FINANCE FOR ENTERPRISES

 
Micro, small and medium-sized enterprises (SMEs), from traders to farmers, contribute more than 80 percent of output and jobs in most African nations. They offer the best opportunities for growth, diversification and job creation.

But they are constrained in their access to stable energy services, business management skills, skilled labour and especially finance.

Almost 50 percent of African companies identify lack of access to finance as a major constraint to doing business. The cost of finance, including investment finance, is higher in Africa than any other part of the world, and the access for SMEs is particularly limited. Very few commercial banks do SME-banking in Africa.

Furthermore, the global financial economic crisis is likely to squeeze access to finance for SMEs more than for bigger companies for some years to come.

Problems with both demand and supply

Many SMEs lack effective business plans and adequate skills to be successful. But constraints can also be found on the supply side.

There is a lack of capacity in the financial sector to do business with smaller companies. Other constraints include inadequate information resulting in high-risk assessments, lack of collateral registries, and lack of availability of longer-term funds.

Successful developing countries have seen their SMEs flourish, moving from informal to formal, and becoming the backbone of their economies in terms of production and employment. Such processes of development aid the creation of a strong middle class, and also tend to strengthen democratisation and the rule of law.

The concrete initiative

The Africa Commission will create an African Guarantee Facility (AGF) in partnership with the Africa Development Bank to foster the growth of financial resources available for – and suitable to the needs of – SMEs and for capacity development of financial institutions.

Furthermore, the Commission proposes a facility for capacity development of SMEs that will complement the guarantee facility.

These facilities will enable the availability of funds for SMEs, especially in terms of long-term finance for capital investment. By sharing in the risk of this type of loan, and doing it in coordination with other activities that enhance the recipient’s capabilities and business case, this initiative would facilitate increased investments and job creation

The initiative will to a large extent benefit the youth.