A vibrant small business industry requires private sector to get finance

Business News

In Summary

  • The government, the private sector and civil society are not likely to singlehandedly address the growth and sustainability needs of MSMEs effectively. It takes concerted efforts to succeed.

By Ahmed Rady

A recent study by the International Council of Small Businesses (ICSB) indicates that 90 per cent of all companies in the world are categorised under the Micro, Small and Medium Enterprises (MSME’s) category.

These are companies that typically retain less than 250 employees, and take different forms and shapes in the countries they operate in.

MSMEs account for between 60 and70 per cent of all the employment opportunities in the world today. It is anticipated that these numbers will continue growing in coming years. The average contribution by MSMEs to gross domestic product stands at 50 per cent.

These statistics attest to the growing importance of this sector and illustrate the need for governments, civil society and the private sector to establish or strengthen linkages that will support the growth of MSMEs.

This necessity is further underpinned by the widely accepted fact that in today’s dynamic labour market, many people are not looking to their nine-to-five jobs to cater for all their financial needs. They are therefore setting up their own MSMEs to supplement household incomes.

The government’s role in promoting the growth of MSMEs is perhaps the best understood by a majority of us. As is the case for all other businesses, the government role in this respect is to create a conducive environment for business to thrive.

This includes, but is not limited to, the formulation of business friendly policies, streamlining the regulatory regime and guaranteeing the security of all investments made by MSMEs.

But what can the private sector do to promote the stability and growth of MSMEs?

Financing is perhaps the most commonly cited gap among MSMEs. Not many institutions dare to estimate the financing gap, but it is thought to be in trillions of dollars given that up to 245 million MSMEs globally have indicated that one of their biggest constraints to growth and stability is access to finance.

While there are ongoing efforts to address the financing gaps for MSMEs through guarantees and a more pragmatic approach to determining the risk exposure on financial institutions, the impact of these efforts on MSMEs and overall economies remain muted for now. That said, there are a lot of opportunities in this space.

However, financing is not the obstacle that the corporate sector should be concerned about when thinking about the growth and stability of MSMEs.

There are other challenges such as the lack of basic skills involved in establishing and running a sustainable business.

The private sector is best placed to provide training, internships and mentorship sessions, by borrowing from diverse skills sets of their employees and institutional knowledge gained from years of experience in managing projects at scale.

In recognition of this, in 2015 Coca-Cola partnered with Mercy Corps — a leading global organisation that empowers people to build better lives and transform their communities, to launch an empowerment initiative targeting 25,000 marginalised youth, aged between 18 and 35, in six African countries.

Through the Youth Empowered for Success (YES!) initiative, the youth are trained and encouraged to innovate, with a long-term view of helping them create employment and become entrepreneurs in sustainable businesses.

As at March 2018, the programme had hit its target in Kenya, Liberia, Nigeria, South Africa, Tunisia and Uganda, where nearly 3,000 employment and entrepreneurship opportunities had been created.

These successes, however, have not come easy. The journey has taught us a lot of first hand lessons on where many organisations are likely to fail as well as the real hurdles and challenges that many entrepreneurs face in their attempts to start businesses.

But equally important, we have also learnt that the government, the private sector and civil society are not likely to singlehandedly address the growth and sustainability needs of MSMEs effectively. It takes concerted efforts to succeed.

Creating partnerships

This creates a strong case for strategic partnerships through which different government units, private sector organisations and civil society groups can leverage their unique strengths and skills to support the sustainability and growth of MSMEs and foster inclusive economic growth.

These partnerships and linkages make it possible to scale up and reach out to more women and youth entrepreneurs and share the lessons learnt on our distinct journeys. This approach is also more cost-effective than doing it alone.

It is only then that we can argue that we in the private sector can take pride in claiming that we are addressing challenges such as unemployment and poverty.

These two pose one of the biggest threats to our economic sustainability across the continent, which reduces the number of people with the potential to purchase the goods we manufacture and ultimately negates the intended gains from the well intentioned economic blueprints developed by our governments.

  • Ahmed Rady is the general manager of Coca-Coca East and Central Africa and the president of the American Chamber of Commerce
  • Culled from TheEastAfrican

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