Third Eye

Building robust SMEs to strengthen African economies

Tuesday, October 12th, 2021 00:00 |
An export processing zone in Kenya. To spur economic growth and create jobs, Kenya has been advised to deepen trade with regional economies. Photo/Courtesy

As a continent we are increasingly experiencing the difference made by Small and Medium sized Enterprises (SMEs). 

SMEs have, over the years, become a reliable business segment through which African investors have innovatively built agile strategies to meet the dynamic needs of different communities. 

In striving to meet market needs, SMEs have gradually over time cemented themselves into key stakeholders and an integral part of the systems meeting market demand and driving socio-economic progress. 

They are also the key drivers of diversity, often proving more gender and diversity inclusiveness and reaching their clientele through more innovative approaches. 

To support the emerging SMEs, there is need to shift beyond the old traditional approach of addressing their issues such as access to finance, capacity, skills independent of the national and international supply chains.

We must begin to structure solutions to SMEs not as a parallel system to the formal supply chains, but to resolve how best to integrate SMEs and the informal sector into the formal supply chain. 

To achieve this, we need to restructure the way we do business in order to include informal traders and SMEs as key contributors to formal supply chains.

This means establishing systems that will include traditionally subsistence sectors and rural non-agriculture sectors and rural processors as members of formal contracted supply chains that meet the national and international standards. 

This requires us to establish ways to formalise market relationships and contracting systems between markets and SMEs, and create conditions where there will be a supportive environment which will provide the SME and informal level with the resources and capacity needed to be contracted partners servicing an increasing share of the growing local, regional and international demand.

A key step will be the introduction of tailor-made and innovative approaches at sector and product supply chains level to reenergize and drive SMEs to coordinate with each other within structured supply chains. 

This needs to be in ways that will enable the informal sector, smallholder farmers, rural and urban based SME businesses to function in a coordinated environment where they are brought together to enable them reach the economies of scale and efficiency needed to meet the standards required in local and international supply chains.

We can begin to identify markets and sectors where SMEs can be coordinated to contribute to the supply of agriculture and manufactured products, or in trade systems, within a structured supply chain, and where possible structure services on commercial terms to enable them play this role.

Formal SMEs contribute up to 45 per cent of total employment and up to 33 per cent of national income (GDP) in emerging economies, and this number is even higher in Kenya where an estimated 80 per cent of the new jobs over the last decade have been in the SME and informal sector.

If we add what is commonly referred to as ‘informal SMEs’, these numbers could be significantly higher.

What this means is that SMEs are already a major part of national and international trade systems.

What we need to build is a robust and sturdy ecosystem that ensures that SMEs are able to provide services within better structured ecosystems.

A key step in this direction is for formal public and private sector markets/buyers to begin to engage SMEs, by creating trading and contracting systems that include SMEs and the informal sector as an integral part of the supply chain; we need to restructure the way they are engaged and ensure they have the requisite capital and skills needed to meet local and international standards. 

It is time to start looking inward for our economic solutions, and for Africa, the importance of SMEs to our goals of prosperity cannot be ignored.  —The writer is the CEO of Kenya Association of Manufacturers — [email protected]

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