It's time to take an in-depth look at the impact of COVID-19 on Africa SMEs -- particularly the assistance needed in the midst of this pandemic.
Now is the time to Refocus, Reimagine, Regionalize, and Revamp-Financing Africa's SME sector. They are, as most countries now appreciate, key drivers for the region's economic growth, development, job creation, and transformation.
Where We Are
As COVID-19 continues its march across Africa, with over 190,000+ infected, and 9000+ deaths (dashboard-live links), experts from around the continent are searching for therapeutic and traditional solutions, (Madagascar's Artemisia Annua) for this virus. COVID's impact ranged from reduced trade, vast unemployment, closure of schools and businesses (hitting SMEs hard), and an uptick in food insecurity. World Bank has projected a negative (-2.1 to -5.1) Africa economic 2020-2021 growth rate, the first time in 25 years that there will be a continent-wide recession.
Thus far, economic remedial responses include:
- Country central banks/finance ministries trying to manage stressed budgets and mobilize limit capital to combat falling GDPs.
- African initiatives from African Development Bank, (USD$3 billion); African Export-Import Bank (USD$3 billion); and the African Union/Africa CDC (USD$420 million requested, USD$61.5 received).
- African private sector pledging USD$150 million; while, multilaterals (World Bank & IMF) are contributing $18 billion.
- Debt relief from bilateral donors and G-20, (although good, not comprehensive; African debt is mostly commercial).
McKinsey's Africa Division (5/19/20, virtual brief) estimates USD$50 billion is required now to help Africa SMEs weather COVID. Only USD$20 billion has been dedicated, thus far, demonstrating more strategically needs to be done. Here is where the four R's -- Refocus, Reimagine, Regionalize, and Revamp-Financing -- can have impact.
Refocus & Re-Imagine!
Africa SMEs like most small businesses around the world, tend to be where creativity, innovation, and imagination thrive. Refocusing and Reimaging means supercharging what Africa SMEs can do, and opening up new avenues of growth. If African nations have SMEs in (or potential to be in) software/app development, digitization, healthcare, education, transportation, manufacturing/farming, then help them re-invent all or part of their businesses for the new environment. This includes advancing any portions that can have "touchless" actions as these will be key in the peri-COVID (lockdowns easing) and post-COVID periods.
More Africa nations should consider creating small business ministries, so that SME support is not subsumed under broader ministries like trade or industry. There are only three countries (Liberia, Republic of Congo, and South Africa) with standalone SME ministries. South Africa only made this change in 2016.
FEEEDS has advocated since 2011 for Africa SMEs' key role in nation building; for separate ministries since 2015 with numerous Africa leaders; and in the book Rise of Africa SMEs (pp.160-166). If establishing a ministry is not possible then a separate SME agency. The most important thing is to have a one-stop shop for handling across-the-board SME policy and financial needs. Whatever is done -- ministries, or agencies – the result must be an Africa vision, localized for country needs.
One silver lining, reflective of Africa SMEs entrepreneurial spirit, are the examples of reimagining already underway such as:
- Burkina Faso & DRC: pedal-powered handwashing machines.
- Kenya: retooling small manufacturing from producing school uniforms (DEKUT), garden cloths, fashions and textiles to making masks.
- Nigeria: social enterprise e-learning radio programs, given lack of computers/Internet access (ACE Charity).
- South Africa: low-pressurized, self-sustaining COVID hospital pods.
- Sudan: converting mini buses to field hospitals.
Despite these praiseworthy examples, challenges remain in permanently (not temporarily), changing the SME assistance paradigm. Answers lie in regionalizing and revamping financing.
Regionalize: AfCTA & Supply Chains
The AU/Africa Free Trade Agreement (AfCTA), prior to COVID-19, already included a focus on Africa SMEs. In fact, new AfCTA Secretary-General Mene has underscored that AfCTA is a "key tool for Africa's post-COVID recovery," (6/10/20 virtual brief).
Africa SMEs have historically struggled with barriers to regional markets, such as cross border trade, high tariffs/taxes, and logistical impediments. Today, there's a double appreciation of their value as SMEs contribute 50% to Africa's GDP (McKinsey 5/19/20 virtual brief), and because they can no longer be left out of any trade discussions -- AfCTA or US-Kenya Trade. Ensuring sustainable supply chains for the sector is a must and needs to be included in any trade discussions. Resolving and regionalizing supply-chain and value-additions will make the difference between surviving and thriving for Africa's small businesses (larger ones too). A few recommendations for Africa SMEs/policy makers to consider:
- Examine where SME past suppliers were; can they be localized, or regionalized.
- Digitize procurements
- Repurpose SME businesses, keeping as many supply-chain issues in-house or in-country.
- Use e-commerce whenever possible (i.e. Alibaba's EWTP Platform, created to advance SME world-wide e-commerce).
- Create an "Africa SME Continental E-Commerce Platform," assisting as an alternative to EWTP; AfCTA or REC's could manage, helping SMEs by-pass costly intermediaries.
- Ensure policy frameworks for Special Economic Zone small-large company partnerships;
- Connect SMEs (locally and regionally), expanding selling potential and production capacity.
Financing (credit, loans, investments) has always been a struggle for SMEs everywhere, particularly in Africa. COVID-19 has exacerbated these challenges.
Africa should seek to develop a SME continental policy and financial framework. Currently each institution, donor, or government has their own "framework." A continental one would provide a set of guidelines; SME definitions (right now definitions vary widely); and, data, from which all could pull. One example could be what FEEEDS outlined in 2015 called the "Africa SME Strategic Plan," or Africa SSP (Rise of Africa SMEs, pp. 390-395). The Africa SSP listed seven pillars for long-term, structural support.
Below are an additional ten recommendations added to FEEEDS' "Africa SSP" as a result of COVID-19:
FEEEDS - COVID Africa SME Strategic Plan
- Africa initiatives raising monies strictly for COVID's impact on SMEs.
- African-created SME clearing/payment settlement platforms (using blockchain), similar to Afrexim's effort for governments, shoring-up buyer confidence in SMEs.
- Africa programs that back-fill remittances, on which many Africa SMEs depend.
- Multilateral institutions providing COVID facilities for SMEs through country governments, which could include:
- credit, debt, bank loan extensions
- tax and royalty deferrals, or holidays
- un-banked SMEs to banked using mobile tools (Nigeria has 60 million unbanked)
- business rent/lease extensions
- special 2-3 year interest rates
- fee waivers (ATMs & mobile transfers)
- increase daily cash transfers limits
- increase grants, training
Some countries (Ghana, Kenya, Rwanda, Senegal, South Africa) have stepped up in some areas, but overall attention to SMEs remain sporadic and piecemeal, instead of continental, strategic and transformative – key elements needed to help Africa climb out of recession, and return to previous levels of positive economic growth.
Dr. Robin Sanders,CEO FEEEDS & FE3DS, former U.S. Ambassador to Nigeria,Congo, & ECOWAS.