New technology, challenges
Financial Sector reforms give boost to African entrepreneurs
The financial reforms of recent years are starting to pay off for most African countries. As the recent World Bank report, "Making Finance work for Africa," shows most of the continent�s economies are recording robust growth, which has led in turn to lower inflation and better fiscal discipline.
The report attributes the economic progress to financial reforms such as the privatisation of state-owned financial institutions, which has spurred competition in the banking market and paved the way for foreign institutions to enter the African financial services arena.
Banks have extended their activities, offering products and services to new markets such as the rural poor, micro-businesses and SMEs, and strong credit growth is underway in most parts of Africa. New technologies, including cellular networks, have empowered institutions to extend their reach into new markets.
These developments are welcome in a continent where many would-be entrepreneurs have found their ambitions constrained by poor access to capital in the past. As the World Bank notes, significantly more African entrepreneurs cite access to and cost of finance as a major constraint than do enterprises from other parts of the world.
But access to finance by itself is not enough to transform small and medium-sized African businesses into powerful, sustainable and competitive enterprises. AMSCO's experience shows that human capital is needed as much as finance if African SMEs are to transform themselves into competitive and sustainable entities. Without strong management skills, small businesses will be unable to capitalise on improved external business conditions.
The list of challenges that SMEs in Africa usually face is long and daunting, and most have more to do with access to management skills and technical expertise than they do with funding. Informal enterprises need to be turned into formal businesses that follow best practice in corporate governance and quality assurance. Former state-owned enterprises that have been privatised must be made efficient and ready for competition.
Many African businesses find themselves facing international competition for the first time. The need for strong management is pressing since many smaller African companies are seeking to compete abroad, face global competition in their home market and need to adopt best practices in corporate governance. They are competing against global companies for capital and customers, and have no choice but to be world-class.
If SMEs in Africa want to access funds from banks and international investors, they need to face a number of issues which include tightening corporate governance procedures and policies as well as putting sound financial systems and processes in place. They also need to compete with high-quality products and services from international suppliers, which mean that they need robust manufacturing, quality assurance and information technologies systems in place. Other challenges include business strategy, marketing and business development and international trade.
Clearly, SMEs need know-how as much as they need money if they are to tackle these challenges.
One possible solution is for SMEs to recruit experienced hands-on management from abroad or within Africa who are able to mentor and train their staff so that they can build skills throughout their businesses. Organisations such as AMSCO and others are taking a leading role in helping African businesses to build up their capacity. They recruit and second management and technical professionals to client companies in Africa with the goal of helping them to develop a broad and sustainable base of management skills.
They also have donor funding available to partially pay for services at businesses that meet the required criteria and cannot afford to cover costs completely. AMSCOs experience has shown that with the right base of skills in place, African SMEs can be sustainable entities either able to fund their own growth or to attract investments and loans from external institutions.
A thriving SME market segment is the key to developing prosperous African economies. As labour-intensive and locally-owned entities, SMEs are the ideal vehicle to ensure that newly created wealth in growing African economies cascades down to those who need it most. Capital - human and financial - is essential to creating and sustaining African SMEs.
Ayisi Makatiani possesses extensive management, entrepreneurial and board level experience, having co-founded Africa Online, the largest ISP in Africa outside of South Africa. He is the chairman of Ogilvy & Mather (East Africa) LTD, a member of on the Kenya Airways board and was on the Barclays Board in Kenya. He is also advisor to the President of the Republic of Kenya via the National Economic and Social Council and has previously sat on the UN Secretary General's Task force of ICT. Voted one of the top 10 CEO's in East Africa several times, Ayisi Makatiani is both a Global Leader for Tomorrow and a Young Global Leader at the renowned World Economic Forum host of the Davos conferences. He has been featured on The Economist, CNN, Fortune Magazine, National Geographic, Boston Globe, Time Magazine and Nation Media Group.
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