Analysis in brief: Small, start-up businesses are proving a viable and sustainable way to grow African economies and provide employment. Driven by a desire to be their own bosses, new entrepreneurs are using their knowledge of the needs of their local markets to provide products and services, while new means of marketing and access to intra-Africa trade are providing unprecedented opportunities for ambitious business visionaries.
Micro, small and medium enterprises (MSMEs) comprise most businesses in Africa’s formal economic sector, and they employ more people. While the informal sector in Africa actually is larger and a greater employer, MSMEs exist within the rules, regulations and financial institutions of the formal sector. As registered businesses, they are the innovations of entrepreneurs who find the challenge and rewards of starting and sustaining a successful business alluring.
At times, a start-up is necessary, such as when a talented or degreed individual cannot secure work in the formal sector. Some entrepreneurs are enticed by the prospect of being their own bosses and put in the hard, sustained work of starting a business. This interesting reason has seen an increasing number of younger South Africans leave their work in the corporate sector once they have gained experience in the business world to set out on ventures of their own.
The saying goes that the two essentials needed by a prospective entrepreneur are a solid business plan and knowledge of the market. Regarding the latter, MSMEs are varied in all respects but share one thing in common: their originators feel their product or service fills a need in the local market they know better than outsiders. Consequently, MSMEs mostly focus on the local markets before expanding into intra-Africa trade. However, the new African Continental Free Trade Area was created to benefit MSMEs by boosting overall trade.
Source: African Women’s Entrepreneurship Program/Exchanges Photos/Wikimedia Commons
Challenges and opportunities for small enterprises
Statistically, educated individuals have a greater likelihood of succeeding as entrepreneurs. Less educated individuals require assistance in matters from company registration to taxation. Governments serious about boosting MSMEs need to provide such mentorship. In South Africa, the National Development Plan envisions an education component that expects 90% of all new job creation in the country by 2030 to come from MSMEs.
The 2020s thus far have proved difficult for MSMEs. After business activity nearly ceased during the Covid-19 pandemic lockdowns, which was followed by a global recession, recovery was seen in 2023. However, setbacks in 2024 were reported by 65% of Africa’s small enterprises, and worker layoffs were reported by 40% of MSMEs. These companies blamed the deterioration of their operations on high inflation (68%), fluctuations on exchange rates (41%) and political crises (30%).
While a quarter of Africa’s MSMEs are aware of the African Continental Free Trade Area opportunities and wish to engage in intra-Africa trade, 45% say they have insufficient information on trading requirements like taxation and customs regulations to move forward, while 44% say they cannot access capital for expansion. Raising financing continues to be a challenge for start-up entrepreneurs, with 31% reporting their bank loan requests were turned down in 2023. However, the financing picture is changing in their favour: Bank loans to MSMEs doubled from 13% that year to 29% in 2024.
Digital tools are also targeting MSMEs by providing online platforms and guidance, with the internet filling the education gap. In particular, entrepreneurs seek skills development in technological solutions (55% of MSMEs), digital marketing (54%) and accessing financing (49%). MSMEs’ marketing is largely online and done by the companies themselves rather than by advertising agencies. Using their self-taught skills, 67% of MSMEs market themselves online, while 32% employ search engines to get their products and services to the attention of the online public. Nearly two-thirds of MSMEs say they are reliant on digital services, and half of them position their websites as an important means to do business.
The trending opportunities
Some market niches that can be filled by MSMEs require no special skills other than knowledge of the businessperson’s local market, while specialised skills and knowledge are required to fulfil some opportunities. For instance, agriculture and agribusiness can be pursued in food production and animal husbandry, requiring no degree. High-tech solutions are also an option for small enterprises that offer products like farming technologies that range from solar-powered irrigation to apps linking farmers to markets. No matter what skills are required, agriculture is a welcoming sector for entrepreneurs.
Africa’s developmental requirements call for entrepreneurs to provide healthcare services too. Biotechnology firms are needed to create locally made medical devices, diagnostic tools and medicines. Cold chain services for transportation and storage are essential for the healthcare and agricultural sectors. Africa’s need to expand education gives MSMEs a chance to provide educational tools and services as well, particularly EdTech that enables students to learn online and on mobile devices.
Source: African Journal of Economic and Management Studies/Weliswa Matekenya and Clement Moyo
Africa’s extensive energy needs, especially during the transition to renewable energies, requires MSMEs build up the solar, wind and bio-energy sectors from the simple installation of solar panels to developing new energy technologies. Although requiring skills training and education, technological enterprises are also needed to service Africa’s IT sector. The IT market currently seeks software programmers, IT consultancies and cybersecurity services. Cybersecurity is of particular importance for MSMEs to function in a competitive marketplace where online criminality and mischief are rife.
e-Commerce has made online retail an accepting sector for MSMEs, who use online marketing and new delivery infrastructure to run virtual stores. The tourism sector’s large and established hotel chains and booking companies cannot fill all market needs, whereas smaller companies can provide niche services like cultural and other special-interest travel services. Once the province of large banks, financial services are now being provided by start-ups too.
Not all MSMEs are successful. Depending on the country, from 20% to 60% of businesses fail during their first year. However, their owners may proceed with starting new businesses despite the closures. The value of the small business community is its agility and resilience, its knowledge of the local market and its seemingly endless supply of innovative ideas.
The critical points:
- Micro, small and medium-sized businesses are now the largest employers in Africa’s formal sector economies
- The African Continental Free Trade Area is giving small enterprises new opportunities to expand through intra-Africa trade
- Small businesses are increasingly embracing digital tools like social media and digital searches for marketing and e-commerce to run virtual retail outlets