African leaders should support MSMEs for rapid recovery of economies – Report

African leaders would help speed up the recovery process in most African economies if they can continue to support the MSMEs.

African leaders have been enjoined to promote and support policies that would strategically support the Micro, Small and Medium-sized Enterprises (MSMEs) and speed up the recovery process in most African nations.

By Johnson Uche

This was stated in the Foresight Africa 2021 report, a publication of African Growth Initiatives of the Brookings Institution, a non-profit organization devoted to independent research and policy solutions.

According to the report:

• “Policymakers must continue to support businesses—both smaller enterprises and larger firms—that have been disrupted by the crisis.
• “Arguably, the greatest priority must be to bolster the micro-, small-, and medium-sized enterprises (MSMEs) that are key to African commerce and account for 83 percent of private-sector employment in Africa.
• “Such businesses, which number between 85 million to 95 million, are especially vulnerable to COVID-19 mitigation measures given they are often characterized by person-to-person contact. By just May 2020, 75 percent saw their revenue decline by over 30 percent.
• Finance will continue to be one of the greatest needs for African businesses; indeed, only 5 percent of MSMEs across the continent feel they have received adequate support from lenders. Provided governments navigate Africa’s fiscal challenges with skill and determination, they can continue offering suitable financial support to small enterprises; in addition to indirect support through value chains and banks, such assistance might include loans, debt forgiveness, low-interest rates, assistance with payments to suppliers, and reduction in utility costs.”

 Ways Governments can provide financial support to MSMEs

• “There are several steps that governments can take to provide financial support to MSMEs. One option is to assist MSMEs through larger firms in their value chains, which might include upstream suppliers and downstream buyers.
• “Governments can provide easier liquidity and working-capital terms to these larger players, and they can make such support conditional upon these firms’ providing favourable financial terms to MSMEs.
• “Governments can also consider providing risk guarantees or first-loss mechanisms while requiring banks to on-lend under the chosen set of criteria and guidelines in order to encourage banks to lend to MSMEs.
• “Policymakers must not lose sight of the region’s informal sector, as 84 percent of African MSMEs are unregistered. Policymakers can take advantage of the opportunity created by the crisis to convince larger numbers of informal enterprises to register, and thus gain better access to finance and markets. Moreover, to promote registration, governments could shape bold campaigns and attractive packages, potentially including multi-year tax holidays and capacity building for MSMEs.”

Why this matters

• Micro, Small and Medium-sized Enterprises (MSMEs) are widely recognized for the important contributions they make to sustainable development, in terms of contributions to economic growth, creation of jobs, provision of public goods and services, as well as poverty alleviation and reduced inequality.
• The pandemic has seriously impacted the MSMEs in all African nations as it has exacerbated economic hardship and may have pushed more than 40 million Africans into extreme poverty.
• It is imperative that the African leaders focus on enabling businesses to respond effectively to these new and unfavourable conditions to which most MSMEs have been exposed to.