African Governments Should Stop Suffocating SME and Informal Sector

Published on 22nd April 2014

Majority of Sub Saharan Africa’s Small and Medium sized Enterprises; informal traders and producers allegedly lack collective efficiency and joint action necessary to tap into dynamic business and development. The recent step taken by Harare Mayor Bernard Manyenyeni to build a compatible working relationship with the local authority and vendors in the country’s city streets is laudable. This move comes after the Zimbabwe Revenue Authority (ZIMRA) and Treasury admitted that in spite of the informal sector being a dominant force in the national economy, trading laws do not favor it. Traditionally, African governments are known to ignore or wage war on SME and informal economy operators.

The informal economy accounts for 80 percent of new jobs across the continent and is a major contributor to wealth. According to World Bank estimates, informal economies generate 40 percent of GNP in low-income nations. Small and medium-sized enterprises (SMEs), on the other hand, are increasingly being recognized as productive drivers of economic growth and development for African countries. For example, they account for 70 percent of Ghana's gross domestic product (GDP) and 92 percent of its businesses. They make up 91 percent of formalized businesses in South Africa and 70 percent of the manufacturing sector in Nigeria.

Africa is not experiencing an inclusive rise because some of the business dynamics that have kept the continent going are either stifled or are not upgraded to engage with the global dynamics. Africa’s economic “informality” and SMEs need a rethink; reconstruction and repositioning as part of strategic tools to enable the continent engage local and global economic trends effectively.

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