Happy Micro, Small and Medium-sized Enterprises Day

Small to medium enterprises are the backbone of most developing economies particularly Africa where most young people are developing the entrepreneurial spirit as a mitigation measure against the high unemployment rates.

Today we are celebrating for the first time the Micro, Small and Medium-sized Enterprises Day. These are enterprises, which generally employ fewer than 250 persons. The General Assembly, in recognition of  the importance of these enterprises, decided to declare 27 June the Micro, Small and Medium-sized Enterprises Day to raise public awareness of their contribution to sustainable development.

The definition of micro, small and medium enterprises differ from one country to another, however the United Nations defines, micro-enterprise as having fewer than 10 employees while a small enterprise often has fewer than 50 employees and an annual turnover or balance sheet below €10 million. A medium-sized enterprise has fewer than 250 employees. The choice of MSME definition could depend on many factors, such as business culture, the size of the country’s population, industry and the level of international economic integration thus the annual turnover can vary from one place to the other.

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According to the data provided by the International Council for Small Business (ICSB), formal and informal Micro, Small and Medium-sized Enterprises (MSMEs) make up over 90 percent of all firms and account on average for 60-70 percent of total employment and 50 percent of GDP.

In its Regional Economic Outlook for Sub-Saharan Africa, released in April 2015, the International Monetary Fund said “Over the next 20 years … sub-Saharan Africa will become the main source of new entrants in to the global labour force.” It is no surprise therefore that young people in collaboration with governments and its partners are preparing for this boom by launching several platforms to supports SMEs. Recently there have been contests and different platforms across the globe to push for young people’s participation in innovative start-ups.

Angola’s government and associated bodies have launched many initiatives over recent years to support entrepreneurs and the SME sector. The country’s sovereign wealth fund (FSDEA) established a social impact platform, called Kijinga, which supports start-ups and the expansion of new products and services in the outskirts of its cities.

A business in South Sudan benefiting from microfinance. Source: USAID Africa Bureau

According to the World Bank, formal SMEs contribute up to 60 percent of total employment and up to 40 percent of national income (GDP) in emerging economies. These numbers are significantly higher when informal SMEs are included. Zimbabwe is one of the countries pushing for the formalisation of SMEs. The Reserve Bank of Zimbabwe recently advanced a US$90 million facility to the sector. The areas to benefit include horticulture ($10 million), cross-border facility ($20 million), Women Empowerment Fund ($15 million), and the business linkages facility ($10 million). A $40 million gold facility to support small-scale and artisanal miners to increase gold production was also introduced.

Sadly, African entrepreneurs face the world’s toughest business conditions. Most countries perform poorly in the World Bank’s Ease of Doing Business surveys. Kenyans, for example faces constraints such as corruption, political instability, electricity challenges and various difficulties in accessing finance.

Measures need therefore to be taken to ensure that SMEs do not fail as some already are struggling across the continent. Lines of credit and collateral registry can go a long way as a mitigation measure against failure.  In 2015 the World Bank reported that after the 2011 revolutions, countries in the Middle East and Africa region requested funding for SMEs to support private-sector growth and job creation. Countries like Egypt, Tunisia, and  Morocco benefitted from this and these loans had in 2015 directly created around 150,000 jobs.

This goes to show that poverty in Africa and other developing countries can easily be a thing of the past if the necessary support is given particularly to young people to enable them to support not only their families and communities but also their governments.