Need to build coordinated SME ecosystem in Africa

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This article first appeared in my weekly column with the Business Daily on March 3, 2019

The Sankalp Africa Summit 2019 occurred about ten days ago in Nairobi and brought together local and global players active in the development and support of African SMEs. A plethora of entities were present from academic institutions and accelerators to financiers (angel investors, venture capital, private equity), development finance entities, business linkage and networking bodies as well as African SMEs, specifically social enterprises. Those who attended were from countries all over the world in Africa, Europe, USA and Asia. As a speaker and participant of the conference what was abundantly clear was that there is a great deal of interest and activity focused on building responsible business in Kenya and Africa. And support towards this cause ranges from financing, to research and technical support, to supply chain linkages as well as business development support. There are three observations that gave me pause for thought as I interacted with Kenyans, African and global players so passionate about, and also knowledgeable about Africa SME development.

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First is the lack of government presence in the coordination of the demonstrated interest in African SME growth and development. Kenya, for example, lacks a fundamental institutional framework and strategy for the development and growth of SMEs. As a result, all the interest and support implemented by local and global players is being under-leveraged. Kenya, and many African countries which also usually have no government SME development strategies and structures, fail to deliberately aggregate and coordinate the expertise and capacity clearly interested in the African SME space. This leads to a wastage of expertise, replication and subpar peer learning.

Secondly, and linked to the lack of coordination, is the lack of aggregated business deal generation. As someone who interacts with both SMEs and financiers, I’ve seen a clear gap in linking financing needs to financing capacity interested in Africa. During Sankalp what became clear is that such forums are a key space where SMEs meet financiers who could possibly be the right fit for them. But this is not enough. There has to be a more coordinated effort to link SMEs to financiers, as well as graduate SMEs from one type of financing to the next. The lack of such linkages leads to two problems. First, SMEs complain that there are no financiers interested in partnering with them to grow. Second, financiers complain about a lack of a deal pipeline, namely viable businesses that can be credibly financed. This has led to the perception that Africa cannot absorb the scale of capital theoretically available to the continent. This is not true; the problem is linkages and aggregation. What is required are more platforms and entities that link viable SMEs with interested financiers and aggregate business deals.

Finally, is the issue of support structures for SME development; financing is not enough. Many seem to forget that many African countries are very young on their journey in private sector development. So while there is a financing need, an ecosystem that provides niche expertise, long-term partnership and technical/ technological support is also key. Without such an ecosystem of partners, capital will likely be underleveraged.

Anzetse Were is a development economist

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