The critical role of the Small and Medium Enterprises (SME) Sector in the industrialization of nations came into focus at the 2018 Africa Industrialization conference, held at the new and ultra-modern conference centre of the African Union in Addis Ababa, Ethiopia. The conference, which attracted participants from across Africa and beyond held between 18th and 23rd November, 2018. It provided an opportunity for academics, policy makers, entrepreneurs and investors from all over the world to interact on the important subject of industrialization in Africa.
To say that Africa is a land of opportunities is to put it very mildly. The continent is richly endowed with an assortment of natural resources, including oil and solid minerals. According to the African Development Bank (AfDB) in a 2017 report, the continent is sitting on more than US$82 trillion in discovered natural resources with a potential to contribute annually about US$30 billion in government revenues over the next 20 years. The AfDB report also said that the value added of the continent’s fisheries and aquaculture alone is estimated to be worth more than US$24 billion. Africa is indeed blessed in many ways, including climate and even human resources.
Unfortunately, Africa does not have the capacity to transform its raw produce into industrial manufactures. In the area of agriculture, Africa leads in the export of unprocessed agricultural raw materials. It is responsible for 69 per cent of the world’s export of raw cocoa beans and only 16 per cent of processed or ground cocoa, for example. This instantly undercuts the continent in terms of revenue. It is important to note that ground cocoa typically fetches two or three times more money than raw cocoa. It was therefore a time for soul-searching for African leaders and resource persons that met in Addis Ababa last week to find ways of advancing Africa’s industrialization efforts.
Although industrialization in Africa has shown some signs of growth of recent, the continent’s share of global exports is still very low, at less than one per cent, compared to other regions of the world. For example, the share of East Asia in global manufacturing is 16 per cent. Africa indeed, lags behind others in manufacturing. The average manufacturing value-added for Africa is a only 10.2 per cent while it is 13.4 for Latin America and 25 per cent for Asia Pacific. Similarly, while the average world manufacturing contribution to GDP is 16 per cent, that of Africa is only 11 per cent, way below even the average for low income countries at over 12 per cent.
In view of the foregoing negative report on Africa, its eggheads at Addis Ababa had no difficulty in agreeing that manufacturing is the next real act for Africa because industrialization has the potential to reinforce other sectors through the provision of raw materials, revenue, agricultural chemicals and pesticides, equipment and technology. Africa depends on primary products like cocoa and oil. The problem such countries face is that outsiders tell them what price to sell their produce. They have no input to the price of their own produce except through the manipulation of output. President Trump was quoted recently to be happy with the declining price of oil and even prodded Saudi Arabia to do more to cut oil prices. That is a sign of the future for countries that depend on oil and such commodities. The question that then arises is why is Africa where it is in the area of industrialization?
Yours faithfully was privileged to be invited to join other subject matter experts in the field of SME Finance to think through the subject of Financing Industrialization in Africa and make suggestions. I have always maintained that the problem of Africa is simply a leadership problem. Poor leadership is a cancer that begets other problems. Most of the problems that make SME projects unbankable are leadership-induced. Lack of infrastructure, insecurity, uncertainty of the operational environment and such are all leadership-induced, and constitute the reasons why SME loan applications are mostly rejected. This is why an SME project with the same cash flow potentials that is declared unbankable here (because of several uncertainties like power and security) may be very bankable in Europe and America.
In my view, the starting point of any effort to industrialize Africa is the SME sector. This is so because it is better to start from the known and go to the unknown. Africa is hardly conversant with the key elements of the First Industrial Revolution. We are still trying to get it all into our system. Therefore it would be wrong to jump into the Nona technology of the Fourth Industrial Revolution. So we must start with the SME sector, which not only serves as the core of most African economies but provides the bulk of the livelihood of the people.
Unfortunately, the sector has been unable to attract finance. At the conference, it was agreed that funding of the sector must involve both local and foreign sources of finance. However, Africans must begin by properly accounting for the revenues they earn from their produce. It is bad enough to depend on primary products like oil and agricultural raw materials, but worse when we cannot effectively utilize the revenues we earn from them. Countries that depend on primary products have accepted the second fiddle in the comity of nations.To be sure, Africa may not be lacking in resources as the picture painted may show. What is strange is that Africa has been unable to understand the art of effective financial management. Solve that problem and we have more than enough resources to fund industrialization in Africa.
The need for effective partnerships and cooperation was also conversed. Governments – cannot do anything alone. The world is even awash with funds -Green funds, White funds, and all such funds – looking for good returns. African governments, like their SMEs, must make themselves bankable, to attract the relevant partnerships and funds needed for the industrialization of the continent.