One of the objectives of AfCFTA, African Continental Free Trade Area, is to create a single continental market for goods and services with free movement of business persons and investments. Small and Medium Enterprises (SMEs) should be poised to tap into this vast market, with 1.2 billion people across 55 member states. With the support of governments across the continent, SMEs can be positioned to tap into this market to experience growth, which can lead to job creation. To take advantage of the opportunities, potential customers, and business opportunities, AfCFTA offers, member states and SMEs must address particular issues. Let’s look at some of the challenges we believe when tackled can help SMEs tap into AfCFTA’s opportunities.

Free Movement

Free movement is not only limited to passport acceptance. It is the ease, or possibility of travel due to cost, and duration of travel. In Liberia, for example, small business owners complain about travel and customs costs when traveling out of the country to buy products to sell. One business owner in Liberia disclosed that she could not afford to go to Nigeria for products anymore because of the customs tax cost at the Liberian airport when returning. She said, “you end up paying more for customs tax than you paid for the products, so I do not go to Nigeria anymore.” Another small business owner, in Liberia, complained about the burden of traveling by road to other countries in West Africa. She said, “traveling by road can take up to five days or more depending on the transportation method you use.” She added that she also has to deal with the many different ‘payments’ requested at border checkpoints, some of them being bribes to pass through the country.” These types of responses were common when speaking to small and informal business owners who had to travel by road to buy products.

To addresses this challenge, governments should reduce tariffs and customs duties from SMEs trading within Africa. A reduction in amount will help SMEs, with low operational funds, bear the cost of traveling for business purposes.
This challenge also presents an opportunity for suppliers to set up supply centers around Africa that are easily accessible to buyers around the continent. For example, suppliers in Nigeria can have a supply center in Ivory Coast to supply countries like Guinea, Liberia, Sierra Leone, and others. Kenya would also make an excellent location for a supply center that would serve customers in the Eastern region. Accessible supply centers will allow SMEs to have increased access to the new market that AfCFTA makes possible, and also create new jobs in the countries they are set up in.

Financing

Setting up supply centers, moving between countries for products, and growing businesses require funds, which brings us to the next challenge, funding. For SMEs in sub-Saharan Africa, financing is their biggest challenge and most cited obstacle for their business. Governments need to step in and provide assistance for small and medium enterprises by providing funds to help small businesses grow by also collaborating with banks and development partners. Recently in South Africa, President Ramaphosa launched a fund that will invest in Small and Medium Enterprises and startups. This program by President Ramaphosa is a much-needed action by the government to assist SMEs with either startup capital or financing for growth.

These types of targeted actions are necessary for SMEs in sub-Saharan Africa to grow. Data from the World Bank showed a small number of SMEs had used bank finance. High default rates and lack of collateral are challenges for banks lending to SMEs. To tackle this challenge and increase SMEs access to funding, provide training on managerial capacity, and understanding credit. Provide training sessions through a small business administration or the Commerce and Trade Ministry in different countries. Local banks can play a role too by providing credit/finance training for their small and medium business customers. In the developed world, an individual grows up knowing what credit is and understanding, even if basically, how a loan works. In Africa, credit, and knowledge of how loans work is different. SMEs need to understand business credit, how it works, and how they can use loans to grow their business.

Access to Technology

According to McKinsey, Africa lags emerging Asian and South American markets in Internet-based GDP. The Internet can influence SMEs growth. While AfCFTA presents a large market, it will take the Internet to make the market small in terms of consumers’ accessibility. SMEs can use the Internet to access buyers and sellers across Africa. Recently, Alibaba launched an online trade platform to help connect Rwandan business to the Chinese consumer. This platform connects consumers and buyers who are miles apart. Using the Internet, link consumers in South Africa with SMEs in Mali, and enterprises in Namibia with consumers in Nigeria. Internet access can provide the opportunity to SMEs to benefit from AfCFTA’s new market. Connecting more people to the Internet in Africa could boost trade immensely.

To address this challenge, governments can provide Internet centers and Internet training for SMEs. SMEs need training on how to use the Internet to take advantage of the benefits. Provide regular training and Internet access in collaboration with universities, colleges, and small business centers in and around the country.

The challenges listed above are not exhaustive but can set SMEs, and startups, up to tap into the single huge market opportunity offered by AfCFTA. In addition to tackling the challenges above to help SMEs take advantage of AfCFTA, SMEs must also be innovative. Innovation will allow SMEs to sustain the gains they get from this new market opportunity. Creativity will be needed to diversify and increase products traded within Africa. The very limited diversity of products means the same primary products dominating trade, according to Alexander Yeats of the World Bank Africa. Being innovative means looking within the African market to solve problems, enhance products/services, or develop new products and services that will meet the wants and needs of the consumer. SMEs need to always be on the lookout for how they can either improve a process or product or supply new services to the market. It will take SMEs being open to change and keeping up with the change that this vast market opportunity offers for AfCFTA’s full potential to be realized.

It is imperative that SMEs have the support they need from the government because it can enable them to grow, which can, in turn, push economic growth. The government should support startups and entrepreneurs and encourage new entrants to the market. Innovation will elevate competitiveness and allow SMEs to take up the challenge to create goods and services that promote diversification in Africa exports. AfCFTA offers the opportunity for economic growth, but to take advantage of this opportunity, governments must support SMEs and address the challenges presented here.