By Dounia Ben Mohamed
According to the Africa News Agency, nearly 40% of small and medium-sized enterprises (SMEs) in Africa point to accessing finance as the key barrier to their growth. A report from the International Finance Corporation (IFC) reveals that this need is most acute in sub-Saharan Africa, where SMEs confront an annual financing shortfall of approximately $330 billion.
The issue is even more pronounced for women-owned SMEs in the region, which face an estimated financing gap of $42 billion, as per IFC data. This lack of financial resources impedes the potential of SMEs, despite their significant contribution to African economies and societies.
SMEs in Africa constitute about 90% of all businesses, are responsible for 60% to 80% of job creation, and contribute to 40% of the GDP. In comparison, in the United States and Europe, SMEs represent 53% and 65% of businesses, respectively.
African governments, international development organizations, and development partners are increasingly focusing on the financial needs of SMEs. Initiatives like Côte d’Ivoire’s dedicated ministry and fund for SMEs, Nigeria’s specialized development bank, and Rwanda’s SME Development Policy signify the growing awareness.
Additionally, at the G7 Summit, global finance institutions pledged to invest $80 billion in Africa’s private sector over five years to support economic recovery from the COVID-19 pandemic. Pan-African institutions like the Central Bank of West African States and the West African Economic and Monetary Union have also initiated support systems specifically targeting SME financing.
However, these mechanisms often face criticism for being complex or inadequate by the primary stakeholders—business leaders. Léonce Yacé, Managing Director of NSIA Banque Côte d’Ivoire, stated that less than a quarter of very small and medium-sized enterprises have access to bank finance.
In an attempt to address this, various collaborations and partnerships are being formed to develop innovative financing models. For instance, the Bank of Africa Group and the IFC have launched an initiative that aims to support economic activity in 10 sub-Saharan countries by providing 12,000 new loans, including at least 2,000 to women-owned businesses.
The ability to tackle climate change also presents a new opportunity for SMEs in Africa. According to estimates, the economic investment opportunity related to addressing climate change in Africa could amount to $3,000 billion by 2030. SMEs have the potential to access new sources of finance and markets by aligning with green growth initiatives.
The strategic importance of SMEs is evident not just for economic growth but also for social cohesion in Africa. With nearly 450 million young Africans expected to enter the labor market between 2035 and 2050, the role of SMEs in creating new jobs and economic opportunities is more crucial than ever.