Slow growth in Small and Medium Scale Enterprises (SMES) in Africa has been attributed to funding deficit in excess of $140 billion.
Chief Executive Officer, Heritage Bank, Mr. Ifie Sekibo made the remarks at the 2nd US-Africa Trade & Investment Forum in New York, United States of America. He said that SMEs are more credit-constrained which he said typically affects growth possibilities since only few have access to funds.
According to him, studies indicate that more than 70% of the SMEs lack access to medium-longer-term finance, creating an SME funding gap of more than $140 billion in Africa alone.
“Using Nigeria as a case study, between 2003 and 2009, SME loans as a percentage of total credit, decreased from 7.45% to 0.18%. Yet by 2012, Nigeria had about 17.6 million MSMEs employing about 32.4 million people. Although it is generally accepted that SMEs enhance competition and entrepreneurship, and their development has a positive impact on innovation and productivity growth, policy and infrastructure factors to mitigate risk and costs that SME sector cannot internalise needs to be seriously worked upon by all relevant stakeholders”, he said.
He explained that most SMEs in Nigeria die within the first five years of existence while another smaller percentage goes into extinction between the sixth and tenth year, with only five to ten percent surviving, thriving and growing into established corporate status. He listed the leading cause of such sub-optimal output to include: poor access to funds, weak institutional support, unstable macro economics, complicated and unstructured Legal framework/regulation, inadequate business information, infrastructure & business environment and human capital factors, among others.
Sekibo particularly lauded recent response to financing SMEs in Africa by development finance institutions that are engaging partnerships with commercial banks and other SME focused lenders to to promote diverse SME funding windows.
He listed these as including the African Development Bank (ADB), Ecowas Bank for Investment and Development (EBID) and the relatively new African Guarantee Fund which was officially launched in June 2012.
“Five out of the top 10 fastest growing economies in the world are in Africa. The 39 fastest growing economies in 2013 have an average size of $78 billion. Growth in these countries is largely driven by SGBs – Small Growing Businesses such as Agriculture, Solid Mineral, and Retail Distribution. Small is no longer risky, it is the way to building the next generation of African corporates”, he asserted.