Small and medium-sized enterprises (SMEs) are critical to the inclusive socio-economic development of Africa. These businesses help support the economies of countries and contribute to inclusive socio-economic development.
SMEs account for 40 percent of GDP in emerging economies and create at least 90 percent of new jobs. This is especially true in Africa, where more than 60 percent of the population is under the age of 25.
SMEs account for about 80 percent of jobs in Africa, with the African Union Development Agency noting that SMEs employ 90 percent of the population in African countries such as Uganda, Ethiopia and Kenya.
According to a recent National Economic Survey report by the Central Bank of Kenya (CBK), SMEs account for 98 percent of all businesses in Kenya, create 30 percent of jobs annually and contribute three percent to GDP.
Besides employing people, SMEs provide goods and services and serve as an important link in the manufacturing value chain, as well as generate economic activity.
Many manufactured products reach consumers through SMEs, usually through a network of small independent retail stores such as Dukas and Kiosks in Kenya, Ojas in Nigeria, Hannout in Morocco or Spaza shops in South Africa.
As a result, SMEs are the backbone of most economies. Countries’ economies can be strengthened by enabling SMEs to grow and compete across the value chain.
Despite the important role SMEs play in African economies, there are many barriers to their existence and success. In fact, despite having the highest entrepreneurship rate in the world, research shows that up to 80 percent of African SMEs fail within the first five years.
Access to infrastructure and connectivity, business enablement tools, finance and digital skills are all potential barriers for SMEs. The most significant hurdles most SMEs face are access to financing and affordable credit.
These businesses often lack proper information such as credit history, financial statements and other essential data points, while traditional credit-scoring models used by many financial institutions discriminate against SMEs.
Without access to working capital, SMEs are unable to invest and grow their businesses.
There is a need to enable tools that SMEs can use to collect and manage transactional data that can be used to provide valuable business insights to guide SME decision making and generate financial reports. This can be taken advantage of.
Digitization can help businesses develop a financial and transactional history that will allow them to access loans.
This information and well-organized data can help African SMEs to access and diversify their financing options.