Jean R. AbiNader
November 27, 2018
It is a commonly accepted assumption that small and medium-sized enterprises (SMEs) are vital to creating jobs in an economy. The OECD refers to SMEs as firms employing up to 249 persons, with the following breakdown: micro (1 to 9), small (10 to 49), and medium (50-249). In emerging economies, SMEs contribute up to 45% of total employment and 33% of GDP. This is true across all income levels and illustrates the critical need for policies that promote the growth of SMEs.
Despite a flurry of support programs from the EU, World Bank Group, and many international aid agencies, the status of SMEs still lags in many countries due to a number of factors, both institutional such as government regulations, and systemic including the role of the informal sector. According to a recent study by the Oxford Business Group (OBG), the challenges in Africa are of particular concern where the informal economy is upwards of 70% of the local employment.
According to its assessment, using African Development Bank and World Bank Group data, the financing needs alone are around $330 billion. Without significant support, current unemployment rates, which exceed 20% in most of Africa, will continue to obstruct sustainable quality of life development.
Thameur Hemdane, co-chair of Participatory Financing Africa and the Mediterranean recently noted that “In Africa, there are 44 million formal SMEs accounting for 33% of the continent’s Gross Domestic Product and 45% of jobs. Yet 70% of them lack long-term funding and 80% do not have access to bank credit.”
Speaking for the World Bank, Laurent Gonnet, its chief financial sector specialist pointed out his institution was building support for a ten-year initiative focusing on traditional and innovative means of SME financing. While there is interest in crowdfunding as an option at a recent conference in Senegal, in all of Africa in 2017, the total amount of crowdfunding was $153 million; so much more must be done.
Gonnet believes that the financial sector should reassess its loan policies towards SMEs, utilizing innovative means of defining collateral, partnerships with government and international agencies, and assisting various investment funding mechanisms to calibrate risk within new guarantee regimes.
Although the Arab Maghreb Union (AMU) has been pronounced dead several times this past year, the recent agreement by the heads of the central banks for an integrated response to crafting a regional financial strategy illustrates the nascent benefits of greater economic integration.
As the EU post said, “The competition between Algeria and Morocco disrupts the coherence of the sub-regional system and destabilizes it, or at least delays any possible stabilization, thus increasing the fragmentation of the region into a sort of ‘bipolarity.’”
This political fragmentation does nothing to enhance the economic development in the Maghreb as recent progress in Algeria indicates.
For example, a recent Oxford Business Group report focused on the government’s emphasis on agricultural development as a means to add value and diversity the economy. Given that 97% of its exports are energy-related, it is only natural that Algeria invests millions to build on its existing agri-industry to build up exports and employment. Although early returns on the program to expand the sector are indicating success, Algeria still lags in feeding itself, “The country’s food import bill declined slightly in the first eight months of the year, falling from $5.90bn to $5.89bn, according to the National Centre for Transmissions and Customs Information System,” said the OBG report.
It further noted that “The increase in production has also coincided with a jump in agricultural export earnings. Ali Bey Nasri, the president of the National Association of Algerian Exporters, told an industry conference in late September that the value of agricultural exports had increased by 50% year-on-year in the first seven months of 2018. He predicted year-end exports to reach $75m-80m, against $57m in 2017.” And that’s an indication both of success and weakness if one looks across the region.
In Tunisia, recent figures indicate that it exported in excess of $650 million in agriculture products in 2017, while Morocco is the regional heavy-weight at $4.5 billion worth of exports. There is a high degree of complementarity in exports and imports, a fact that reinforces the benefits available through economic integration. Another factor to be considered is the preferential trade agreements that Morocco has which could be utilized by its neighbors to open new or expand existing markets.
The same point can be made regarding logistics and distribution networks. Morocco’s investments in port development and expansion in Nador and Tangier-Med reinforces its already world-class facilities serving international markets. Algeria is also making billions of dollars of upgrades and improvements to its highways, railway, and ports to become more efficient in connecting to markets in Africa and Europe. Yet it is still a weak contender due to its inefficiencies in integrating existing facilities.
As the OBG concludes, “Despite these improvements to transport and logistics infrastructure, industry figures say significantly more needs to be done to improve trade flows. Algeria slipped 42 places in the World Bank’s most recent Logistics Performance Index, from 75th in 2016 to 117th in 2018, with the bank citing a lack of infrastructure and expertise as major factors behind the fall in logistics efficiency.”
“Interconnectivity is the main challenge the logistics chain is currently facing,” Abdelkrim Nait Ibrahim, director of local logistics firm Universal Transit, told OBG. “Works to connect ports to the main hubs are needed in some regions.”
The AMU would gain so much from sidelining the Sahara issue once again and concentrating on economic growth strategies to greatly benefit their people, just as it was initially envisioned.