2019 will be the year of small businesses in Africa

“Africa is on the precipice of rapid economic expansion, this expansion will be through the emergence of stronger small business enterprises that will help lift millions out of poverty and create a large, much needed middle class,” said Deepankar Rustagi CEO of VConnect at the Africa Tech Summit London in April 2017. He is not the only one who has recognised the importance of small businesses to economic growth and job creation in Africa; several scholars have published reports about the impact small business have on economies. According to the World Bank, formal SMEs contribute up to 60 percent of total employment and up to 40 percent of GDP in emerging economies. Hence, focus on the sector has increased in recent years and several organisations have expressed commitment to further investment in the sector in 2019.

United Kingdom’s Development Finance Institution CDC Group in November announced a commitment of $25 million to a local fund backing small and medium-sized businesses in Nigeria. Earlier in the year, the DFI had agreed a deal with Standard Chartered Bank for a supply chain finance programme that will increase financing for SME suppliers in Africa. SMEs in the supply chains of developing countries often wait long periods (typically 30-90 days) to receive payment for delivered products. However, the partnership between CDC and Standard Chartered will provide a financing ‘bridge’ ensuring suppliers are paid early, while enabling buyers in a supply chain to maximize their working capital.

Global leader in beverage alcohol Diageo also recently released a reinvigorated sustainable agriculture strategy which builds on its existing pledge to source 80 percent of raw materials locally by 2020. The revamped strategy will provide a collaborative framework to increase farm yields sustainably and secure markets for African smallholder farmers.

Diageo’s ambition is that at least 100,000 farmers in eight countries will benefit from direct local sourcing, which will see Diageo increase expenditure in the local sourcing of key raw materials, such as sorghum, barley and maize in Africa. The strategy will cover Nigeria, Kenya, Tanzania, Ethiopia, Ghana, Cameroon, South Africa and Uganda in 2019.

Nigeria’s Wema Bank had also in March secured a combined $35 million form the African Development Bank (AfDB) and the Islamic Corporation for the Development of the Private Sector (ICD) to fund small and medium scale businesses in Nigeria.

The African Export-Import Bank (Afreximbank) has signed an agreement with the African Guarantee Fund (AGF) for a $30 million dollar re-guarantee facility to support African Small and Medium Enterprises (SMEs).

For most of the organisations ramping up efforts in terms of investment and support to small businesses, it is the most efficient way to grow economies across Africa, create much needed jobs and improve standards of living.

Already, SMEs are responsible for most formal jobs, creating four out of five new positions. With improved focus on them, especially as Africa’s population continues to grow, the continent is set to experience reduction in unemployment and improvement in quality of lives.

“It will […] contribute to trade development, economic growth and poverty reduction on the continent,” Gwen Mwaba, Director, Trade Finance of Afreximbank said.

Also published on Medium.