Rebuilding African economies through increased support for SMEs

Isioma Utomi 31 January 2022 4 minutes read

The COVID-19 pandemic has caused huge turmoil in business activities, which is most likely to continue for many years. A crucial component of most economies in Africa and the rest of the world are small businesses. Since the emergence of COVID-19, there has been a significant impact on small businesses, and in extension, African economies have been greatly affected. According to the International Monetary Fund (IMF), the negative effect of COVID-19 on the world economy has been devastating, with an estimate of about $12 trillion in 2021. In the second quarter, over 400 million full-time jobs were already lost globally. In the African continent, the pandemic led to a negative growth of -5.1% by 2020, thereby plunging the continent into the worst recession in 25 years. For small and medium enterprises (SMEs), which employs between 70% and 90% of the population, the effect of the pandemic has been even more severe, with 87% of business owners uncertain about the future of their businesses. A World Bank report indicates that the African continent would have lost between US$37 billion and US$79 billion by the end of 2020, arising from a decrease in external trade, reduced tourism, and a fall in commodity prices.

SMEs play a critical role in the economic development of African economies. They are an essential engine in the African economy since they create employment, drive growth, provide a customer base to more giant conglomerates across the supply chain and distribute crucial goods and services to households and companies, helping to keep the wheels of the economy. The majority of Africa’s SMEs have the potential to become tomorrow’s large corporations. They are also critical elements for the successful implementation of the African Continental Free Trade Area (ACFTA). However, with the COVID-19 pandemic wrecking and crippling economies of most African countries, there is no doubt that the negative impact would take several years to reverse. In addition, COVID-19 has worsened the situation, and many businesses have closed owing to a lack of capital, customers, and government support.

According to African Management Institute (AMI), in a survey conducted in 17 African countries, 87% of business owners were uncertain about their business survival during the pandemic period while another group (67%) mentioned that COVID-19 control measures put in place by governments such as lockdowns, curfews and a few others had negatively affected their business survival. Furthermore, according to a report by SME Competitive Outlook, they mentioned that African business exporters were estimated to have lost $2.4 billion from industrial supply chain exports due to factory shutdowns in the European Union, China, and the United States of America. The report also showed that two out of three African businesses experienced a reduction in sales of 75% and a 54% drop in their ability to access inputs.

Following the COVID-19 crisis, there is no doubt that Africa’s SMEs need financial and other administrative support; otherwise, navigating the challenge would be difficult and may spell dooms for the economy. A study by AMI shows that the survival of small growing businesses in emerging markets needs the financial support of a minimum of $50,000. Unfortunately, most African companies lack a source of funding. On this note, it is imperative to mention that there is a need for government to support and provide financial assistance to relieve distressed businesses. In developed economies, financial aid from the government is always readily available, including many stimulating packages to boost such enterprises. Unfortunately, the case cannot be said of African countries. Not only is it imperative for government to support small businesses, but it is also germane that the government organized training on capacity development for entrepreneurs, due to the view that first time entrepreneurs do not have the skills required to run and grow a business. In addition, the capacity training will enable entrepreneurs to come up with new ideas for doing business during the post-COVID-19 period.

It is the responsibility of every government to create an enabling environment and support for small businesses, as small businesses are a vital engine of the economy of any country. However, it is also the responsibility of business owners to develop strategies that will ensure sustainability in the future. Aside from that, if African governments are intentional about rebuilding their economies, they should create a healthy environment for businesses and put in place measures that would ensure that small businesses meet their customers’ demands, as this would help grow the economy of such countries. To that effect, the Centre for Values in Leadership has decided to title the theme for this year’s annual lecture: “Economic Evolution of life after Covid-19: Measures to rebuilding economies in Africa”. The annual lecture would bring together policymakers and a few others to discuss the measures required of governments to rebuild African economies. So be sure to register for this year’s edition coming up on 7th February 2022.