More investments are needed to promote Africa’s small and medium enterprises given that they are the backbone of the continent’s economies, experts at The Global African Investment Summit (TGAIS) have said.
Speaking during a panel discussion under the theme, “Harnessing the growing domestic and regional SMEs and the role of Foreign Direct Investments,” Francis Gatare, the chief executive of Rwanda Development Board (RDB), said Rwanda’s unique story about doing business is an example of how other African countries can help facilitate the SMEs growth.
“We have realised that in a decade of implementing business reforms which have reduced the transaction cost for business entry, small and micro businesses have been the bigger beneficiaries,” he said.
According to Gatare, this is different from what people thought in the beginning, where many thought that the business reforms and reduction of business transaction costs would benefit a lot more big Foreign Direct Investments (FDIs).
“We have also figured out that big ticket item types of FDIs often care a lot about production costs, markets, efficiency of distribution systems into the wider market not just Rwanda but the whole region. What this has taught us is that a country alone cannot attract the big ticket FDI items. It is through regional integration that we can realise such aspiration,” Gatare added.
With the majority of the continent’s enterprises falling in the category of small-and-medium enterprises (SMEs), experts have called on African governments to put in place policies and regulations that promote private business and help make them sustainable.
The SME sector is the backbone of Africa’s economies, employing the majority of the continent’s youth and supporting millions of households.
Youssef Boutros-Ghali, a former Egyptian finance minister and former chair of the International Monetary and Financial Committee of the International Monetary Fund, said countries tend to ignore SMEs.
“In my 10-year period as a finance minister, I happened to face a similar situation. We are obsessed with attracting FDIs and large corporations that are interested in our countries that we tend to forget that the most systemic feature of our economies are SMEs, that the vast majorities of enterprises generating jobs in our economies are SMEs. And these, therefore, have specific requirements in terms of macro-policy,” he said.
Boutros-Ghali said countries need to maintain their competitiveness as it is hard to get labour productivity up at the SME level.
“It takes education, infrastructure, logistics... it is easier if you have a watch on your relationship with the rest of the world, that is, exchange rate that can literally maintain the competitiveness of these enterprises, and also worry about the financial mediation of SME scale because most of them have small or no access to finance,” Boutros-Ghali said.
“SMEs are not a source of taxes but are a source of employment. Give them room to grow first. Governments need to support them.”
Boutros-Ghali said the economics of promoting FDIs is to let the market forces operate freely and efficiently as the investor will be sure that when the scarcity of certain products is going to happen the exchange rate is not going to move up.
Toro Orero, the managing partner at DraperDarkFlow, on the other hand, argued that investments should have local relevance, use business models that work in specific markets, and avoid copy-and-paste approach.