2023 AAE Annual E-book

ABOUT AAE

INTRODUCTION TO THE AFRICAN ASSOCIATION OF ENTREPRENEURS

The African Entrepreneurs Association (AAE) is a renowned business organization in the African region, aimed at providing a strong united entity for entrepreneurs to address challenges. The brand background is based on the values of fostering innovation, entrepreneurship, and economic growth. The association offers professional demand services such as industry insights, entrepreneurial training, business collaboration, and investor connections. AAE helps entrepreneurs enhance their business skills, expand networks, and provides support in a competitive environment. 

AAE VISION, MISSION, AND OBJECTIVES

AAE Vision: To be an engine for change and platform for dialogue for African SMEs. 

AAE Mission: To establish a mutually beneficial sharing system where entrepreneurs and expert volunteers exchange experiences and participate in learning and service.

AAE Objectives:

Create a virtual space for creative and cultural expression where diverse SMEs can showcase their excellence.

Contribute to regional advocacy campaigns that support and encourage innovation and sustainable entrepreneurship.

Work with governmental institutions to promote innovation and sustainable entrepreneurship.

Provide and support professional development programs that promote and nurture innovation and sustainable entrepreneurship.

Involve international volunteers and audiences to encourage them to have an active role in assisting African SMEs.

KEY TERMS

SMEs (MSMEs): Small and Medium Scale Enterprises

AfCFTA: The African Continental Free Trade Area

NGOs: Non-governmental Organizations

NTBs: Non-tariff Barriers

GIZ: The German Agency for International Cooperation

LLCs: Limited Liability Companys

OFPPT: Vocational Training and Labor Promotion Office

GDP: The Gross Domestic Product

ANAPEC agencies: National Agency for the Promotion of Employment and Skills

MSC: Monitor Security Control 

ICT: information and Communication Technologies

AMU: The Arab Maghreb Union 

ZDA: The Zambia Development Agency 

RoO: Rule of Origin 

ZRA: Zambia Revenue Authority 

USDA: The US Department of Agriculture 

SPS: The Sanitary and Phytosanitary 

ZARI: The Zambia Agriculture Research Institute 

APHIS: Animal Plant Health Inspection Service

CBP: Customs and Border Protection

OAU: The Organization of African Unity 

EAC: The East African Community

COMESA: The Common Market of Eastern and Southern Africa 

ECCAS: The Economic Community of Central African States 

ECOWAS: The Economic Community of West African States

CEN-SAD: The Community of Sahel–Saharan States 

IGAD: The Intergovernmental Authority on Development 

URA: Uganda Revenue Authority

SADC: The Southern African Development Community

AU: The African Union 

AfDB: The African Development Bank

FE: Fixed Effects 

UNU-WIDER: United Nations University Institute for Development Economics Research

SMEs

November 16: Exploring Conditions Enabling SMEs to Thrive Under AfCFTA (by AAE)

ABSTRACT

Entrepreneur. The word itself sounds exotic and mysterious. When a person thinks of one, they may think of a person in a far-off land making some kind of deal that will result in a profit. They may never take notice of the small business person in their own community or on their own street trying to do the same, or the individual building a business from nothing somewhere in their own country (Eineman, 2010).

Yet, the modern entrepreneur embodies much more. He or she is a risk-taker; a person who works, invests, builds, and fundamentally creates economic opportunities for themselves and their employees. This, in turn, generates employment, contributes tax revenue, manufactures goods and services for domestic or international markets, stimulates additional business activities, and plays a crucial role in a country's development. Governments can’t create prosperity. Non-governmental organizations (NGOs) can’t create prosperity. Entrepreneurs can (Eineman, 2010).

However, the entrepreneurial journey is fraught with challenges. No business operates in isolation. Success requires access to capital, markets, skilled employees, and profit potential. A conducive business environment is crucial, encompassing factors like education, infrastructure, a legal framework, and a tax policy that fosters rather than stifles activity. Herein lies the societal role in creating and sustaining a favourable climate for entrepreneurial growth.

The African Continental Free Trade Area (AfCFTA) promises an era of free trade spanning most of Africa. This ambitious pact aims to establish the world’s largest free trade area, uniting almost 1.3 billion people and fostering economic integration. In the pre-AfCFTA era, intra-African trade grappled with high tariffs and obstructive non-tariff barriers (NTBs). The AfCFTA ambitiously targets the elimination of over 90% of tariffs. However, addressing NTBs, rooted in developmental challenges, poses a formidable task. The persistence of existing barriers in intra-African trade demands comprehensive solutions to ensure their gradual elimination (Ajibo, 2023).

Understanding the needs of SMEs and integrating them into development policies is imperative for meaningful progress. The success of AfCFTA objectives, however well-founded, hinges on active encouragement of such engagement. A study by the German Agency for International Cooperation (GIZ) reveals a concerning lack of involvement by SME associations in intergovernmental efforts to unify the region through trade under the AfCFTA agreement. A regional study shows that less than 13% of SMEs possess knowledge about AfCFTA, leaving the majority uninformed. This neglect of the SME sector hindered its potential, depriving it of the attention it deserves. The study underscores that without the private sector, particularly SMEs, gaining a deeper understanding of AfCFTA, countries will fall short of fully capitalizing on the benefits of the free trade agreement.

SMEs must assume a leading role in the AfCFTA for successful implementation and mutual benefits. Their active participation will not only enhance recognition and support for AfCFTA but also contribute to its transparency and accountability.

This study examines SME support interventions initiated or ongoing in the last two years and their role in bridging the gap between AfCFTA implementation and SME needs. Survey results from SME members of the African Association of Entrepreneurs underscore this need, assessing progress and pinpointing gaps in attention from Business Support Organizations and other entities. Out of the 20 responses received, the most prevalent challenge, identified by 60% of the respondents, is the lack of market/marketing information. Other significant include No website (45%), No means to reach customers in other countries (40%), and Legal issues or bureaucracy (35%). Interestingly, the least mentioned difficulty, No means to pay or send payment across borders, still represents a substantial 25%. This implies that SME Support Organizations can address the issue of inadequate market/marketing information by taking actions such as developing relevant platforms. Moreover, it emphasizes the importance of addressing all challenges comprehensively, as even the least mentioned payment issue significantly affects 25% of respondents.

The depth of responses demonstrates that, when actively engaged, SMEs can provide valuable insights into actions that governments and SME support organizations can take to enhance conditions for SME owners to thrive under AfCFTA.

February 2: Alternative Finance: An Avenue for MSME Growth in Africa (By Jones Bowa)

Research Aim:

To explore the importance of alternative finance as an avenue for MSME finance outside traditional banking systems and capital markets in Africa.

Research Scope:

The research focused on sub-Saharan Africa.

Research Objectives:

To describe alternative finance.

To highlight recent trends in financial flows to Africa.

To determine the potential benefits of alternative financing for MSMEs.

Research Questions:

What is alternative finance?

What are the different types of alternative finance?

What are the benefits of alternative finance?

How is Africa exploiting alternative financing opportunities?

What does the future hold for alternative finance in Africa?

Methodology:

Literature Review

Statistical Data Analysis

1. MSMEs and their Role in Economic Development

The growth of many economies is tied to the performance of micro, small, and medium enterprises (MSMEs). Sub-Saharan Africa alone has, an estimated 44.7 million MSMEs. To provide more context, about 90 percent of all enterprises in Africa are MSMEs. They contribute about 40 percent of Africa’s total gross domestic product (GDP) and create over 60 percent of all jobs (LSEG Africa Advisory Group, 2018).

The importance of establishing a strong economic base for MSMEs cannot be overemphasized. There are positive consequences that result from adopting MSME growth policies, such as higher GDP growth, lower unemployment, and tax returns. Nevertheless, MSMEs face several challenges that hinder their growth and development. Some of the challenges MSMEs are facing include insufficient financing, a lack of necessary equipment and technology, poor accessibility to capital markets, a lack of managerial and technical skills, a high cost of capital, and so on (Gockel and Akoena, 2002; Peter, Ebo and Joshua, 2017).

According to the World Bank’s (2021) Enterprise Survey data, about 38 percent of enterprises in sub-Saharan Africa highlight access to finance as the number one constraint to their growth and development. This is especially so with traditional forms of MSME financing (Beck and Cull, 2014).

Global crises have not helped the cause of MSMEs. Drops in consumer demand coupled with a decline in productivity have shrunk the liquidity pool for MSME finance, making it even more challenging to access financing (Beck et al., 2011). The Financial Access Survey showed that there was a decline in loans to SMEs by commercial banks in 2021 compared to 2020 (International Monetary Fund, 2022).

To curtail the rise in the cost of doing business on the continent and chart a path toward economic recovery, the evolution of MSME financing remains crucial now more than ever. A window of opportunity has opened for non-traditional forms of MSME finance to step in. In particular, alternative finance has taken a lead role in providing support and decentralized MSME financing in recent years and warrants further exploration.

2. What is Alternative Finance?

Alternative finance can be defined as financing obtained from external sources other than banks or stock and bond markets. Alternative financing has become an important source of finance for MSMEs, as it provides them with the opportunity to access financial markets through private funding and/or non-traditional forms of finance (Kovács et al., 2020). Table 1 below presents a list of the main types of alternative financing mechanisms.

Table 1: Types of Alternative Finance

Sources: (Convergence 2021; EIB 2021; Investopedia 2022)

There are several lenders in the alternative financing market space, each with specialized products and services that cater to different enterprises that previously wouldn’t have been able to access MSME financing due to their type of business,