PoliticsNews & AnalysisBeyond the big guns, small is beautiful - Africa's SMEs

Fri,24Oct2014

Posted on Thursday, 21 February 2013 17:16

Beyond the big guns, small is beautiful - Africa's SMEs

A customer prepares to pay for a small bag of maize meal at a shop in Soweto south west of Johannesburg/Photo©ReutersThe top 500 companies are a fine crop – the biggest firms in Africa, destined for great things.

 

But this is a plea for the little guy – the companies who you won't see in a ranking such as The Africa Report's Top 500 Companies, but who make up a vital part of the industrial ecosystem.

In particular: the small and medium-sized companies (SMEs) who provide vital services or components to big companies.

As US retail giant Walmart will tell you, you are only as good as your supply chain.

Part of the reason Renault-Nissan chose to set up a large manufacturing facility in Morroco's TangierMed industrial zone is because they were sure they could find the critical mass of competent auto parts suppliers on location.

Germany's strong economic performance of recent years is down to the 'Mittelstand' – the dense fabric of SMEs that supports the country's powerful exporters.

So Africa's Top 500 Companies should be united in their desire to see strong SMEs.

Sadly, there are still too many barriers in the way for these corporate little brothers.

Take finance. Blue chip companies can often use their own cash flows and cash reserves to finance expansion, to avoid the punitive interest rates that African banks charge. Not so for the SMEs.

James Scriven, director of global financial markets for the International Finance Corporation (IFC) explains that this is a worldwide problem: although 75 percent of SMEs in emerging markets have a bank account, 80 percent of them do not have any formal credit.

Of course, many SMEs move in and out of the informal economy.

But government's are not helping them evolve, according to James Mwangi, Kenya's award winning banker, whose Equity Bank model has gone furthest to offer credit to SMEs.

He is frustrated by bank regulators across Africa who make it hard to lend to smaller companies.

"Its important to get the regulators thinking about the needs of the informal sector, rather than labelling banks who lend to SMEs as imprudent."

Certainly, the volume of resources required for administrating and recovering loans is very high when it comes to lots of small loans.

Perhaps here is a role for governments – partnering with banks specialised in SME finance, cushioning the costs.

Given that SMEs count for 80 percent of net job creation in developing economies according to the IFC, it is not hard to see the political benefits from this kind of intervention.

It may also be at this level that sorely-lacking training and mentoring for staff and management of Africa's SMEs could be delivered.

Germany's skilled industrial manpower comes from a strong vocational training programme.

If Africa's educational institutions are too slow to respond, governments need to find fresh ways to deliver appropriate skills into the marketplace.



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