Africa’s Missing Middle Market — Why This Gap Needs Filling

Laying out the Business Scaling Landscape in Africa

Large retailers, telecoms operators and financial services groups across South Africa and other African markets continue to expand into adjacent sectors. Shoprite’s talks with Investec on extending their finance offering, MTN and Vodacom building payments and insurance platforms, and major appliance retailers adding groceries, or grocery and other retailers adding fast food or restaurant service, water refilling, and parcel delivery services are recent examples. 

These developments give consumers more convenience and often lower prices. They also allow the big groups to use existing store networks, customer data and balance sheets to enter markets that smaller operators have long served.

This has been an ongoing trend in the retail, banking and telecoms markets for a while and today there is hardly any of these companies that look the same as they did a decade ago. While this has been great for their shareholders - often seeing rapid profit growth, they also impact on the scope of opportunity for small and medium businesses to scale.

Employment A Key Impact Area

The employment effect is limited. Once a large retailer or telecoms group adds a new service line, it usually relies on existing staff and systems rather than hiring large numbers of new people. At the same time, independent operators that previously occupied those niches lose customers and, in many cases, close or shrink. The result is fewer small and medium firms, not necessarily more total jobs. This pattern sits on top of a deeper structural problem that economists and competition authorities have documented for years: Africa’s missing middle.

What Is the Missing Middle?

The missing middle describes the scarcity of medium-sized firms. In South Africa the Competition Commission’s 2026 Concentration Report, drawing on tax data covering roughly 450,000 firms, shows that micro, small and medium enterprises make up 97%  of tax-registered businesses yet account for only about 22% of total turnover. 

Most firms are micro-sized (around 80%) or small (around 13%). Medium-sized firms make up only about 4%. Large firms, at around 3% of the total, generate roughly 78% of turnover. 

A telling statistic is that transition rates from small to medium size enterprises remain low, typically in the 5–7% range, well below the rate at which new micro firms enter. During the Covid period the MSME exit rate reached about 12% and many small and medium firms dropped a size category, while large firms proved more resilient.

The same pattern appears more broadly across sub-Saharan Africa. World Bank analysis of establishment-level data that includes both formal and informal firms finds a missing middle in the employment distribution in several countries. Medium-sized manufacturing firms account for a relatively low share of employment. 

The pattern is driven largely by the huge number of informal micro-enterprises. When researchers look only at formal firms, the distribution looks closer to that of advanced economies, though average firm size is still lower. Continent-wide estimates put the number of firms with more than one worker at roughly 12.7 million, plus more than 230 million own-account businesses. Micro-enterprises dominate the African Business landscape. Informality declines sharply as size increases, and the formal medium tier stays thin.

Major Factors in the Scaling Squeeze

Access to Finance

The missing middle has a second, related meaning in finance. Growth-oriented firms that have moved beyond micro scale—often those needing the equivalent of tens or hundreds of thousands of dollars—are frequently too large for microfinance yet too small, lacking in collateral or audited accounts, for conventional bank loans or institutional capital. World Bank and IFC work has documented this financing gap across the continent for years. The credit gap for firms in the middle is large and persistent.

Market Access

Several factors keep the middle thin. Market access is one. In concentrated sectors, exclusive arrangements, high fees and preferential treatment for national chains limit routes to market for smaller suppliers and retailers. South Africa’s grocery retail market inquiry documented long-term exclusive leases that restricted independent operators. 

Purchasing Power & Regulatory Burden

Buyer power in designated sectors can squeeze smaller suppliers on price and terms. Regulatory and administrative costs also weigh more heavily on smaller firms that lack the compliance departments of large incumbents. Legacy ownership patterns and high concentration in manufacturing, mining, energy and transport add further obstacles. Entry is relatively easy; expansion is hard without substantial capital for equipment and administration requirements.

Big Corporations Building While Small Businesses Buckle

South Africa has one of the continent’s more advanced competition regimes. The Competition Act gives the Commission tools to address exclusionary conduct, buyer power and the effects of mergers on small and medium firms. The Commission has used market inquiries, buyer-power regulations and conditions in merger approvals to try to open space for smaller players. Concentration has not risen across most of the economy in recent years; the share of highly concentrated sub-sectors has edged lower. 

Yet the gains have come mainly from competition among larger firms. Broader participation by smaller firms has not improved, and the medium business tier remains uncomfortably thin. Competition law can restrain certain anti-competitive practices and prevent some mergers that would further entrench dominance. It however does not, by itself, create the conditions under which large numbers of small firms successfully scale into durable medium-sized businesses. 

Regulatory barriers, financing constraints and the practical advantages of scale and distribution networks remain outside the direct reach of competition enforcement.

Implications due to Lack of Medium Business Growth

The implications for growth and jobs are substantial. MSMEs in South Africa are roughly twice as employment-intensive as large firms and account for about 44% of jobs, with especially high shares in construction, catering, tourism and wholesale sectors. Across the continent, micro and small firms provide the large majority of employment. When firms cannot graduate from micro or small into medium size, the economy loses a layer of employers that can create more stable jobs than pure survivalist micro-enterprises while remaining more labour-intensive than large corporates. 

A thin middle market also means fewer challengers to dominant firms, weaker local supply chains and less diversity in the productive base. 

Entrepreneurs who build viable businesses find it harder to expand, and some are displaced when large groups enter their markets. The net effect is slower job creation at the scale the continent needs and a more concentrated ownership of economic activity.

What Is the Solution?

More restrictions on large firms are unlikely to be the main solution if the goal is growth from the middle. Blanket limits on expansion by retailers, banks or telecoms groups can raise costs for consumers and reduce the efficiency gains that come from scale and integrated services. Competition authorities already have powers to examine specific practices—exclusive dealing, buyer power, predatory pricing—and to impose conditions when mergers threaten smaller participants. Additional broad prohibitions risk deterring investment without addressing the reasons small firms struggle to scale.

A more effective approach focuses on the barriers that prevent firms from expanding rather than only on the behaviour of incumbents. Access to growth finance is central. This often requires moving beyond traditional collateral-based lending toward cash-flow and digital-transaction data that can assess smaller firms more accurately, blended-finance facilities that share risk with commercial lenders, and a broader continuum of capital that includes trade finance, leasing and growth equity. 

Several African markets have seen mobile money and digital lending expand the bottom end of the market; extending similar data-driven approaches further up the size spectrum is the next step.

Market Reforms Required

Market-access reforms also matter. Phasing out or limiting long-term exclusive leases in retail, reducing high fees or preferential terms that favour national chains, and supporting digital and physical distribution options for smaller suppliers can open routes that large groups currently dominate. 

Regulatory simplification, such as the streamlining of licensing, permits and required compliance for firms that are scaling,  can help. This reduces the relative cost disadvantage smaller businesses face and can aid in accelerating scaling of small businesses. 

Targeted supplier-development programmes that link capable medium firms to larger buyers, combined with skills and management support, can also help improve transition rates.

What other Markets did

Lessons from elsewhere point in the same direction. India’s experience, referenced by Competition Commission economists, shows that a larger medium tier supports more competition and higher investment rates. 

Countries that have narrowed the SME finance gap have typically combined regulatory reforms that make digital data usable for credit assessment with public risk-sharing facilities that encourage private lenders to serve the middle. 

In retail, jurisdictions that have restricted exclusive leasing arrangements have seen greater survival and entry by independent operators without eliminating the efficiencies of larger chains. 

None of these measures reverse the advantages of scale, but they reduce the artificial barriers that keep the middle thin.

Structural Gap Must be Closed 

Africa’s missing middle is not a temporary feature or a uniquely South African problem. It is a structural gap that limits job creation, weakens competition and constrains the growth of local supply chains. 

Large corporates will continue to expand into adjacent markets; that process brings consumer benefits but also displaces smaller operators when the middle cannot absorb or compete with the new capacity. 

Filling the gap requires the active enabling of more firms to scale, not only by restraining the existing large ones. 

Progress on finance, market access and the practical costs of growth would do more to thicken the middle than additional broad restrictions. Without that progress, the continent will keep generating many micro enterprises and a small number of large groups, while the layer of medium firms that could support more widespread employment and more contestable markets remains thin.