Government has a role to play in helping SMEs thrive. SMEs in Africa are the biggest contributors to the Continent’s economy. In Ghana alone, small businesses contribute a whopping 70% to Ghana’s GDP. According to this report, SMEs in South Africa account for 91% of businesses, 60% of employment and contribute 52% of total GDP. While in Nigeria, SMEs contribute 48% of national GDP, account for 96% of businesses and 84% of employment.
These small businesses are the biggest employers in Africa, and they boast of a steadily growing employee base year after year. It is in Africa’s best interest to streamline all operational activities to assist SMEs on this continent in any way possible, and one of the best places to start is the creation of an enabling environment for SMEs in Africa.
An enabling environment for SMEs is any business environment where risks are minimised and well managed. It includes the proper management of customs, laws, regulations, policies, trade agreements and public infrastructure that either facilitate or hinder the movement of a product or service along its value chain. An enabling environment for SMEs encompasses policies, administrative procedures, enacted regulations and the state of public infrastructure. Local business culture and national expectations are also powerful aspects of the business enabling environment.
Developing a more efficient environment for doing business in Africa is essential because the inefficiency of the current system creates untold hardship for SMEs in Africa. The result of this deficiency is a proliferation of SMEs limited in their ability to grow, attract investment and hire more workers.
Below are some of the best ways governments can create an enabling environment for SMEs in their countries to thrive:
1. Ready Financial Assistance
One of the biggest decisions many small business owners in Africa face is whether to borrow money to keep their business going or cut their losses. A majority of African banks simply do not lend to the SMEs in their regions without requirements that are too lofty for the business owners to keep. Those that do rarely consider SMEs less than five years old. The result is that most small businesses in Africa spend all their operative years unprotected by their country’s economic structure while still being expected to contribute to its GDP continually.
This is a serious problem, and there are various ways to improve this situation. For instance, the government can begin by guaranteeing small business loans with the banks, or by giving incentives to banks that award small business loans to encourage others. They could also give local councils the liberties to award local government funds to small business owners in their territories either based on the merit of their business ideas or the contributions of their businesses to the standard of living in the area.
2. Free Good Business Advice
Being an SME owner in Africa and beyond requires a sizable skill set. You need to know at least a little bit about every aspect of running a business; from marketing and hiring to customer service and finance management. You need to know when the conditions are ideal for you to borrow capital for your business, who to borrow from and when to cut your losses.
All these are decisions for which SMEs in Africa should get sound advice because even if you only rely on them for the barest minimum of background information having someone with experience and expertise can be a valuable asset to your business. African Government should put in place efficiently managed programs, to offer support to their SMEs through small business advisory services. SCORE, for instance, pairs up business experts (who donate their time for free) with existing businesses and this is a viable model to emulate.
3. Information Accessibility
Accessibility can be the ability to be reached, approached, used, or understood. Information accessibility in this context encompasses various solutions considered as parts of an on-going process of including more small business owners in meaningful ways. Productive business information must be accessible to as many SMEs in Africa as possible to provide equal access and equal opportunity to all.
Most interactions between SMEs in Africa and the governments of the regions within which they operate are financial. The availability of government loans or funding opportunities for SMEs means nothing if these business owners aren’t aware of them, and sadly this is often the case. Access to finance can give SMEs in Africa a chance they need to develop their businesses seamlessly and acquire better technologies for production, therefore ensuring more competitiveness. The government should do more in aligning information with reality.
4. Multiple Payment Options
Most African governments do not realise that offering various payment options for the SMEs in their regions can be a powerful tool in strengthening this aspect of their economies. Whether for business registration or any other business-related purposes, the acceptance of only cash payment by the appointed government institution gives room for bribery, unnecessary delay and increased frustration for SMEs owners in Africa.
This is because the fees quoted on any government website for any service is never the price one pays. If you insist on paying the official price, what should normally take two weeks may end up taking ten months. The way out here is simply the provision of multiple options for the remittance of money to the government by small business owners. They should be able to pay at the bank and through online channels. Information, fees and procedures should be clearly stated. All channels should have instant reception capacities, and the use of cash payment should expressly be discontinued where possible.
5. Accountability Channels
The establishment of efficient accountability channels is crucial if African countries are to create an enabling environment for SMEs in their territories. For too long, small business owners have been robbed blind by corrupt government officials who go Scot free. Funds for training programs are continually diverted to private pockets, and most contracts for the building of the necessary infrastructure for SMEs in Africa are left unperformed.
African governments need to establish or revitalise systems through which the engaging public, as well as the SMEs, can appraise services received and the personnel delivering such services. This system should be closely monitored, and those who fail to deliver quality services alongside those who misappropriate funds for small businesses should be swiftly punished. Without an efficient reward and punishment system in place, corrupt officials will always keep up their tactics, and the SMEs who do all the hard work will still be left with the shorter ends of the sticks.
6. Reduce Administrative Bottlenecks
Bureaucracy has got to be one of the toughest challenges faced by SMEs in Africa. When your business is unduly obstructed by insistence on unnecessary procedures either by the national government or the local authority, this is bureaucracy.
The cost and time it takes to do business with the government are too long, and every day an entrepreneur spends in line at a government office is a day that goes by without any sales or new customers. This is a serious issue, and for Africa to fully benefit from the SME sector, there is the need to create a business environment that would make it easier and faster for SMEs to register their businesses and get the necessary certification and statutory/ regulatory approvals to commence business.
African governments should aim for a 24-hour service delivery time in at least 80% of its service delivery by leveraging technology. Reducing the amount of paperwork or eliminating departments and hoops business owners have to jump through has no downside because all it will accomplish is the encouragement of business growth.
7. Adjusting to Supply Chain Disruptions Arising From The Pandemic
Supply chains are vital to small businesses, and their disruptions can have huge impacts because many SMEs in Africa rely on these supply chains for day-to-day survival sales. As African economies restart, the supply chain for SMEs in the various regions will be critical to supplying goods and services quickly, safely and securely.
To create an enabling environment for SMEs, African governments must make rapid decisions, and take immediate actions to help these businesses sustain their operations while also supporting their workers. SMEs employ a greater percentage of the workforce in Africa, and the last thing we need is for these businesses to shut down and render their workers jobless.
Expanding local business links is also essential, and the supply chains of SMEs in Africa will need to be characterised by both resilience and responsibility. These will help communities manage the long-term crisis fostered by this pandemic and enable businesses to rebuild around their customers.
The importance of SMEs in Africa cannot be overlooked or ignored. To create an enabling environment for SMEs, these measures should be linked with long-term resilience programmes that will make for a more sustainable post-COVID-19 recovery. If more African governments implement some of these suggestions, we would truly be on our way to helping our SMEs compete in the international market by getting rid of the toughest challenges they grapple with and encouraging them to focus solely delivering quality products and services to their customers.