February 9, 2021

Supporting African SMEs To Succeed Within The AfCFTA

The recently implemented African Continental Free Trade Agreement (AfCFTA) presents a significant opportunity for African countries to bring 30 million people out of extreme poverty and raise 68 million others who live on less than $5.50 per day. With the implementation of AfCFTA, trade facilitation measures that cut red tape and simplify customs procedures would drive $292 billion of the $450 billion in potential income gains. Small and Medium Scale Enterprises (SMEs) are set to benefit from the AfCFTA. They constitute the most significant proportion of the continent’s industrial fibre, accounting for about 80% of businesses and employing not less than 70% of the continent’s workforce.

However, for them to benefit, issues around financing and infrastructure need to be addressed. At the national level, financial institutions need to implement policies which make it easier for SMEs to access credit; some of these could include the reduction of collateral requirements, elimination of unnecessary red-tapes and the provision of favourable interest rates. Increasing access to credit for SMEs would also involve formalising SMEs given that most of them operate in the informal economy, which means they have reduced access to financing opportunities. The informal sector represents more than 66 per cent of total employment in sub-Saharan Africa and 52 per cent in North Africa.

At the continental level, multilateral institutions also have a role to play; thankfully, some are already leading the way. At the African Development Bank (AfDB), The Africa SME Programme supports African local Financial Institutions (FIs) with long term liquidity (Lines of Credit) and with technical assistance to be able to successfully provide relevant financing to local small and medium-sized enterprises (SMEs) and to build more extensive and good quality SME loan portfolios. Through the Africa SME Program, the AfDB seeks to address shortcomings in the local market supply and demand for financing between financial institutions and SMEs, so funding becomes more readily available to the benefit of both the financial institutions and the SMEs.

In terms of infrastructure, the AfDB estimates that Africa’s infrastructure financing needs are within the range of $130 – $170 billion per year. The African Union (AU) must encourage international partners to invest in regional infrastructure projects and national infrastructure development. For example, investments from global south partners like China, under the Belt and Road Initiative can go a long way in meeting the continent’s infrastructure needs. Also, for countries serious about attracting private investments into infrastructure, they need to address the following categories of risks which upset potential investors: macroeconomic risks, political risks, revenue risks and operating risks. The CEO of the EBII Group, Adjoa Adjei-Twum, addressed these issues in recent interviews by BBC News Africa and Joy TV Ghana.

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