“Small and Medium Enterprises in Africa”

January 2009Florie THIELINJulien DE BENEDITTISMaster 1 International Business

Particular analysis through three selected African countries:

Algeria, Ethiopia and South Africa.

SMEs play an essential role in the economic development of Africa by :

Generating employments, tax revenues,

Meeting the national demand,

Increasing the exports,

Decreasing the imports ,

Creating wealth.

Development of the SMEs:Major problems and solutions

1. Current situation in Algeria, Ethiopia and South Africa

2. Numerous barriers of the business environment

3. Main solutions brought by the different actors

Perspective : The global financial crisis

1. Current situationin Algeria, Ethiopia and South Africa

1.1 Why did we choose these 3 countries ?

Algeria Ethiopia South AfricaPopulation 33.9 83.1 48.6

Education

Health

Unemployment

10 years 6 years 9 years

Good

Infrastructures

Retirement

Conflicts

Corruption

Activities

Inflation

Growth

Commercial Balance

I.T.

Bad Medium

14.10% 16.70%26.60%

Bad Awful Bad

With Marocco

3.2

Mainly Oil

2.50%

3%

-8.50%

Medium

Medium

Possible None

2.3 5.1

Mainly agriculture Mainly services

12.30% 4.60%

9.61% 13.30%

12.60% 13.80%

Bad Excellent

ExcellentBad

1.2 Main socio-politico-economical indicators

• Algeria : • Between 1 and 250 persons

• Turnover : less than €22.3 millions

• no more than 25% of the capital is owned by one or more other companies

• Ethiopia :• Microenterprises : turnover < than €1.600

• Small Enterprises : turnover < than €40.000

• South Africa : • Divided in 4 categories : micro, very small, small and medium

enterprises

• Depending on the sector of activity of the SME

• Workers : less than 200

• Turnover : less than €4millions

1.3 Legal definition of SME

2. Numerous barriers of the business environment

African African SMESME

Low level of

EDUCATION

Business environmentBusiness environment

2.1 Low level of education

Unqualified entrepreuneurs :

have difficulties to start and manage a business.

Lack of skilled employees.

African African SMESME

FINANCELow level of

EDUCATION

Limited access to

Business environmentBusiness environment

2.2 Limited access to finance

Because of :- the under developped financial market,- the information asymmetry,- not enough collateral.

High interests’ rate,Refusal of credit’s demand,Lack of external financings.

African African SMESME

FINANCE

ADMINISTRATION

Low level of

EDUCATION

Limited access to

Unwieldy

Business environmentBusiness environment

2.3 Unwieldy Administration

Because of :- Taxation,- Corruption,- Complexity of the procedures,- Inefficient regulation…

Makes difficult to do business,Can cost a lot.

African African SMESME

FINANCE

INFRASTRUCTURESADMINISTRATION

Low level of

EDUCATION

Limited access to

UnwieldyInsufficient and deficient

Business environmentBusiness environment

2.4 Insufficient and deficient Infrastructures

Limited access to :

- Energy, Water …

- Internet, Telecom …

- Roads, Airports…

Generates areas with limited possibilities,Makes difficult to do business,Leads to high costs.

African African SMESME

FINANCE

INFRASTRUCTURESADMINISTRATION

Low level of

EDUCATION

Limited access to

UnwieldyInsufficient and deficitent

Small local market for

Business environmentBusiness environment

SUPPLIERS & CUSTOMERS

2.1 Small local market for suppliers and customers

Because of :- Narrow domestic markets,- Tariffs and conflicts limit cross-border

exchanges.

Makes difficult to find reliable suppliers,Leads to high transport costs to export,Complicates the way to do business.

In South AfricaIn South Africa

In AlgeriaIn Algeria

In EthiopiaIn Ethiopia

FINANCE

INFRASTRUCTURESADMINISTRATION

Low level of

EDUCATION

Limited access to

UnwieldyInsufficient and deficitent

Small local market for

Business environmentBusiness environment

SUPPLIERS & CUSTOMERS

3. Main solutions brought by the different actors

GOVERNMENTS

African African SMESME

3.1 Governments

Algeria Ethiopia South Africa

Ministry for SMEs

and craft industry

Important SME’s development policy since 2001

Chamber of Commerce

« in process… »

No SME’s development policy

Department of Trade and Industry

Very important SME’s development policy since 1994

GOVERNMENTS-Provide training,

-Attract foreign direct investment,

-Facilitate access to infrastructures,

-Adapt the taxation,

-Facilitate the administrative environment.

NETWORKS & CLUSTERSAfrican African

SMESME

3.2 Networks & Clusters

Cluster =

« Group of SMEs from one industry sector that team up and act as one body. »

Network =

« Group of companies which are linked by means of individual connections. »

GOVERNMENTS-Provide training,

-Attract foreign direct investment,

-Facilitate access to infrastructures,

-Adapt the taxation,

-Facilitate the administrative environment.

NETWORKS & CLUSTERS

-Provide information,

-Share experiences,

-Make economies of scale,

-Facilitate access to finance.

African African SMESME

Financial institutions & Private equity

3.3 Financial institutions and private equity

- Banks

- Micro-credit institutions

- Guarantee companies

- Private equity

GOVERNMENTS-Provide training,

-Attract foreign direct investment,

-Facilitate access to infrastructures,

-Adapt the taxation,

-Facilitate the administrative environment.

NETWORKS & CLUSTERS

-Provide information,

-Share experiences,

-Make economies of scale,

-Facilitate access to finance.

Financial institutions & Private equity African African

SMESME-Reduce the info asymmetry,

-Increase equity,

-Generate collateral.

What is the level of development of african SMEs ?

• Overall, a good trend of SME’s development

• Above all in South and North Africa

But a threat for the future…

the global financial crisis

Perspective : The global financial crisis

• Consequences :- currencies devaluation- drop of commodity prices- cutback in foreign capital inflows

Slowing down of the recent SME’s development improvment

Ressources :• Economic commision for Africa: www.uneca.org

• United Nations: www.un.org

• Organisation for economic co-operation and development: www.oecd.org

• African development bank group: www.afdb.org

• The International Monatery Fund: www.imf.org

• The European Commission: http://ec.europa.eu

• African economic news: www.afrikeco.com

• Trade & Industrial policy strategies: www.tips.org.za

• Cap Afrique: www.capafrique.org

• AllAfrica Global Media: http://allafrica.com

• The Investment Climate Facility for Africa: www.icfafrica.org

• Overview of African SME research: www.sbaer.uca.edu/Research/icsb/2003/papers/66.doc

• Foreign trade: http://www.missioneco.org/me/

• Corruption in the three selected countries: http://www.transparency.org/

• Craft industry and SME Algerian Ministry: www.pmeart-dz.org

• Ethiopian Business Development Services Network (EBDSN): www.bds-ethiopia.net

• Chamber of commerce of Addis in Ethiopia: www.addischamber.com

• Ministry of Foreign Affairs of Ethiopia: www.mfa.gov.et

• Doing business with South Africa: www.southafrica.info/business

• Department of Trade and Industry of South Africa: www.thedti.gov.za