Africa’s economic progress.
The African Development Bank reported Africa estimated average growth in 2017 at 3.4% making it the world’s second-fastest growing economy. The Bank estimates that growth is expected to increase to 4.3% in 2018.
This growth has been consistent throughout the continent. Over 70% of African countries have grown at between 4 % growth, with 33% of countries growing at 6% and above. Between the year 2000 and 2016, the African GDP has trippled. These trends have led to economists and business observers view of Africa as the world’s futre growth engine or the next China.
At an estimated GDP of $ 6.7 trillion (based on Purchasing Power Parity), Africa is about the sze of India economically and about one third the size of the the USA.
Three positive trends
In the long term, three powerful positive trends are likely to sustain Africa’s growth. First, the continent has a young population with a growing labour force – a highly valuable asset in an ageing world. In 2034, Africa is expected to have the world’s largest working-age population of 1.1 billion. In recent times, it has had some success in creating jobs – 21 million new stable (formal, wage-paying) jobs over the past five years, and 53 million over the past 15. Stable jobs grew at a rate of 3.8% between 2000 and 2015, 1% faster than growth in the labour force. This is still far from the job-creation trajectory Africa needs to fuel future growth, but it is progress.
Second, Africa is still urbanizing and much of the economic benefit lies ahead. Productivity in cities is three times as high as in rural areas and, over the next decade, an additional 187 million Africans will live in cities, according to the United Nations. This urban expansion is contributing to rapid growth in consumption by households and businesses. Household consumption grew at a 4.2% compound annual rate between 2010 and 2015 – faster than the continent’s GDP growth rate – to reach $1.3 trillion in 2015. We project Africa’s consumers will spend $2 trillion by 2025.
Third, African economies are also well positioned to benefit from rapidly accelerating technological change that can unlock growth and leapfrog the limitations and costs of physical infrastructure in important areas of economic life. East Africa is already a global leader in mobile payments. Penetration of smart phones is expected to hit at least the 50% mark in 2020 from only 2% in 2010. In Sub-Saharan Africa, cellular-enabled machine-to-machine connections are expected to grow by around 25% per annum to 30 million by 2020, according to GSMA Intelligence, changing the game in sectors from healthcare to power.*
Source: weforum.org: https://www.weforum.org/agenda/2016/05/what-s-the-future-of-economic-growth-in-africa/
What does this all mean?
It means that more Africans are growing in their income and capacity to spend, that the middle class is growing, the demand for goods and services is increasing and thus opportunities are growing.
This places an ever increasing demand on access to capital.
Give us aid not trade
Over the last decade the African mindset has made a shift from predominantly aid to trade. Before this, it was common to find African nations primarily run on aid from foreign agencies. However, as Africans began to realize that aid is just a safety mechanism whereas trade has the capacity to build economies, the jostle for trade increased until in 2006, for the first time in African morden history, the volume of trade exceeded aid,
SME and growth
Growth can be attributed to mainly its small and medium enterprises (SME). These SME’s creating about 80% of employment on the continent, which results in the establishing a new and growing middle class on the continent, fuelling a demand for goods and services. At this rate it is believed that by 2035, Sub Saharan Africa will be he main source of new entrants into the global workforce. In essence Africa is the new China.
However one of the biggest challenges facing African SME’s is access to funding. Over the last decade, there has been an upsurge in microfinance lending to African micro enterprises. However, it has mostly beein observed that micro enterprises solve the basic problem of poverty alleviation but are unable to empower the creation of enterprises with growth potential. Micro finance provide a means of income for the individual beneficiary who runs a micro enterprise. Such enterprises lack growth capacity and do not create more than one job in most cases. SME’s on the other hand are able to grow and create jobs.
Where micro finance providers meet the needs of the micro enerprises, there seems to exist a lack of instruments supporting the more established, yet still vulnerable SMEs. This phenomenon has been labeled the missing middle. Lack of SME funding means a continent unable to achieve it’s growth requirements.
The need
Thus funding for SME is crucial for the development of the continent. In addition to financial capital, SME owners need support in developing the skills required to successfully grow a business.
Meeting the demands of the missing middle is crucial to the growth of the continent. The challenge then lies in how to meet this need in a viable way. This need provides great opportunties for financiers, investors, funders and lenders to develop suitable financial products to close this gap, wile benefitting from its vast potential.
Source: https://www.norfund.no/getfile.php/133983/Bilder/Publications/SME%20and%20growth%20MENON%20.pdf
The Product
SME’s are the engine of growth in any economy. Africa abounds with opportunities for SME. However, these SME’s lack access to capital, training, skills and access to markets.
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