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Importance of SME Development in Africa: They Will Produce Africa's Middle Class

Small and Medium Size Enterprises (SMEs) in Sub-Saharan Africa (SSA) are talked about a lot in the framework of growing unemployment and high population rates as the region rushes past the billionth person population mark (most of whom are under 30). There are a number of international forums, which have focused on developing Africa's SME sector focused mostly on two elements:

  • SMEs are vehicles to employment and job creation.
  • SMEs are key to the region's entrepreneurial environment needs.

But what else are they? What else needs to be further highlighted? What can those who seek to support their growth do better? We all agree that SMEs -- just like big businesses -- start with a vision, an idea, or fulfill a need in a community. But fundamentally, SMEs play a critical role in nation building, nation advancement, and a nation's innovativeness. Development in Africa cannot happen without them; growth cannot happen without them; socio-economic paradigm shifts cannot happen without them; and poverty cannot be reduced without them. They are what produce a country's middle class. This is their development enterprise role.

Whether one is in West, East, South or Central Africa, the sectors needing development or expansion are the same -- agriculture, infrastructure development (power and transportation), manufacturing, and information technology. But SMEs bring other innovativeness to the table especially for the heavily-populated African urban areas, where cities in the region are expected to grow by 4-5 percent over the next decades (http://tinyurl.com/SSAUrbanGrowth).

Meaning current growth rates in sectors like agriculture, currently about 3.5 percent, needs to grow by 6 percent; energy sectors must grow by 7 percent; and, economies must grow by 8 percent or more just to keep pace with the region's population rate. These are no small tasks (www.songhai.org -- Lagos, 6/16/11). There are already reports that the economic boom of 18 SSA countries may hit a snag for some later in 2011, dropping GDP growth rates to 3.7 percent as food prices and energy costs outpace growth (http://tinyurl.com/SSA-economicoutlook).

The point is SMEs have a special role to play over the next 10 years: capitalize now on the pivotal convergence of both economic growth and current investment interests in the region.

SME stands for Small and Medium Size Enterprises, but today let's change that acronym to Strong and Maverick Enterprises -- reflecting the development enterprise space of SMEs and micro enterprises or MEs (employing 10 people or less). They are producing, designing, employing, and more importantly innovating. They are development entrepreneurs (http://tinyurl.com/TAPblogitrrs-LagosSMEspeech).

SMEs will be the foundation of the region's middle class and that comes with certain responsibilities. Their strength can influence other social sector changes. They can demand transparency, and improved regulatory frameworks (such as access to credit, markets, and incentives, etc).

According to Global Finance, SSA has about 331 million people in the middle class today, even though, as noted above, there are GDP record growth rates of higher than 5 percent in about 18 SSA countries (http://tinyurl.com/TAP-blogitrrs-BRICA).

So, is there something wrong with this picture? Yes, a lot. These record growth rates are not changing the paradigm of people lives in all tiers of society. If the region has 30 million SMEs today, then there is no reason with this kind of growth rate that SMEs should be struggling. There should be more than 331 million successful SMEs in the region.

The Strong and Maverick Enterprise Role that SMEs play also includes a transformative role. For SMEs, this means transforming from simply surviving to sustainability; this mean transforming from just producing to productivity, and finally this mean long term market trade capabilities domestically, regionally, and internationally. These transformative rules are the same for both urban and rural entrepreneurs.

Operation Hope (www.operationhope.org), a leading U.S. non-profit, stresses that those in urban areas need to create their own jobs; create their own futures; and create their own sustainability. The same applies to SSA's rural entrepreneurs. But how you say? What does it take? What are the tools?

Let's look at the tools SMEs will need to further advance that business idea, that vision:

  • Training, retraining, retooling, upgrading, or reinventing an SME business is essential. There's no shame in having to do that. It is the street smart thing to do;
  • Sound business plan, and 2-4 year goals. (Although elementary principles, many SMEs struggle with this fundamental step);
  • Good accounting practices;
  • Network with institutions that can help conceptualize and transform skills to entrepreneurship; and,
  • Finance, and access to credit are challenges, (as they are for some big business) so look for low cost loans, government-back programs, and supplement incomes by recyling. (For example, some countries pay small stipends if you take plastic bottles to recycling stations).

Getting these tools right is on the driver side of the SME business ledger, but there is also a leadership side of the ledger to truly be a development entrepreneur:

  • Respect for diversity of thought, and new ideas
  • Assist in shaping regulations allowing for competition and in some cases comparative advantage;
  • Set business goals, but not in concrete. Some built-in flexibility helps to take advantage of unexpected opportunities.
In sum, recognizing the development entrepreneur role of SMEs as part of the growth matrix is essential for Sub Saharan Africa's progress and the growth of the region's middle class.