Transforming Africa through Investing in People

17 Jul 2013

imageSupportive ecosystems that provide appropriate information, incentives, investment and implementation support can stimulate the development of more inclusive businesses with greater impact

Inclusive business holds the key to unlocking Africa’s development potential, UNDP Economic Advisor, Mr James Wakiaga has said. Speaking at the launch of the UNDP report Realizing Africa’s Wealth: Building Inclusive Business for Shared Prosperity, Mr Wakiaga described the situation of doing business in the slums and villages of Africa as challenging due to the lack of enabling market conditions.  This translates into tremendous missed opportunities across the continent.

The conditions or ecosystems comprise a diverse community of actors including governments, donors, NGOs, cooperatives, micro finance institutions, universities, think tanks and other intermediaries involved in creating and enabling an inclusive business, he said, adding that a more conducive support ecosystem can help inclusive businesses scale up and replicate.

“On the micro-level, companies can directly include low-income people into value chains as producers, consumers, entrepreneurs and employees,” said the economist.

The report was launched on the sidelines of a Zimbabwe Small and Medium Enterprises (SME) Banking and Microfinance Summit held in Harare on 17 July, 2013.

“Supportive ecosystems that provide appropriate information, incentives, investment and implementation support can stimulate the development of more inclusive businesses with greater impact” states the report, produced under the leadership, coordination and funding of the UNDP African Facility for Inclusive Markets (AFIM, a regional private sector and inclusive market programme of UNDP’s Regional Bureau of Africa.

The report describes the status of inclusive business in sub-Saharan Africa and the ecosystems underlying the enterprises and entrepreneurs driving such approaches. It identifies promising opportunities in strengthening these ecosystems, enabling enterprises and entrepreneurs to build more—and stronger—inclusive businesses. It calls on supporting institutions to step up innovation and entrepreneurship in enhancing inclusive business environments. Moreover, it demonstrates that this type of investment pays off in terms of poverty alleviation and sustainable development.

Meanwhile, SME have been hailed for their contribution to the economy by increasingly filling the gap left behind by closed corporate and identifying with vulnerable groups in society. Citing a 2012 Finscope Survey, Dr. Kupukile Mlambo who is the Deputy Governor, Reserve Bank of Zimbabwe said SMEs now contribute 60%-70% of Zimbabwe’s Gross Domestic Product (GDP), yet only 18 % of them have access to financial services hence resulting to savings “under the pillow”.

According to the Reserve Bank official, SMEs are confronted with “opaqueness factors” such as the lack of suitable and acceptable collateral, as well as information and tools to prepare bankable project proposals. This problem is further compounded by the high interest rates prevailing in the country.  However, though commercial banks commercial banks may appear to be not interested in dealing with SMEs, they are gradually developing new business models, technologies and risk management systems to reach out to SMEs, he stated.

Sharing experience from South Africa, Mr. Evans N. Maphenduka, head of the microfinance division of the Small Enterprise Finance Agency (SEFA), said that in South Africa, SME challenges include lack of insufficient capital and a weak debt funding model supported by adhoc grant funding that is not sustainable.  Others are poor management and limited access to markets.