OVERCOMING THE CHALLENGES OF SME FINANCING IN AFRICA

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OVERCOMING THE CHALLENGES OF SME FINANCING IN
AFRICA

• JOHN MWANIKI
• TECHNONET AFRICA - A PROJECT OF UNDP
• AUGUST 2006

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INTRODUCTION

• In Africa majority of the people live in the
  rural areas.
• Most dependent on agriculture and other rural
  economic activities.
• Most communities produce on small scale level but
  market their commodities through cooperatives or
  agricultural marketing associations.
• Africa has been a major exporter of primary
  products with little value addition.
• A number of countries have small and weak capital
  markets which can not effectively supply the
  financial resources and other products needed by
  the emerging private sector.
• A significant number of people have been trapped
  in poverty. Globally 1.2 billion live on less
  than US1 per day.
• In Africa with some 700 million people, almost
  50 live on less than US1 per day.

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The Effects of such challenges

• Low levels of savings. In Africa less than 25,
  Latin America 30, Asia 40, while in Northern
  countries more than 50.
• Low levels of investments
• Low levels of industrialisation and technological
  advancement.
• Limited skills

• A large informal sector but a small volume of
  mainstream private sector.
• Access to a small market (Africa accesses lt5 of
  global market).
• Limited global competitiveness
• Limited access to global capital. (Africa
  accesses lt3 of global capital).,when compared to
  7-10 in the 1970s.

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Efforts towards reversing the down ward trend

• Investing in the public and private sectors as
  well as the civil society.
• Learn about the best practices from others who
  have gone through the same path.
• Undertake policy and institutional reforms.
• Identify innovative approaches towards private
  sector development.

• Increase opportunities for market access. It has
  been argued that if the tariffs and non tariff
  barriers were removed, Africas GDP would double
  (UNCTAD).
• Increase access to information communication and
  Technology for use by the SMES.
• Enable SMEs to become globally competitive.

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TECHNONET Africa experiences

• Formed after the TICAD 1 and 11 processes to
  advance SMEs development in Africa.
• Supported by governments of Japan, South Africa,
  Malaysia and Thailand under the Special unit of
  South South Cooperation of the (SU/SSC) of the
  UNITED NATIONS.
• Designed after TECHNONET Asia which has more than
  30 years of industrial experience.

• Focus on the indigenous private sector
  development.
• Focus on turning the large informal sector into a
  profitable and sustainable SMEs sector which
  could be used for outsourcing by the large
  private sector.
• Increase the competitiveness of the SME
  products.
• Facilitate SME financing by developing different
  products.

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Experiences conted

• Facilitation of Technology matching
• Technology transfer in collaboration with the
  partners from Asia
• Exchanges of experiences forums for business
  people, policy makers, and other stakeholders.

• Strengthen networking with similar institutions,
  
• Promotion of joint ventures, investments and
  trade.
• Facilitate creation of windows of opportunities
  for the SME financing.

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Programme focus

• Food processing
• Agro based industries
• Metal working and Engineering works
• Trade and Investments
• Institutional and policy reforms.

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SME BANK

• Drawn from the experiences of Japan and South
  East Asia countries especially Malaysia, Thailand
  and Vietnam that were visited by policy makers
  and leaders from the private sector.
• Development of necessary policies so as to
  establish the SME bank in TECHNONET Africa
  participating countries.

• Efforts to establish this in South Africa,
  Tanzania, Uganda, Nigeria, Cameroon and Ghana on
  pilot basis.
• Discussions with the Africa Development Bank, WB
  that are keen to support the initiative first
  creating windows of financing SMEs through the
  Commercial Banks.
• Avoid the experiences of the past Devt. Banks
  that had been saddled with huge debts and lending
  based on patronage.

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Why SME Development Bank?

• Commercial Banks are not keen to lend to the
  SMEs.
• Studies undertaken by JICA and TECHNONET Africa
  in 2005 in selected African countries have shown
  that 85 of the SMEs complained of access to
  finance as the main hindrance to conducting
  business.
• Another 60 indicated that lack of Business and
  Managerial skills, were the main hindrance.

• While 30 indicated that access to markets,
  Information Communication and Technology was a
  major issue.
• Another 30 felt that they lacked equipment which
  is at the cutting edge of technology.
• And 26 lamented the poor state of infrastructure
  for doing business.

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SME Development Bank Experiences from Thailand
and Malaysia

• Ownership by the public sector and a small
  proportion by the private sector.
• Promote creativity, innovation,
• Business start up financing
• Business incubation
• Trade Finance.
• Export finance
• Capital leasing
• Guarantee funds

• Trade fairs, regional and international
  exhibitions.
• Eco- tourism
• Hospitality industry- hotels, guest houses, homes
  for guests for short stay,
• Medical tourism opportunities,
• Branding and other market opportunities are
  financed.

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Contd

• In Thailand have their own Dusseldorf in Motor
  vehicle and other industries.
• Known for fashion design over the world
• Thai massage extremely competitive.
• OTOP- one village one product policy and linkage
  to the global markets.

• In Malaysia, global competitiveness in industrial
  products, electronics, Banking and insurance
  sectors etc.
• SIRIM Berhad incubator and SME development
  institute makes components for the airline
  industry.
• The seat covers of Malaysian Airlines done by
  the women SME owners.

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Recommendations

• Undertake policy and institutional reforms
• Reduce the cost of doing business for the private
  sector and especially the SMEs.
• Infrastructure development like the industrial
  sites, incubation centres, innovation centres
• Strengthen financial markets.
• Open SME Banks that work and ensure

• Easier access to finance at concessionary rates
  so as to promote SMEs.
• Promote technology matching,
• Promote global competitiveness of the SME
  products.
• Competency based business training programmes.
• Networking, business linkages, outsourcing etc.
• Information on markets and strengthen
  collaboration with GATES (Global Technology
  Exchange System) platform.

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THE ENDTHANK YOU.