Small and medium-sized enterprises (SMEs) are usually considered a backbone of any economy. Besides, they are essential for driving innovation and competition in various economic sectors. In Africa, the potential rise in the population has made SMEs crucial for the continent.
Recently, the UN forecasts suggested that the world will have an extra 2.2 billion people by 2050, amongst which over half (nearly 1.3 billion) will come from Africa. While a significant rise in the African population is expected, the need for more food, accommodation, education facilities, as well as more job opportunities in the future economy has also augmented.
Likewise, the International Monetary Fund (IMF) also predicted that by 2050 the number of Africans joining the workforce will exceed that of the rest of the world combined. This population outbreak could be a demographic benefit or it could also be a burden, depending on how well Africa manages it for economic growth.
However, ‘How to create more jobs in Africa?’ has been a perennial debate, which has made job creation the central issue with prediction of rise in population. In Africa, job creation is usually associated with trade barriers, huge investments on power and infrastructure, as well as private equity (PE).
While all these factors are considered relevant, a relatively low attention is paid to investments in SMEs, which can be a great booster for any economy. Reports reveal that to be successful, economies do need some successful SMEs. The World Bank Report 2017 also noted that SMEs total over 95 per cent of the registered firms across the world.
Conversely, commercial lenders in Africa SMEs as a risky proposals. Additionally, PE also tends to overlook SMES, despite investing heavily in the African continent. Moreover, there is a natural disconnect, where the SMEs are more inclined to the local African business and it doesn’t necessarily meet the requirements of an overseas PE investor.
While 1.3 billion new entrants are expected in Africa, the need of to realize the potential of SMEs in Africa has become crucial. If local banks or commercial lenders, and the international PE investors are not helpful, there is an opportunity for Africa to fill the void with the help of enlightened investors in the Middle East. However, the African continent will have to build trust with these investors, which will not happen overnight.
With all the predictions and analysis, we’ll have to see how Africa will manage the extensive rise in its population. Whether it will gain confidence of the international investors, including those from the Middle East, or will the policies of its domestic lenders will be modified. But, for the continent to make the opportunity a dividend, there is a vital need of investments in the African SMEs.