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AFRICAN SMALL AND MEDIUM ENTERPRISES (SMES) CONTRIBUTIONS, CHALLENGES AND SOLUTIONS

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Small and medium enterprises (SEMs) are notably the engines that drive economic development. The businesses account for almost 90% of businesses in both leading and developing economies through job creations, employment, tax provision and contribution to Gross Domestic Product (GDP). However, in Africa, besides their critical and positive role, many SMEs face numerous challenges ranging from power shortage, lack of capital, poor management skills and competencies, and inadequate information and corruption. It is notable that most African governments give very little support to SMEs thereby neglecting a vital economic trigger and should form pillars of development. This paper explored the role played by SMEs, their contributions, challenges and solutions. The paper is based on empirical evidence and current research on SMEs worldwide with a major focus on African SMEs and how to improve their operations and profitability. The paper calls for African governments to develop policies favourable to SMEs development and put them in their development agenda. With appropriate legal framework, business infrastructure, continual power supply and accessible financial supply, SMEs stand to contribute to African development and position the continent as a competitive and innovative and create jobs to unemployed communities thereby providing income and essential goods and services the 1.2 billion Africans, forming a huge market.
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European Journal of Research and Reflection in Management Sciences Vol. 5 No. 1, 2017
ISSN 2056-5992
Progressive Academic Publishing, UK Page 36 www.idpublications.org
AFRICAN SMALL AND MEDIUM ENTERPRISES (SMES)
CONTRIBUTIONS, CHALLENGES AND SOLUTIONS
Dr. Samuel Muiruri Muriithi
Senior Lecturer, School of Business and Economics
Daystar University
KENYA
ABSTRACT
Small and medium enterprises (SEMs) are notably the engines that drive economic
development. The businesses account for almost 90% of businesses in both leading and
developing economies through job creations, employment, tax provision and contribution to
Gross Domestic Product (GDP). However, in Africa, besides their critical and positive role,
many SMEs face numerous challenges ranging from power shortage, lack of capital, poor
management skills and competencies, and inadequate information and corruption. It is
notable that most African governments give very little support to SMEs thereby neglecting a
vital economic trigger and should form pillars of development. This paper explored the role
played by SMEs, their contributions, challenges and solutions. The paper is based on
empirical evidence and current research on SMEs worldwide with a major focus on African
SMEs and how to improve their operations and profitability. The paper calls for African
governments to develop policies favourable to SMEs development and put them in their
development agenda. With appropriate legal framework, business infrastructure, continual
power supply and accessible financial supply, SMEs stand to contribute to African
development and position the continent as a competitive and innovative and create jobs to
unemployed communities thereby providing income and essential goods and services the 1.2
billion Africans, forming a huge market.
Keywords: SMEs, Employment, challenges, economic driver.
INTRODUCTION
The last few decades has seen significant growth in the African continent compared to the
rest of the world. For instance, since in the ten years, while the rest of the world economies
struggled with economic growth, African growth averaged more than 5% far above America,
Europe and South America. Though uniformed growth was experienced across the continent
with some countries like Angola, Rwanda and Malawi doing well, other like Zimbabwe
continue to struggle. However, the overall positive growth has made Africa attracts a number
of investors having direct investment especially from USA, China and India , a process
expected to further boost long term economic growth.
Small and medium enterprises (SMEs) are the engine that drives world economies and the
stepping stone to industrialisation, both for developing and developed economies. The
businesses account for 99% of all businesses in developing countries thereby signifying their
importance (Fjose, Grunfeld & Green, 2010). For instance, SMEs account for 52% of the
private work force and 51% to United States (USA) GDP (Longenecker et al., 2012) while in
the United Kingdom (UK), they are associated with 62% of total employment and 25% to
GDP (Burns, 2001; Day, 2004). Like USA and UK, SMEs contribute 79% of Italian
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employment, 63% and 60% of France and Germany employment respectively (Burns, 2001).
In China, SMEs employ 80% of urban population and contribute 60% of GDP (Sham, 2014).
LITERATURE REVIEW
Likewise, at the heart of Africa’s encouraging growth are small and medium enterprises,
commonly known as SMEs. In the Sub-Saharan Africa region, SMEs account for more than
95 percent of all firms (Hatega, 2007; Kauffmann, 2005). It is notable that SMEs are even
more significant given their role to reduce poverty, boost countries’ GDP and provide
employment for majority of the population (Benzing & Chu, 2012). The sector is particularly
important due to their simple approach in response to majority of Africans needs by offering
affordable goods and services at reasonable terms and prices besides being a source of
income and employment (Kauffmann, 2006).
SMEs businesses range from very small micro-firms run by one or two persons and very slow
growth or no growth to fast growing medium businesses earning millions of dollars and
majority employing as many as 250 employees (Fjose et al., 2010). The businesses’
definitions also vary from those requiring little money to start to others demand millions of
dollars to start (Adisa, Abdulraheem, & Mordi, 2014). Various sectors in different parts of the
world focus on certain indicators to define SMEs among them number of employees, total
number of assets, annual turnover and capital investments (Gibson & Vaart, 2008).
Analysis of different SMEs definitions worldwide reveal that it is very difficult to arrive at a
common definition. In fact one study by Auciello (1975) in 75 countries found more than 75
definitions were used in the target countries. This demonstrates very well that there is no
common accepted definition of SMEs. Depending on the country and industry, business size,
assets and products, the definitions will continue to vary. For instance, Canadians and United
States refer to businesses with less than 500 employees as SMEs while small businesses are
those with less 100 employees and earns. For Germans, SMEs are businesses with maximum
of 250 employees while in Belgium, SMEs are those with less than 100 employees. In
Germany an SME has a limit of 250 employees, while, in Belgium it has a limit of 100
employees (Katua, 2014). For developing countries (Africa included), a business with more
than 100 employees is termed as large while a small business could have one to five
employees. In developed countries like United States of America, a business with 499
employees is considered medium sized (Levine, 2005). The most used definitions are
generally quantitative in nature focusing mostly on number of employees, assets, size and
revenue. Nevertheless, the most recently agreed definition from numerous researches define
SMEs those with less than 250 employees although very small businesses may have less than
50 employees while micro-enterprises have between 5 and 10 workers. It is also observable
than more than 50% of businesses in low and lower middle income countries have few than
100 employees (Beck & Cull, 2014; Dalberg, 2011; Fjose et al., 2010; Levine, 2005; Katia,
2014; OECD, 2005).
SMEs are the source employment and a source of income for about 80% for majority world
population (Kamunge, Njeru & Tirimba, 2014; Okafor, 2006). Specifically, micro businesses
accounts for 30% of employment, small businesses (20%) while medium businesses provide
10% employment (Fjose et al., 2010). In Africa, SMEs accounts for more than 90% of
businesses and contribute about 50% and Gross National Product (GDP) (Fjose et al., 2010;
Kamunge, Njeru & Tirimba, 2014). For instance, in Kenya, SMEs contribute 40% of the
GDP, over 50% of new jobs and account for 80% of the workforce (Kithae, 2012; Mwarari &
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Ngugi, 2013). In 2003, SMEs offered employment to 3.2 million Kenyans (Kauffman, 2005).
Similarly, SMEs accounted for 70% of Nigerian industrial jobs and 95% of the
manufacturing sector (Kauffman, 2003) while in Ghana SMEs accounts for 70% of all
businesses and employed 70% of the total workforce (Government of Ghana, 2003; World
Bank, 2006). The sector also amounts to 97% of businesses and 18% of workforce in Zambia
(Parker, 1996). It is also notable that more than 50% of employment in low and lower-
middle-income countries is from businesses with less than 100 employees (Ayyagari, Beck &
Demirgüc-kunt, 2011). Table 1 demonstrates SMEs contributions to the GDP and
employment in various countries.
Table 1: Selected African SMEs contributions to employment and GDP
Countries
Contributions
to GDP (%)
Contributions to
employment (%)
References
Ethiopia
3.4%
90%
Central Statistic Agency (CSA),
2003; Gebrehiwot, 2006
Ghana
70%
49%
Ghana Bank Doing Business
Report, 2013; World Bank, 2006;
Abor & Quartery, 2010;
Kenya
40-50%
80%
Mwarari & Ngugi, 2013;
Nigeria
50%
70%
Ariyo, 2011; Kolasiński, 2012;
Rwanda
20.5%
60%
Mukamuganga, 2011
South Africa
50-60%
60%
DTI, 2012; Willemse, 2010;
Tanzania
60%
20%
Echengreen & Tong, 2005;
Ngasongwa, 2002
Uganda
18%
90%
Uganda Ministry of Trade,
Industry and Cooperatives
(MTIC), 2015
Zambia
8%
30%
Mbuta, 2007
Zimbabwe
40%
15%
Katua, 2014; Zwinoira, 2015
SMEs are involved in all sectors of industrial development, from mining, manufacturing,
service industry to agriculture, fishing to climate change. However, most SMEs are involved
in the service industry sector where they account for two-thirds of employment levels
(Kamunge et al., 2014). SMEs are also the link between simple industries to complex and
highly developed large industries and provide a platform for Africa-take off to development.
The industries play pivotal role as facilitative development through provision of inputs and
services for industries while at the same time providing direct goods and services to
consumers. This make SMEs continue to propelling the engine for sustainable growth and
economic development of African countries (Fjose et al., 2010).
While SMEs are important for economic development, their role is rarely formally spell-out
with thousands of micro businesses still operating as informally and not recognised as
economically viable.
THE ROLE OF SMES
The presence of SMEs in all sectors of the economic would signify their critical role in
steering development. However, according to Fjose et al. (2010), there is very little
information from literature on specific roles and contributes of SMEs toward economic
growth. This could be associated by the fact that SMEs are visible in all sectors and it is
difficult to single them out against a few large businesses. The problem of identifying the
SMEs could also be associated on how they are defined since as seen above, their definitions
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vary with industry and whether they are formal or informal. However, Africa is primarily
composed of informal microenterprises scattered across the continent (Benzing & Chu,
2012). It is left to individual countries or sectors to define what SMEs is, its composition and
contribution. A small business is United States may be termed as big business in Kenya or
South Africa.
According to Ayyagari, Beck and Demirgüc-kunt (2003), the contribution of SMEs correlates
strongly with a country’s Gross Domestic Product (GDP). A country with healthier and better
GDP reflects great contribution of SMEs to the national economic (Harris & Gibson, 2006;
Sauser, 2005). However, this relationship has not fully been identified in developing
countries (Kamunge et al., 2014) although it can be derived that for struggling economies, as
found in Africa, there are high level of unemployment which triggers large number of
informal SMEs that may insignificantly contribute to the GDP of many economies.
It is generally agreed that SMEs contribute significantly to economic development Economic
development. They are associated with discovering of new markets and exploiting them to
their advantage. Similarly, they are the heart of founding new ventures and a source income
and employment for millions of Africans. This means that SMEs are central to wealth
creation by stimulating demand for goods, investment and trade (GEM, 2006). Without
SMEs, many African governments will experience financial and developmental constraints,
all which would only worsen living standards of low income persons often served by the
sector (Santrelli & Vivarelli, 2007).
Another important role played by SMEs is that of inventing and Innovation of new ideas,
technology. The businesses provide room for pre-incubating, incubating and introducing and
commercialising new products. In many SMEs originate and pioneer new knowledge and test
it before it disseminate to large industries or macro economies. Through their entrepreneurial
spirits and central locus, the business founders take the risk to identify and cease
opportunities and turn them into workable and market driven products (Longenecker, Carlos,
Moore, William, 2012; Rwigema & Venter, 2004;
The realisation of economic development can only be realised if the right business
environment is created. According to Tasesse, Executive Vice President of the Development
Bank of Southern Africa (in Fjose et al., 2010), for most African countries, SMEs from the
informal sector only contribute 20% to GDP compared to 60% contribution in developed
countries, an argument supported by Arinaitwe (2002). This means that the role of SMEs in
terms of economic development is only realised when a country start showing signs of
developmental growth, indicating that no amount of SMEs will results to development as
long as the no development agenda has been put in place.
CHALLENGES
Much has been written and researched on SMEs success World-wide. However besides many
studies on SMEs, few studies have given much attention to challenges experienced by these
businesses in order to provide businesses owners and entrepreneurs with the right information
and guidance to improve their businesses. SMEs operating in Africa face many challenges
that deter their growth (Nikolić, Dhamo, Schulte, Mihajlović & Kume, 2015). This is
supported by Kamunge et al. (2014) and Beck, Asili, Luc and Vojislav (2006) who observed
that beside their positive role to development, SMEs face many obstacles that restrict their
long term survival. The rate of business failure is alarming with only a few businesses
surviving a few months to one year (Kenya National Bureau of Statistics, 2007). According
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to Adcorp (2014), the mortality rate of SMEs among African countries remains very high
with five out of seven new businesses failing in their first year. For instance, in Uganda, one-
third on new business start-ups not going beyond one year of operation while in South Africa,
the failure is between 50% and 95% depending on the industry (Willemse, 2010). A study by
Yeboah (2015) also revealed that 75% of SMEs in South Africa do not become established
businesses making the country to have the highest failure rate in the world. Chad has also
been named as a country with failure of 65% and one of the most difficult countries to do
business due to unfavourable regulatory frameworks (World Bank, 2012). Although the
continent has shown significant improvement in business environment in the last ten years
thereby attracting numerous businesses from different parts of world, it is still ranked by
World Bank as the most difficult region to do businesses for SMEs. In many African
countries, SMEs, find it difficult to do business due to unfavourable business environment
arising from hostile legal requirements, high taxes, inflation, fluctuating and unreliable
exchange rates, all making it difficult to make significant profits to survive (World bank,
2006; Olawale &Garwe, 2010) In terms of ranking, Africa is at the bottom of regions like
Eastern Europe, Central Asia, East Asia & Pacific, Middle East & North Africa, Latin
America and South Asia. The major challenges facing African SMEs are discussed below.
Top on the list of challenges are:
1. Access to financing: The growth of SMEs in Africa requires adequate supply of financial
capital. However, lack of finance has been termed as an impendent to such growth (Fjose
et al., 2010). In fact, lack of access to finance or credit is universally recognised problem
facing SMEs. In Africa, it is agreed among researchers that inability to access finances
remains a major hindrance to SMEs survival and growth (Ariyo, 2004; Cook, 2001; Horn,
1998; Mambula, 2002). A survey by The Enterprise Surveys of the World Bank in a
period of ten years and covering over 100 countries found that access to finance as the
most important constraint hindering operations and growth of SMEs compared to other
parts of the world where the problem was moderate (Beck & Cull, 2014). The study
found that found that Africa’s financial systems are not only small, shallow and costly,
but they have very limited outreach thereby only reaching a small percentage of the total
population. This forces many SMEs to do their own self-financing or depends on
colleagues and friends to provide capital for their businesses. For instance, Inegbenebor
(2006) study found that only 10% of Nigerian SMEs borrowed finances from banks while
another study by Umoh (2001) had discovered that 61% of SMEs owners got their
financing from friends and other informal settings rather than financial institutions or
government. SMEs owners find it very difficult to access finance from financial
institutions due their high comparative interest rates, demand for collateral and loan
guarantees (Shah, Nazir, Zaman & Shabir, 2013). Banks also cite difficulties in issuing
finds to SMEs owners. They argue that the cost of administering small loans to SMEs
only reduce their profits. Similarly, in many countries, there very weak laws to enforce or
make financial defaulters pay back their loans in fully (Benzing & Chu, 2012). According
to a World Bank Enterprise Survey Database, lack of access to finance was cited by 48%
of total respondents compared to South Asia which has only 25% that termed financial
access as a constraint. The lack of adequate or accessible finances is associated to weak
financial markets or unfavourable borrowing conditions to make many Africa businesses
take advantage and facilitate their growth (Hatega, 2007; Kauffmann, 2005). A World
Bank report (2006) demonstrated a strong correlation between financial access and GDP
per capita. Where there was good access to financial capital, the level of GDP was higher.
With lack of adequate financial access, SMEs or any other business sector cannot exploit
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opportunities or invest optimally. It may also mean that businesses cannot set appropriate
financial measures to grow their businesses (Rajan & Gleacher, 2007).
2. Electricity supply: Power supply is central of SMEs operating and cost efficiency. Lack
of electricity or adequate power supply means that the businesses cannot operate in full
capacity or it is very expensive to operate (Fjose et al., 2010; Hatega, 2007). A study by
World Bank Enterprise Survey (2010) ranked problem of electricity as the most important
(25%) hindrance facing African SMEs followed by access to capital which was cited by
18% of respondents. Compared to other world regions, Africa is the only continent where
electricity still remains a major hindrance to business growth (Fjose et al., 2010).
3. Poor management: A major challenge facing businesses from different parts of the world
is poor management. This arises from the fact that most SMEs operators or their
managers lack managerial expertise. Since many business owners lack appropriate
training and experience to operate their businesses, their management style is basically on
trial and error and driven by performance and short-term gains with little attention paid to
strategic planning (Hill, 1987). It is notable that some entrepreneurs have workable ideas
and are competent in their specific fields but lack any managerial skills or knowledge of
how to run a business (Brink, Cant & Lightelm, 2003). The consequence has been poor
management and performance of SMEs. The problem of poor management has dominated
both developed and developing countries. As early as 1930s, the problem of poor
management was noted as a major cause of business failure in the US and a major cause
of retail bankruptcies (Cover, 1933). The problems still persists and is associated with
92% of businesses failure in US and 96% failures in Canada (Peacock, 1985). Several
studies highlight several elements of management as responsible for failures. Such
elements include SMEs inability to manage: finance, deficiency in accounting knowledge,
credit management, inventory management, cash flow management, marketing
management and human resource management (Berryman, 1983; 1994; Bowen, Morara
& Mureithi, 2009), examined management components associated with business failures
and found to be. According to King and McGrath (2002) good education and training
empowers SMEs managers to be successful in their businesses. Specific skills and
training in management and information technology is essential for good business
practice. Good management encompasses planning, organising, leading and controlling,
functions that are critical to SMEs proper functioning, survival, sustainability and growth.
The process of management will also not be complete unless competent and qualified
staff is put in place. As Harper (1984) observes, scarcity of competent managers remains
a serious constraints to SMEs success and requires special attention if these businesses
will survive.
4. Competency and capability: A major challenge facing many SMEs is their lack of
managerial competency. This denotes business owner and managers’ knowledge, skills
and experience. Competency is developed from a managerial ability to combine both
tangible and intangible resources to develop capabilities which upon excelling results to
competencies (Muriithi, 2015). Hewitt and Wield (1992) goes beyond managerial
competency and argues that the importance of human resource capabilities cannot be
emphasised enough. SMEs with appropriate skills and educated workforce perform
efficiently. The argument is further supported by Lee (2001) who observed that
businesses with well-developed human resource capacities are the most successful. Such
businesses also realise positive growth resulting from skilled and motivated employees,
and eventually resulting to high productivity and long-term existence and sustainability of
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the businesses. Unfortunately, numerous studies have recognised low human resource
capabilities and competencies as major challenges facing SMEs in most developing
countries including Africa (Geeta, & Hong, 2003; Bouazza, Ardjouman & Abada, 2015;
Lee, 2001). This problem is even more serious at the top management where lack of core
competencies and capabilities remain a main challenge for SMEs in Africa and other
parts of the world (Aylin, Garango, Cocca & Bititche, 2013; Bhide, 1996; Pasanen,
2007).
5. Negative perception: Another challenge facing SMEs is a negative perception from
potential customers. The businesses are perceived to be unable to provide required quality
products and services compared to large businesses (Amyx, 2005). It is notable that
SMEs large recognition in the market place and often loss binds to competition with well
know names and reputation (Bowen et al., 2009). To change the negative perception,
SMEs must work very hard to excel in their services and product quality. They must also
have well elaborated strategies to enable them stand the pressure from existing
competitions and win loyal customers.
6. Access to reliable information: Another challenge faced by SMEs in Africa is lack of
adequate business information from both governments and service providers. The
problem arises from poor information environment resulting from underdeveloped
technological and communication infrastructures and inadequate business support
systems (Kamunge et al., 2014; Oshikoya & Hussain, 2007). Present of appropriate
technology and associated support systems like hardware and software make it easier for
businesses to be efficient and effective which in turn lowers costs of production and
operations, something that African governments and other bodies must pay attention if
SMEs are to play their critical developmental role (Benzing & Chu, 2012).
7. Government support: The role of the government in facilitating and supporting SMEs
remain critical worldwide. It is the government that creates the right or undesirable
environment for businesses growth. When the government pays little attention to SMEs
sector, then, the sectors is prone to suffer leading to many businesses being unable to
survive. A government that does not support SMEs does not only hurt the sector but
experiences negative growth in its economic development. The environment created by
the government in terms of wages framework, taxation, licencing, opportunities,
technological support and infrastructure pave the road to success or failure for the SMEs.
Depending on the regulatory frameworks put in place by the government, can easily crush
or promote small business economy (Kamunge et al., 2014). It is notable that
unfavourable tax system, unfair competition, complicated rules and regulations and
punitive environment cripplingly and negatively obstruct SMEs growth (Davidsson,
1989; Krasniqi, 2007). These legal requirements vary from one country to another. For
instance, while it takes between 34-44 days to establish a business in Ghana, Kenya and
Nigeria, it takes 100 days in Kenya, 220 days in Ghana and 350 days in Nigeria to obtain
all business licences (Benzing & Chu, 2012). The tax paid by the businesses also differs
with Kenya requiring 51% of total profit while Ghana demands 33% and Nigeria 30%
respectively. Besides taxes, it has been found that SMEs in Africa face lengthy and
costly delays during numerous procedures and clearances demand by various regulatory
frameworks (Agbali & Ukaegbu, 2006). These differences definitely mean that
motivation to SMEs operations and continued growth differs across the continent.
Countries like Kenya and Nigeria are said to have put measures meant to support SMEs
especially in the informal sector. The dual government have not only increased credit
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facilities in this sector, but they have also reduced government interference to business
operations (Benzing & Chu, 2012). Kenya in specific is singled out as having put
different mechanisms meant to increase access to the youth, women groups and SMEs by
setting special funds accessible through public initiatives and financial institutions
(Business Daily, 10-21-07; The Nation, 10-22-07). Some banks such as Fina Bank,
Equity Bank and Family Bank have played significant role in empowering SMEs and
other businesses. Other countries like Ghana, South Africa and Rwanda are other
examples of countries where their governments have put measures in place to encourage
and boost SMEs. For countries like Nigeria, the government has been accused of having
little interest in boosting SMEs (Chu, Kara & Benzing, 2010). These are only a few
examples of governments that are given attention to SMEs development and growth.
However, it is notable that besides many development plans and sessional papers aimed at
empowering SMEs many African governments rarely actualise these plans resulting to no
tangible evidence of growth for SMEs (Sule, 1986).
8. Corruption: A major challenge facing businesses in Africa is corruption. The ill practice
force SMEs to divert their well-intended finances to non-financial activities. The
corruption practice has become a norm in many countries and is especially expected by
government officials before service is rendered. To SMEs owners, this means spending
extra-money outside their budget or cut their budget to pay for unwarranted activities
which also reduce their revenue and affect business performance (Benzing & Chu, 2012).
It is not uncommon to see constant harassment and intimidation of business person by
legal authorities who often confiscate business merchandise in name of unpaid licences
and other penalties (Macculloch, 2001). This ill-called practice continues to work
negatively against African governments efforts’ to promote SMEs in Africa. In fact, some
of the most corrupt countries in the world are in Africa (Transparency International
Corruptions Perception Index, 2007). The practice undermines well thought-out plans and
commitment to reduce poverty and boosts economic growth of the African continent.
9. Other challenges facing SMEs in Africa include: political instability, labour issues due to
lack of established legal frameworks, lack of coordination, ethnic violence destructions
and lack of qualified personnel (Bowen et al., 2009; Katua, 2014). Corruption is also
cited as a major interference to smooth SMEs operations. In fact a World Bank report
(2005) stated that 70 % of SMEs lamented that corruption is a major hindrance to their operations.
Usually SMEs lack the capacity to cope with uncertainty and associated with upheavals
that may results from conflict and political crisis and informal requirements like
corruption making thereby subjecting them to major risks of failure.
Table 2: Challenges facing SMEs in Africa
Challenges
Supporting Resources
1. Electricity supply
Fjose et al., 2010; Hatega, 2007; World Bank Enterprise
Survey, 2010;
2. Access to financing
Fjose et al., 2010; Hatega, 2007; Kauffmann, 2005;
Rajan & Gleacher, 2007; Shah et al., 2013; World Bank,
2006;
3. Poor management
Benzing & Chu, 2012; Berryman, 1983; 1994; Bowen et
al., 2009; Brink, Cant & Lightelm, 2003; Cover, 1933;
Harper, 1984) ; Hill, 1987; McGrath, 2002; Peacock,
1985;
4. Competency and
capability
Aylin et al., 2013; Geeta, & Hong, 2003; Bhide, 1996;
Bouazza et al., 2015; Lee, 2001; Muriithi, 2015; Hewitt
& Wield, 1992; Pasanen, 2007;
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5. Negative perception
Amyx, 2005; Bowen et al., 2009;
6. Access to reliable
information
Kamunge et al., 2014; Oshikoya & Hussain, 2007;
7. Government support
Davidsson, 1989; Kamunge et al., 2014; Krasniqi, 2007;
8. Corruption
Benzing & Chu, 2012; Chamlee-Wright, 1997;
Macculloch, 2001; Transparency International
Corruptions Perception Index, 2007;
DISCUSSION
Given the importance SMEs to the national economies indicates they cannot be ignored. As
demonstrated in this paper, SMEs contribute more than 50% of most African GDP and an
average of 60% of employment. However, it is notable that most African governments do not
pay little attention to SMEs well-being nor do they put appropriate infrastructure to
encourage their growth. Yet by addressing challenges related to power shortage, access to
capital, poor management skills and competencies, inadequate information, lack of
government support and rampant corruption, SMEs are able to put Africa on a leadership
map in terms of development and innovation. It is through positive role of SMEs can Africa
transforms its economic status and position itself as a competitive giant for the rest of the
world to recon with. The continent is rich with minerals, agricultural and people resource to
match any challenge arising from Asia, Americas or Europe.
CONCLUSION
The importance of SMEs in an economy cannot be under estimated. In fact, world
governments, policy makers whether in developed or developing countries now see SMEs are
as sources of employment, wealth creation and innovation (Nieman, Hough &
Nieuwenhuizen, 2003). The area also major sources of manufacturing and service products
for both exports and domestic consumptions. Although various challenges and solutions
have been discussed in relation to SMEs in Africa, a study by Benzing and Chu (2012) found
that the most important factors associated with success of the SMEs were non-managerial
characteristics such as honesty and integrity, hard work, business reputation, good customer
service and good quality products at competitive prices. The personal success factors remove
the blame for failure from external forces such as governments and financial institutions and
put success or failures squarely on the owners/entrepreneurs as responsible for their fate.
However, it is important that different African countries develop policies and regulatory
framework that would favour and encourage SMEs development and growth. With well laid
strategies to develop SMEs means developing strategies to alleviate poverty reduction and
improvement of GDP, a thing any government would like to accomplish for its citizen.
However, with a very high rate of failures of SMEs in Africa, the African governments must
put more effort and come up with practical rather than theoretical solutions to SMEs alarming
rate of failures and dissolutions. Focusing and devoting time and resources to addressing
SEMs challenges, African governments will be indirectly creating room for development
through thousands of jobs to be created by SMEs thereby boosting individual country
economic development and overall growth and poverty reduction (Adisa, Abdulraheem &
Mordi, 2014), thereby giving more hope the majority of poor citizens that are dependents on
their businesses for survival.
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ISSN 2056-5992
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... According to SMEDAN's (2012) report, the mortality rate of these small businesses in Nigerian economy sector is very high. Seemingly, Muriithi (2017); Adanlawo, Vezi-Magigaba and Owolabi (2021) opine that the death pace of SMEs among African nations remains exceptionally high with five out of seven new businesses failing in their first year. Oboh, Yeye and Isa (2013); Ocheni and Gemade (2015); Muriithi (2017) have identified tax related issues among several factors for untimely close down of the SMEs. ...
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