Many of us dream of one day owning a company. You know who you are! Who
doesn’t want to work for themselves and get to boss people around? However, what these
aspiring-entrepreneurs often fail to realize is how fortunate they are to have a great deal
of resources and opportunities available to them. This simply isn’t the case for entrepreneurs
in sub-Saharan Africa who are trying to expand their small and medium-sized enterprises,
or SMEs. While SMEs make up 90% of the region’s companies and account for 80% of the
employment, they face multiple barriers in access to finance, hindering their development
and hurting African employers (“The Challenges and Opportunities,” 2018). Of the many
factors contributing to this issue, the two most substantial are the minimal services for
SMEs in the financial sector and the lack of government assistance.
The sub-Saharan African banks, which makeup much of the financial sector, provide
an insubstantial amount of money for SMEs to allow them to grow and consequently
slow down foreign investments. It is notoriously difficult for SMEs to receive loans
because they must already have credit history, which results in generally only larger
and older firms having loans. On top of that, companies applying for loans must deal
with “unfavorable interest rates, complex procedures, informal payments (e.g., bribes)
and high collateral requirements” (Cull). SMEs usually want to avoid this; without the
proper lending of money to kick off a company, they face too much economic hardships
in their first years and are forced to go out of business. At the same time, this increases
the risk involved with foreign investors within these enterprises, causing “investors
[to flee] from Africa because it has perennially been rated as the riskiest region”
(“The Flight of Finance,” 2009). Again, without much foreign investments, countless
owners of SMEs are left to struggle on their own, but when they seek assistance from
the government, they probably don’t get the help they need.
slow down foreign investments. It is notoriously difficult for SMEs to receive loans
because they must already have credit history, which results in generally only larger
and older firms having loans. On top of that, companies applying for loans must deal
with “unfavorable interest rates, complex procedures, informal payments (e.g., bribes)
and high collateral requirements” (Cull). SMEs usually want to avoid this; without the
proper lending of money to kick off a company, they face too much economic hardships
in their first years and are forced to go out of business. At the same time, this increases
the risk involved with foreign investors within these enterprises, causing “investors
[to flee] from Africa because it has perennially been rated as the riskiest region”
(“The Flight of Finance,” 2009). Again, without much foreign investments, countless
owners of SMEs are left to struggle on their own, but when they seek assistance from
the government, they probably don’t get the help they need.
Sub-Saharan African governments are struggling to modernize quickly and keep
up with the needs of many SMEs in the region. For instance, some SMEs who are
being heavily taxed, especially those in Nigeria, have raised major complaints.
However, the failure of a proper response from the government means the SMEs
cannot “draw any tax benefits or breaks from the government” (“The Challenges
and Opportunities,” 2018). This leaves SMEs wasting valuable money that could
be used for purposes of growing the business, directly harming them. Another
issue that stems from this is the inconsistency of governance across different
sub-Saharan African countries (Pedro de Morais Júnior). While there have been
past attempts made to create one system of governance across the entire region,
all have failed and the countries have not created new solutions. As a result, SMEs
in particular countries, such as Nigeria, are put at a disadvantage from other ones
and face more obstacles in reaching their full potential in their economies.
up with the needs of many SMEs in the region. For instance, some SMEs who are
being heavily taxed, especially those in Nigeria, have raised major complaints.
However, the failure of a proper response from the government means the SMEs
cannot “draw any tax benefits or breaks from the government” (“The Challenges
and Opportunities,” 2018). This leaves SMEs wasting valuable money that could
be used for purposes of growing the business, directly harming them. Another
issue that stems from this is the inconsistency of governance across different
sub-Saharan African countries (Pedro de Morais Júnior). While there have been
past attempts made to create one system of governance across the entire region,
all have failed and the countries have not created new solutions. As a result, SMEs
in particular countries, such as Nigeria, are put at a disadvantage from other ones
and face more obstacles in reaching their full potential in their economies.
Yet we can help them reach their full potential. Through the lack of opportunities
and assistance for entrepreneurs within sub-Saharan Africa’s financial sectors and
governments, there lies more responsibility under their own civilians-- and us too.
By bringing more awareness and visibility of different African businesses, more
attention can be brought to SMEs, and different African sectors can begin helping
them more. We can directly help support the companies of our future, and support
the growth of Africa too. The dream of an aspiring entrepreneur is universal, and
we should treat it that way.
and assistance for entrepreneurs within sub-Saharan Africa’s financial sectors and
governments, there lies more responsibility under their own civilians-- and us too.
By bringing more awareness and visibility of different African businesses, more
attention can be brought to SMEs, and different African sectors can begin helping
them more. We can directly help support the companies of our future, and support
the growth of Africa too. The dream of an aspiring entrepreneur is universal, and
we should treat it that way.
Works Cited:
“The Challenges and Opportunities of SME Financing in Africa.” London Stock Exchange Group, 2018, https://www.lseg.com/sites/default/files/content/documents/Africa_SMEfinancing_MWv10.pdf.
Cull, Robert, and Thorsten Beck. “Small- and Medium-Sized Enterprises Finance In Africa.” Brookings, July 2014.
"The flight of finance from Africa." Independent [London, England], 12 Oct. 2009, p. 28. Gale In Context: Global Issues, https://link.gale.com/apps/doc/A209450045/GIC?u=los42754&sid=GIC&xid=aa841f73. Accessed 24 Mar. 2020.
Hjelmgaard, Kim. “Africa's Banks Are Doing What U.S. Banks Aren't: Winning.” USA Today, Gannett Satellite Information Network, 27 Feb. 2018, www.usatoday.com/story/money/2018/02/27/africas-banks-doing-what-u-s-banks-arent-winning/376033002/.
Pedro de Morais Júnior, José. “Making Banking Work for Africa.” International Banker, 26 June 2016, internationalbanker.com/banking/making-banking-work-for-africa/.
Staff, Africa Growth Initiative. “In Case You Missed It: Understanding Access to Finance for Small and Medium Enterprises in Africa.” Brookings, Brookings, 29 July 2016, www.brookings.edu/blog/africa-in-focus/2014/12/16/in-case-you-missed-it-understanding-access-to-finance-for-small-and-medium-enterprises-in-africa/.
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