Growing resilient MSMEs in Africa for a sustainable future
June 27, 2022
On this World Micro, Small and Medium-sized Enterprises (MSMEs) day we recognize that the world cannot achieve the 2030 Agenda for Sustainable Development without resilient MSMEs. MSMEs are “today’s bush and tomorrow’s forest” (Zambian proverb). Globally, MSMEs make up over 90 percent of all firms, employ more than 70 percent of the population and contribute about 50 percent of GDP according to the International Council for Small Businesses (ICSB), This trend is mirrored in Ghana where MSMEs account for almost 70 percent of the GDP. By providing goods and services, jobs, livelihoods and government revenue, SMEs help to eradicate poverty and contribute to the achievement of all the Sustainable Development Goals.
These agile MSMEs are incubating innovative solutions to complex development problems using new technology including digitalization. They generate local solutions using local knowledge, skills and resources. Many are vibrant and dynamic, led by youth and women. Entrepreneurs like Nelson of Nelplast Ghana and Vivian of City Waste Recycling are at the fore of creating innovative products and services to meet our current and future needs.
Informality and lack of inclusion hamper growth
Yet, a high degree of informality and few assets hampers access to capital to finance growth. This renders smaller businesses more vulnerable to shocks and crises such as COVID-19. In Ghana for instance, the COVID-19 Business tracker and the COVID-19 Agribusiness tracker surveys showed that 92.2 percent of the micro firms experienced a decrease in sales during the first wave of coronavirus as compared to 45.1 percent in the case of larger firms.
Informality leads to vulnerable employment for many women, youth, and people from poorer households. Women in Africa form the majority of workers in the informal economy. However, only a third of formally registered MSMEs are owned by women. Many aspiring young and female entrepreneurs do not have access to supportive networks and mentors. As a result, women-owned MSMEs are more likely to have lower sales and annual turnover, less employees, smaller size, and shorter lifespan than those owned by men. This is according to the World Economic Forum.
Overcoming informality and low productivity accelerates Africa’s recovery
Flipping informality and improving the performance of MSMEs provides a pathway to accelerating a fairer and greener recovery in Africa. It must begin with support to youth and women-owned businesses. With access to finance and world-class business training as well as mentoring opportunities, these businesses could ramp up innovation and job creation. Examples of innovative MSME support programs that include businesses owned by women, youth and people living with disabilities include She-Trades by the International Trade Centre, EMERGE by ABSA Bank and UNDP’s partnership with Société Générale Ghana,
Beyond tackling informality, reducing the vulnerability of MSMEs and building resilience will help protect progress and reduce the impact of future shocks. A key lesson from COVID-19 and the unfolding climate, fuel and food crisis is the need for resilient businesses that can withstand diverse shocks. Investing in green, inclusive and equitable enterprise development could move many MSMEs from survival to thriving enterprises.
Integrated ecosystem supports catalyze investment for resilient MSMEs
UNDP Ghana is investing in integrated ecosystem support to grow MSMEs beyond survival. This includes deep analytics, market intelligence and a prototype integrated ecosystem support for MSMEs in selected districts. In addition are support to strategic communication as well as an accessible digital platform to connect MSMEs to resources, partnerships and knowledge. Working with partners in local government, national investment, export promotion and enterprise development institutions, private sector and CSOs, UNDP is enhancing access to professional support to local businesses. This includes SDG Investor Maps as a catalyst for MSME growth as they provide detailed information on Investment Opportunity Areas in key sectors at sub-national level. However, MSMEs awareness and the capability to effectively engage in cross-border and the African Continental Free Trade Area (AfCFTA) is still low.
Integrated support and partnerships will move barriers beyond capital
Boosting the contribution of MSMEs rests on unlocking access to technology and capital which remain a major hindrance to MSMEs survival and growth. However, one must not lose sight of regulatory bottlenecks, unfavourable tax systems, unfair competition, complicated rules and regulations, lack of coordination of the sector and lack of access to technology that compound this problem.
More investment and strategic partnerships for greener and resilient small businesses owned by youth and women will help to transform Africa’s economic landscape. It will help to accelerate an inclusive and sustainable recovery from ongoing environmental, economic and social shocks and realise the continent’s economic aspirations.
We must commit to an integrated approach to business ecosystem support to enable them to take full advantage of the available opportunities. Now is the time to scale up multi-partner collaborative platforms that support national priorities to unlock the enormous transformative potential of MSMEs to power Africa’s long-term prosperity.
Now is the time to scale up multi-partner collaborative platforms that support national priorities to unlock the enormous transformative potential of MSMEs to power Africa’s long-term prosperity.