May 30 marked the fifth anniversary of the African Continental Free Trade Area (AfCFTA). This is a moment to celebrate the good news that integration in Africa is ongoing, and positive results are being realised. However, the anniversary provides an opportunity for reflection on what more needs to be done to fast-track the implementation of AfCFTA, and invent its future.
One important point to note is that AfCFTA will only succeed if African Small and Medium Enterprises (SMEs) can scale across borders, access trade finance and plug into regional value chains. Make no mistake, SMEs are the true drivers of regional integration. They are central to economic growth in Africa.
Africa’s 125 million formal and informal SMEs (inclusive of micro-enterprises) account for more than 25 per cent of the world’s total SMEs.
In Africa, SMEs represent 90 per cent of all private sector businesses, generate 80 per cent of job opportunities in many sub-Saharan markets and supply 80 per cent of all consumer goods sold on the continent.
In addition, SMEs contribute between 20 and 40 per cent of the national GDP in some African countries, and these numbers are higher when informal SMEs are included.
Supporting SMEs should be the focus of African governments as they implement the AfCFTA. Small businesses owned by women and young people are the backbone of Africa’s economy. Development in Africa cannot happen without them.
No doubt, several milestones have been achieved in the operationalisation of AfCFTA, a testament that Africa is capable of coming together to solve its problems. But more needs to be done for AfCFTA to deliver its promise for young people and women, as far as entrepreneurship and SMEs are concerned.
For example, there is need to equip young people and women with skills to be competitive in the job market and to create a vibrant entrepreneurship ecosystem. Also, young people and women should be provided with the means to improve their capacity to produce export products and services and to be integrated into the regional and continental value chains.
It is further important to address systemic, structural and financial challenges that hinder young people and women from realising their potential and utilising opportunities presented by the AfCFTA, to achieve its objectives and the aspirations of Africa’s Agenda 2063.
In this case, banks in Africa must step up and support SMEs to grow and scale their businesses. Studies show that the banking sector fails to meet the needs of SMEs, particularly in terms of financing.
The SME financing gap in sub-Saharan Africa is estimated at $331 billion (Sh42.8 trillion), and it continues to expand. Access to credit is a critical challenge—arguably the most critical one—facing African businesses today.
That is why both domestic and regional banks must step up to support entrepreneurs and SMEs to enable them to trade beyond domestic markets. Financing African SMEs should not be avoided because of perceived high risk.
Financial institutions should be more proactive and innovative in developing strategies and solutions to mitigate the risks associated with financing SMEs by making capital accessible and affordable.
More should be done to strengthen support available to African businesses, particularly SMEs, women-led enterprises and young entrepreneurs, to enable greater participation in intra-African trade and value chains across the continent.
Public policy analyst | [email protected]
