Africa policy makers urged to focus more on large businesses

Africa policy makers have been charged to carry out a paradigm shift from small and medium enterprises and to focus more on large businesses in order to close the gap with the rest of the world, write Tony Nwakaegho, Editor Gentechnews

 

African entrepreneurs are reportedly founding innovative startups in everything from fintech to commercial agriculture, but noting that running a business is often the result of desperation, not choice.

According to The Economist, ‘Africa Has Too Many Businesses, Too Little Business’, noting that African policymakers love to champion their continent’s entrepreneurs.

It quoted Paul Kagame, Rwanda’s president, who said that small and medium enterprises are the “backbone of Africa’s economy”.

“We must support the youth to go beyond looking for jobs,” says Akinwumi Adesina, the head of the African Development Bank (AfDB).

It acknowledged that such bigwigs like to point to data that seem to show how unusually entrepreneurial Africa is.

The African Youth Survey, a regular poll, suggests that 71% of young Africans plan to start a business. Male leaders also like to congratulate themselves on how more than a quarter of adult women have started, or are starting, a business—the highest share of any continent, according to data cited by the AfDB.

It emphasized that yet much of this praise amounts to misplaced virtue-signalling, adding that though there are African entrepreneurs founding innovative startups in everything from fintech to commercial agriculture, running a business is often the result of desperation, not choice.

“To close the gap with the rest of the world, Africa does not need more small businesses. It needs more large ones. Large firms are productivity powerhouses. They bring people, ideas, technology and equipment together in ways that make workers more efficient, which makes people richer,” The Economist noted.

McKinsey estimates that there are 345 firms in Africa with revenues over $1bn (China has about 1,500). Yet the consultancy noted in a report in 2018 that, excluding South Africa, Africa has only around 60% of the large firms one would expect, given the overall size of the countries’ economies.

Those large firms are also not as large as the ones found in other emerging regions. Taken together, adds McKinsey, the total revenue pool of African firms (excluding South Africa) is “about a third of what it could be”. Africa is the only inhabited continent without any of the world’s 500 biggest firms, as compiled by Fortune, a magazine.

According to some research, instead of many large firms with salaried staff, Africa has lots of micro-enterprises as the two most commonly cited obstacles are capital and electricity.

“It is no coincidence that some of the biggest conglomerates in Africa today, including Dangote, a Nigerian company run by Aliko Dangote, Africa’s richest man, started out as trading firms. Having access to granular market intelligence when information is scarce allowed them to build businesses serving demands about which others did not know.

“Yet boosting the size, number and productivity of African firms is not simply a case of overcoming market failures. Business in Africa can be highly political, in ways that undermine the continent’s growth,” it emphasized.

Consequently, the key lessons for African manufacturers and government is to:

“Scale businesses beyond micro-enterprises for impact: African manufacturers need to transition from micro-enterprises to larger, scalable firms. Unlike micro-enterprises that are limited in resources and scope, larger businesses tend to integrate technology, attract investments, and foster industrial efficiency to drive growth. For example, successful African conglomerates like Dangote leveraged size to dominate markets.

“Invest in infrastructure: Poor infrastructure, particularly energy and transport systems, remains a major constraint. Reliable power and efficient logistics networks are essential. Kenya’s Vertical Agro demonstrates the value of good infrastructure, enabling it to export frozen avocados to China. African governments must prioritise investment in infrastructure to lift Africa’s manufacturing industries.

“Access affordable financing: With interest rates averaging 25% across Africa, access to finance is a critical bottleneck. Manufacturers must join hands together to advocate for financial reforms, explore alternative financing like venture capital, and foster a savings culture to ease borrowing constraints.

“Adopt sustainable practices: Global markets are increasingly rewarding eco-friendly manufacturers. Investing in renewable energy and adopting green production processes can improve marketability. Kenya’s renewable-powered exports to the EU set a strong example for African industries

“Focus on market intelligence: Manufacturers should invest in data and analytics to understand market trends, consumer needs, and competition. Access to accurate market intelligence has helped companies like Dangote identify untapped opportunities and expand operations.”