“Small businesses are the engines of local economies and the building blocks of vibrant communities.” —Jim Hackett- Former CEO at Ford
Small and Medium Enterprises (SMEs) are one of the most effective backbones of economic development, and in Africa, their potential to drive growth, create jobs, and foster innovation is limited only by the constraints that are widespread across the continent.
The Size of the Potential in Africa.
With over 1.3 billion people and a rapidly growing youth population, the continent is poised for an entrepreneurial surge.
Africa’s total population in 2024 was approximately 1.5 billion, with a median age of 19.3 years. About 60% of the African population (roughly 900 million people) is under the age of 25. By 2050, Africa is anticipated to account for 37% of global births, with its youth population growing to over 1.2 billion, making it the market with the most potential for growth globally. Africa accounts for approximately 28% of the world’s population under 25, despite comprising only 18% of the global population.
Comparatively, the size of the current GDP in Africa is only 3% of the total global GDP. Africa’s GDP of $3.1–3.2 trillion is a small fraction (3%) of the global $110 trillion, and its average income ($2,300) lags far behind the global $12,500.
The one stand-out opportunity that has long been neglected across most of the continent is the ability of Africans to find innovative solutions for challenges and this needs to be harnessed and driven into enterprise development.
However, building a thriving SME economy requires addressing structural challenges and implementing catalysts to ensure sustainable business growth and economic impact. The African market represents immense potential for economic growth if catalysts like financing, infrastructure, and skills development are scaled, as demonstrated in countries like Rwanda and Nigeria.
Continued reforms and investments are essential to translate this demographic dividend into sustainable prosperity.
Key Catalysts Needed to Accelerate SME Development:
Access to Affordable Financing
One of the most significant barriers for African SMEs is access to capital. Traditional banking systems often impose high collateral requirements and interest rates, excluding many entrepreneurs from accessing funding required to establish or to scale their businesses.
To catalyze growth, governments and private sectors must look to deregulate the financing industry and expand microfinance, venture capital, and impact investment.
In Kenya, mobile-based lending platforms like M-Pesa’s M-Shwari have revolutionized SME financing. By leveraging mobile technology, M-Shwari provides microloans with minimal collateral requirements, enabling small businesses to invest in inventory and expansion. Since its launch, M-Pesa has facilitated over $10 billion in transactions annually, supporting thousands of SMEs and creating jobs in retail and agriculture.
Development banks and international organizations should also scale up guarantee schemes to de-risk lending, enabling SMEs to invest in technology, inventory, and expansion, thus creating scale and broadening job creation.
Infrastructure and Digital Connectivity
One of the biggest challenges to SME growth in Africa is that of reliable infrastructure – electricity, transportation, and internet, all critical services for rapid SME scalability.
However, the current lived situation encountered by many SME’s in Africa is frequent power outages and poor logistics, which increase operational costs, while limited internet access hinders market reach.
Investments in renewable energy, such as solar microgrids, can ensure consistent power. Expanding 4G/5G networks and reducing data costs will empower SMEs to leverage e-commerce and digital marketing. For instance, platforms like Jumia have enabled small businesses to access regional markets, driving revenue and employment.
As a clear indicator of how proper infrastructure becomes a growth catalyst, Ethiopia’s Mekelle Industrial Park, which was established in 2017, exemplifies infrastructure-driven SME growth. The park provides factories, warehouses, and reliable utilities, reducing operational costs for SMEs in textiles and manufacturing.
This has attracted foreign investment and created over 20,000 jobs, mostly for youth and women. In Rwanda, investments in 4G networks have boosted digital connectivity, enabling SMEs to access e-commerce platforms like Jumia. Rwanda’s internet penetration rose from 20% in 2014 to 60% by 2023, empowering SMEs to reach regional markets and increase revenues by up to 30%.
Education and Skills Development
Africa’s youth bulge offers a demographic dividend, however, many are handicapped by the lack the skills needed for entrepreneurship or the knowledge to enable them to build modern industries.
Vocational training programs tailored to market needs—such as digital literacy, financial management, and technical skills- have been proven to empower entrepreneurs in places such as Singapore.
Partnerships between governments, universities, and the private sector should focus on the creation of incubators and accelerators that offer mentorship and practical training.
Ghana’s Enterprise Agency, in partnership with the private sector, has introduced Japanese kaizen principles to SMEs, enhancing productivity through streamlined processes. Since 2020, over 5,000 SMEs have adopted these methods, increasing outputs by 25% and creating 10,000 jobs in manufacturing and services.
Programs like the Cisco-supported ForgeX incubator hubs in South Africa and the JBS innovation Hub provide practical skills development, mentorship programs, and small business management support, and are a clear example of how successful these programmes are at accelerating SME growth.
Policy and Regulatory Reforms
Complex regulations, high taxes, and bureaucratic red tape stifle SME growth. Sadly in Africa, more regulation than less seems to be the order of the day, with growing hurdles for SME’s in place of growth-friendly environments that reduce the need for complex management systems and administrative ease of use.
Governments in Africa should be looking to streamline business registration, reduce licensing costs, and offer reasonable startup tax incentives. There is a solid case to do so, even for cash-hungry governments. The growth in jobs with more tax-paying staff and greater retail spend can easily offset early business tax breaks and is a longer-term but far more economic, growth-friendly approach.
Nigeria’s National MSME Policy, launched in 2021, simplified business registration and offers tax incentives, which benefited 40 million SMEs that contribute 48% to GDP and employ 84% of the workforce. The policy’s implementation spurred a 10% growth in SME registrations, particularly in agriculture and retail.
Special Economic Zones (SEZs) with relaxed regulations can be a catalyst to attract investment and foster innovation. Additionally, harmonizing trade policies under the African Continental Free Trade Area (AfCFTA) will enable SMEs to access a market of 1.3 billion consumers, boosting cross-border trade and scalability.
Market Access and Value Chain Integration
Due to limited networks and supply chain inefficiencies, SMEs often struggle to penetrate local and global markets. Creating industry clusters and cooperatives can help SMEs pool resources, share logistics, and negotiate better terms with suppliers.
Public-private partnerships should facilitate access to international markets through trade fairs and export programs.
In Uganda, the Uganda Cooperative Alliance has integrated SMEs into agricultural value chains, linking 1.5 million farmers to markets. This has increased incomes by 40% and created 50,000 jobs in processing and logistics. In Ethiopia, this principle was applied to their textile industry, integrating SMEs into agricultural and manufacturing value chains that have shown increased production as well as further job creation.
Building a robust SME economy in Africa going forward will hinge on greater cooperation from administration structures that need to assist in unlocking financing options, improving infrastructure, enhancing skills, reforming policies, and expanding market access.
If Africa is to start moving towards achieving its potential, it does not require massive global businesses to establish operations that simply bleed Africa dry, nor further exploitation from global actors who, in general, are more concerned about securing mineral or raw materials for their economic development at home.
Africa needs a new era of internal development based on its incredible solution-finding and resourceful citizens, who only require the right environmental factors to be in place to thrive.
These catalysts, driven by collaboration between governments, private sectors, and international partners, will create an enabling environment for sustainable businesses.
By empowering SMEs, Africa can harness its entrepreneurial potential to drive economic growth, reduce poverty, and create millions of jobs for its youthful population.
