How African Governments can Support SMEs to Grow

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Every government has a role to play for the sustainable growth of businesses in any country. SMEs are Small and Medium-sized Enterprises whose startup capital and personnel number fall below a certain level. They contribute a significant percentage of any country’s economy and also ensure the creation of employment opportunities.

Most African governments have set up several initiatives to promote the growth of SMEs. For instance, South Africa has established the Department of Small Business Development to support business growth.

Although these initiatives have been put in place, they are not enough by themselves. There is a lot more that can be done to ensure accelerated business growth. Therefore, African governments need to do more.

Workable Initiatives for Governments to Support SMEs in Africa

Business owners suggest that the government should step up the following initiatives to promote business growth to foster the economy and employment.

Make it Easy to Register a Business

One of the hindrances to starting a business is the long and tiresome process of registering one. For instance, you need to register your business with the town council and registrar of companies. The process can take up to three weeks. This is discouraging for business people.

Governments can make it easy by providing online business registration. The process should have very few requirements and make some services free. This will help businesses with limited capital to start operating and become profitable in the future.

How long does it take to start a business?

  • Togo. It takes just 3 days.
  • Rwanda. It take 4 days.
  • Mauritius. It takes 6 days.
  • Zambia. It takes 9 days.
  • Kenya. It takes 23 days.
  • Tanzania. It takes 30 days.
  • South Africa. It takes 40 days.

Providing Infrastructural Development

The government has a critical role to play in availing infrastructure. Transport is fundamental in business to ensure that raw materials are transported to factories. Likewise, finished goods must be transported to the markets. It is the role of the government to ensure that roads, rails, ports and airports have been constructed. Without infrastructure, business is not possible. With proper infrastructure, entrepreneurs can import and export goods, thereby taking part in international commerce.

Countries with quality roads in Africa include Namibia, South Africa, Rwanda, Ivory Coast, and Mauritius.

Also, it is the work of the government to provide electricity and communication systems. Electricity is critical for industrial and individual operations in the production process. Industries need electricity to process raw materials to finished products. Electricity can be generated from solar energy, nuclear energy or hydro energy.

However, electricity availability and access is extremely limited on the continent. Countries such as Zambia, Kenya, Nigeria and South Africa experience regular electricity rationing. The average electricity access rate in Africa is 43 percent, which is half of the global access rate of 87 percent.

The lack of access to electricity primarily constrains modern economic activities, provision of public services, and quality of life. In addition, it severely limits adoption of emerging technologies in sectors such as banking, education, agriculture, and finance that could otherwise alleviate some of the core challenges facing Africans, such as low productive employment opportunities and limited healthcare. -Brookings

The government must also avail communication systems for enterprises and individuals. It can be in the form of internet connectivity or by improving communication signals. Other infrastructural developments that governments should provide include sewerage facilities.

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Increase Business Funding

Most of the business startups in Africa are self-funded. Entrepreneurs with business ideas have to look for sources to fund their businesses like borrowing from friends and relatives, crowdfunding, and loans from financial institutions.

The truth is that most sources of business funding are frustrating due to bureaucratic processes and penalties. There should be government institutions that focus on funding business startups to eliminate over-reliance on the private sector. It will help business startups qualify for higher loans at low-interest rates than private financial institutions.

Improve Access to Finance

Banks often ask for credit history and collateral to fund any business startup. People with creative business ideas are the youth who have just graduated and mostly do not have assets to attach as collateral; neither do they have a credit history. Moreover, more than 66 percent of the population in Africa is unbanked. Therefore, governments should assess the viability of any business idea and allow such people to access funds.

Loans from financial institutions are not business-friendly since they attract higher interest rates. Therefore, lowering the interest rates and giving emergency loans for businesses will accelerate self-employment.

Step Up Business Education

Having entrepreneurial skills is an excellent way of ensuring that people can set up profitable businesses. African governments should increase business training resources, like increasing the number of business-oriented institutions. It is a long term solution to ensure that companies are steered in the right direction.

For instance, the Uwezo Fund and Women Enterprise Fund in Kenya are excellent steps to business growth. However, this is not enough and such more initiatives should be put in place.

Promote Innovations, Inventions, Research and Development

No doubt that any country that invests in innovation and development sees accelerated business growth. Business development is about inventing new ways of doing business, new products and services. Therefore, if people can produce new products and services, it is an excellent way for them to grow.

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Research also creates more opportunities and that is why developed countries invest heavily in research. It improves efficiency and more capacity leading to business sustainability. At the moment, only 1.3 percent of the money spent globally on research and development (R&D) is spent in Africa.

M-Pesa, the world’s leading mobile money service, was invented in Kenya in 2007. In 2019, 42 million active M-Pesa customers carried out over 11 billion transactions, averaging over 500 transactions every second in December 2018. M-Pesa allows for unbanked people in Africa to receive and store money, pay for and receive goods and services.
https://youtu.be/i0dBWaen3aQ

 

Provide Tax Breaks for Newly Established Business Startups

Most businesses collapse due to high expenses and operating costs. Registering a business is complicated and attracts high fees before the business can start to generate revenues. These fees include business licenses, town council permits and other requirements. It is a huge burden to most upcoming businesses.

As if that is not enough, immediately businesses are launched, governments are on their toes to pay taxes. When their revenues start to increase, their tax obligation also increases. It is a hindrance to the growth of a business. This will help SMEs to direct their cashflows to business expansion and provide more job opportunities.

Sub-Saharan Africa remains one of the weakest-performing regions on the ease of doing business ranking with an average score of 51.8, well below the OECD high-income economy average of 78.4 and the global average of 63.

Reduce Compliance Requirements

Most business owners have a difficult time trying to ensure compliance with their businesses. Such efforts can be directed to business development and innovation. That is why most businesses close down and move their operations overseas.

For instance, the legal environment ranging from bureaucratic processes and penalties in most African countries discourage business growth. Easing business operation requirements will help many people venture into business.

Conclusion

SMEs in Africa are the key drivers of growth in Sub Saharan Africa. They account for up to 90% of all businesses in the region. Therefore, African governments need to need to invest time and resources in supporting the growth of SMEs by creating a conducive business environment. Some of the key steps to be taken are the ones we have listed in this article.

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