Africa Business: Factors Working Against The Development and Sustenance of SMEs

 

In Africa where unemployment is a serious issue, the local businesses have a special position in the industrial sector because it has created employment and has been able to utilize labour. The local businesses, otherwise known as SMEs which means, Small and Medium Enterprise are everywhere, found on every street and corner as they surround us.

Small and Medium Enterprises (SMEs) are the engine that drives world economies and the stepping stone to industrialization, both for developing and developed economies. The businesses account for 99% of all businesses in developing countries thereby signifying their importance.

Various sectors in different parts of the world focus on certain indicators to define SMEs among them number of employees, total number of assets, annual turnover and capital investments. Analysis of different SMEs definitions worldwide reveal that it is very difficult to arrive at a common definition, but  based on employment, assets or combination of the two. Institutions and organizations define SMEs in different ways depending on the purpose and the objective. Take for example, according to Organization for Economic Co-operation and Development OECD (2005) SMEs are considered to be independent firms that employ less than a given number of employees. However, SMEs were classified in terms of size, and financial assets.

The Third National Development plan (1975 – 1980) defined a small scale business as a manufacturing firm that employs less than ten people, or whose machinery and cost of equipment does not exceed 600,000.
The Federal Government Small Scale Industry Development Plan of 1980 defined a small scale business in Africa as any manufacturing process or service industry, with a capital not exceeding 150, 000 in manufacturing and equipment alone.

These definitions give a clearer explanation as to how the meaning of SMEs differs and varies. However, just to give you a clearer understanding of what local businesses or SMEs mean, they are independently owned organizations that require less capital and less workforce and less or no machinery. They are ideally suited to operate on a small scale to serve a local community and to provide profits to the business owners.

Most enterprises in Africa, most of which are in the commercial sector are categorized as small businesses. The role of the small and medium enterprises towards the development of Africa is of great importance as it has contributed greatly to the continent in terms of growth and development and also in providing employment opportunities.

From seminars to workshop initiatives for SMEs both locally and internationally, a lot is being said about SMEs all over the World.

 SMEs are a very important economic catalyst in developing and industrialized countries, CBN Report (2003).

According to the United Nations Industrial Development Organization (UNIDO), developing countries can conquer poverty and inequality by democratizing, deregulating, and liberalizing the integration of the global economy. Recent studies have shown that SMEs contribute to over 55% of GDP and over 65% of total employment in high-income countries also that SMEs and informal enterprises account for over 60% of GDP and over 70%of total employment in middle-income countries.

However, considering the term “small”, there’s a whole lot of enormous challenges that come with it. In Africa, the factors working against the development and growth of local businesses are quite numerous, some of which include:

1.  The issue of funding is a major problem with SMEs in Nigeria. However, the problem is not how to source it but the accessibility to either short or long term loans.

2.  Lack of infrastructural facilities is a serious impediment to the performance of SMEs. The problem of inadequate infrastructural facilities includes electricity, good road network, availability of potable water, and solid waste management. These infrastructures are left to the business owners to provide themselves.

3.  Poor Management and Low Entrepreneurial Skill Base is a serious clog in the survival of small businesses as there is a lack of essential and required expertise in business which leads to wrong and costly decisions and mismanagement.

4.  Entrepreneurs often blame their failures on inadequate sales. However, the problem lies with poor marketing skills that could help promote their sales.

5.  Most entrepreneurs go into business without proper planning by taking a realistic view of what their strengths and weaknesses are, let alone giving careful consideration and analyzing the economic trends or business conditions in that particular sector of activity, which sometimes leads to mishandling when the business starts to expand.

6.      The root of most employee problems in Africa is poor personnel management. They put aside personnel matters till crises set in. Such crises usually pose serious threats to the firm’s survival if they are not promptly looked into.

7.      The harsh deteriorating macroeconomic environment in Africa has adversely affected the performance of small business enterprises and has posed as a major challenge to their survival and growth. Most small business enterprises are struggling with the problem of uncertainty caused by the unstabilized macroeconomic environment and policy shifts.

 

Solutions preferred to ease these challenges include:

1.  Africa leaders should also provide the necessary infrastructures in order to ease the burdens and thereby encourage and promote rural industrialization.

2.  The SME owners should strive to develop effective marketing strategies in order to boost business operations which will become profitable.

3.  It is important for SMEs to develop good personnel management policies to avoid crises that could affect their business.

4.      Local business owners should take to proper planning, realizing his strengths and weaknesses before diverting into any business to avoid mishandling.

5.      Africa leaders should help create a macroeconomic environment that is stable as it will enable these local businesses to make reasonable forecasts on costs, turnover, and return on investment.

6.      Africa leaders should help in making funds easily accessible to SME owners/managers, be it short or long term loans that could help to encourage them to execute their business plan.

7.     The need for government, and non-governmental organizations to create Seminars and workshops initiatives and other forums, to establish a platform for the interaction of SMEs owners/managers with others which can help to improve on their management capabilities.

8.      SMEs operators should also develop their competences in managing and sustaining their businesses by constantly engaging in training, research and development.