raw and processed agricultural goods being expedited.

In South Africa, partnerships based on digital platforms have linked marginalised fresh produce farmers with mainstream agricultural value chains. These projects could be used in other markets to link Africa’s extensive small-farmer segment to regional and global agricultural value chains.

The critical enablers in Africa’s business and trade opportunity landscape must be based on access to digital resources, services and connectivity. Key to achieving increased SME activity are opportunities that focus investment on developing the skills and capacity of local construction, infrastructure and logistics enterprises.

Recent African achievements have included training more than 3,800 entrepreneurs in Uganda. As one of the participants, Standard Bank worked with the Ugandan National Social Security Fund, the Embassy of France and the United Nations Development Programme.


Across Africa, governments’ SME strategies and initiatives often provide springboards for private sector interventions or public-private partnerships to promote small businesses including:


Access to finance is promoted through specialised programmes and guarantee schemes in conjunction with financial institutions. South Africa’s Small Enterprise Development Agency (SEDA) offers entrepreneurs financial assistance, mentorship and training programmes. Similarly, the Development Bank of Nigeria provides loans and grants to small businesses.


Regulatory reforms simplify registration and operational requirements. Changes in Rwanda, for example, have led to its improved rating in the World Bank's Ease of Doing Business Index.

Technology and innovation support

Technology hubs, innovation centres and digital platforms facilitate access to technology, information and markets. The iHub in Kenya is an example of such an initiative.

Market access

Providing access to markets includes promoting local procurement policies, supporting participation in trade fairs and exhibitions and fostering international trade relationships. The African Continental Free Trade Area (AfCFTA) agreement will increase intra-African trade and create new business opportunities for small businesses.

Tax incentives and support

Tax incentives and support are provided in some countries to stimulate growth. A shining example of state-led support is The Ghana Enterprise Agency (GEA). In partnership with private sector institutions, this agency is actively introducing Japanese kaizen manufacturing principles to local businesses. This has seen SMEs adopting streamlined, cost-effective processes and increasing outputs.

The Banking Council of South Africa identifies three high-level forces that bear on bank financing of small businesses. The forces are working towards transforming the South African economy, equalising the distribution of income and enabling large numbers of people to join the South African economic mainstream.

SME lending challenges

Although change must be accelerated, increasing SME participation in economies must be achieved without impacting the soundness of financial sectors. The reality is that lending to SMEs must be profitable and that the costs of making loans to some small businesses presently outweigh the value of the loan.

The greatest support that banks can provide to SMEs in Africa is making banking effortless by using mobile technology. In South Africa, for example, the Standard Bank Enterprise Direct service links SMEs to business bankers via 12 call-in hubs nationwide, helping enterprise clients perform over 90% of all their transactions over the telephone.

The bottom line is that Africa, which has the largest youth population in the world, needs entrepreneurs and small businesses to provide future workers with opportunities that grow the economy.

A healthy and expanding African small business segment will increase employment, broaden tax bases and increase national revenues. A robust private business formation will free African governments to focus funding on social and economic infrastructure, which is key to expanding inclusion and sustaining long-term economic growth in Africa.

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