Banks should support Small and Medium-sized Enterprises, for success of African Continental Free Trade Area (AfCFTA) and Africa's growth

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 there is positive result being realized. However, the anniversary provides an opportunity for reflection on what more needs to be done to fastrack 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 as the true drivers of regional integration. The Small and Medium-sized Enterprises (SMEs) are central to economic growth in Africa.

Africa’s 125 million formal and informal SMEs (inclusive of micro-enterprises) account for more than 25 percent of the world’s total SMEs. In Africa, SMEs represent 90% of all private sector businesses, generate 80 percent of job opportunities in many sub-Saharan markets, and supply 80 percent of all consumer goods sold on the continent. In addition, SMEs contribute between 20 percent and 40 percent of the national GDP in some African countries, and these numbers are higher when informal SMEs are included.

Supporting Small and Medium Enterprises (SMEs) should be the focus of African governments as they implement the African Continental Free Trade Area (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, there are a number of milestones that have been achieved in the operationalization of AfCFTA, a testament that Africa is capable of coming together to solve its problems. But more need 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 ad 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 realizing their potential and utilizing opportunities presented by the AfCFTA, to achieve its objectives and the aspirations and 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 USD 331 billion, and it continues to expand. Access to credit is a critical challenge—and arguably the most critical challenge—facing African businesses today.

That is why, both domestic and regional banks must step up to support entrepreneurs and the SME sector - enable SMEs to trade beyond domestic markets. Financing African SMEs should not be avoided because of what is perceived to be high risk.

Financial institutions should be more proactive and innovative in developing strategies and solutions to mitigate the risks associated with financing SMEs-make capital to SMEs 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.

During the recent signing of a Memorandum of Understanding (MoU) between the African Continental Free Trade Area (AfCFTA) Secretariat and Ecobank Group, to accelerate intra-African trade and empower SMEs, a clear statement was made: that for the continent to grow, focus should be on supporting SMEs because these businesses and the women and young people that own them are the backbone of Africa’s economy, and they should be supported to grow. Mr Obonyo is a Public Policy Analyst. Email: [email protected]