Policies and practices of African countries don’t support SMMEs

AFRICAN small, micro and medium enterprises (SMMEs) are increasingly stifled by government red tape, owners being criminalised by African governments and lack of enabling infrastructure.

Yet, with widespread state collapse across the continent, relatively small domestic private sectors and dwindling foreign investment, SMMEs remains almost the only avenue for ordinary Africans to create jobs and secure income and livelihoods.

According to figures from the ILO, non-agricultural SMMEs represent 66 percent of the total employment in Sub-Saharan Africa. Furthermore, 74 percent of African women are employed in the non-agricultural SMMEs sector, and eight out of 10 youth are employed in this sector.

SMMEs are therefore the main source of entrepreneurship and start-ups in the private sector in most African countries.

Increasingly many local governments in Africa, in their attempts to clean-up inner-cities, appear to make it deliberately difficult for new SMMEs to set up.

Many cities are introducing punitive new policies, regulations and by-laws to restrict informal trading, such as whether or not SMMEs can set up, trading times, and what they can trade in. In some cases informal trading has been criminalised by local governments.

Traders that are found contravening these laws face criminal sanctions.

This has undermined, and will continue to undermine, the growth of SMMEs on the continent.

In Ghana, the Accra local government authority has evicted hawkers, breaking down their structures and criminally charging them for illegally selling their products. This is part of Accra’s attempt to de-congest the crowded city. Kenyan authorities banned unlicensed street traders in big cities such as Mombassa, Nairobi and Nakuru. Kenyan municipalities routinely confiscate street vendors’ wares, break down their structures and arrest hawkers.

In Rwanda, the Kigali city council has made selling by (and buying from) street vendors illegal.

A ministerial order has declared it illegal for informal traders to sell bread in the streets of Ivory Coast.

The irony is that in many African countries the city by-laws outlawing informal businesses come from the colonial era, when colonial governments wanted to stop Africans from pursuing entrepreneurial activities.

Last year, a Malawian street vendor approached the country’s high court to scrap a colonial era law, called the “Rogue and Vagabond Law”, which emanated from the 1824 English Vagrancy Act, after he was arrested for selling plastic bags along the road. He was successful and the law was scrapped.

Most of Africa’s SMMEs are in the informal sector. Young people, women and migrants – often excluded from the formal economy – are particularly active in Africa’s informal sector. These marginal groups enter the SMMEs sector because there are no formal jobs available for them.

Most of those working in SMMEs have minimal skils or are unskilled. However, more recently, given rising job losses in both the public and private sectors in many African countries, increasing numbers of highly educated people who cannot find jobs in the public and private sectors now start SMMEs.

Development

Many African leaders and governing parties are not entrepreneurially minded, with some still holding the belief that only the state or foreign investors can deliver development.

Although almost every African government rhetorically supports SMMEs, very few have policies that encourage the development of SMMEs. There has to be the political will to genuinely push such development.

The African business environment is often not very conducive to the establishment and running of SMMEs. Excessive administrative red tape makes it difficult to register an SMME in most African countries. It often takes a long time to secure approval for establishing a small business.

SMME supporting institutions, both public sector and private ones, are often also missing. Access to finance for SMMEs is almost non-existent in most African countries. Very few African countries have specialised public financing institutions specifically for SMMEs.

If finance is available, whether from the private or public sector, it is often difficult to access and expensive.

African private sector banks, whether local or foreign, often also shy away from funding SMMEs, deeming it too risky. It is easier for them to finance the consumption of ordinary customers such as vehicles, and non-productive assets, such as new businesses, homes or education.

African state finance institutions, supposedly set up to help commercial players to access markets, also rarely provide easy finance to SMMEs.

Business costs for SMMEs are increasingly high and risks are equally high.

It is costly to register a small business – local governments often demand upfront payments.

Some African countries have introduced new policies to formalise the informal sector, including compelling them to register formally, pay tax and adhere to specific labour market conditions.

Given the cumbersome bureaucracies of most African governments, administering such SMMEs registration processes has invariably been mired in red tape. This has, in fact, in many cased increased the costs for SMMEs and encouraged many to go underground without registering.

Governments will have to introduce policies, practices and plans that will enable entrepreneurship generally, and encourage SMMEs more specifically.

Governments can regulate, but should not over-regulate SMMEs.

Labour market reforms should focus on improving the productivity of the sector, rather than necessarily on regulating it to death. Because of the importance of this sector to the employment of youth and women, formalising it too rigidly may be counter-productive.

To start with, African governments will have to make SMME development an integral part of national industrialisation strategies. Or rather, African countries must first cobble together industrialisation strategies because very few countries have such policies.

Supply chain

Governments in such new industrial policies must link SMMEs into the supply chains of State Owned Enterprises (SOEs) and foreign companies. Furthermore, as part of the industrial plans of individual countries, SMMEs must be focused on producing their own products rather than on selling cheap imported products.

The industrial policies of African governments must focus on making SMMEs diversify their product lines. Importantly, African SMMEs must produce the kind of products their countries need but do not have. Furthermore, African SMMEs must also begin to focus on exporting products to other African or foreign markets.

Governments will have to provide an enabling business environment for SMMEs to flourish. Red tape will have to be reduced. There has to be a streamlining of government processes, procedures and systems to register SMMEs.

The regulation of SMMEs must be improved by simplifying and cutting lead times for registration and licensing, and speeding up tax refunds.

Taxes for SMMEs must be reduce or abolished.

African countries will have to establish entrepreneurial supporting institutions to provide finance, training and mentorship.

Access to finance from public and private institutions must be readily available and be less bureaucratic and less costly.

Cities must establish enabling and supportive infrastructure for SMMEs, whether access to technology, government services, information, or public toilets.

Governments must also improve access to markets for SMME products, and make social protection – if available or practical – to those in the informal economy.

African governments must improve access to training, marketing and mentoring for SMMEs to make the transition possible for African SMMEs from selling cheap foreign products to making products for local and international use. SMMEs themselves must club together into umbrella associations which can collectively fight for better laws, regulations and policies.