Making Capital Markets work for SME's in Africa

The 21st century is being touted as Africa’s century.  This is because since the beginning of this decade, African growth rates have finally exceeded those of the world in general- a very welcome and positive development.  Since the mid 1990s, the percentage of the population living with less than US$1 per day and less than US$2 per day has declined.  Between 2001 and 2008, growth in gross domestic product (GDP) on the continent averaged 5.9 percent annually.  This growth was accompanied by significant flows of FDI into the region, leading to a near doubling of FDI stocks between 2003 and 2007 according to UNCTAD.  In 2008, Africa grew by an impressive 5.2 percent; the sub-Saharan African (SSA) region grew even faster, at 5.5 percent.  While this growth has allowed African countries to reduce poverty in recent years, income levels remain low and there is still much to be done in order to realize the MDGs by 2015.  The African growth rates also continue to be much lower than those of the group of developing countries from Asia, a region that has raised the living standards of its citizens significantly over recent decades.  The financial crisis around the world also played a part by halting and worsening a lot of the progress that has been achieved. 

Nonetheless, recovery from the crisis is currently under way across the continent.  We have seen the results of prudent macroeconomic policies over the last decade.  This was one of the main reasons why the issues arising from the financial crisis were curtailed.  The next step we have to take is to focus on other necessary reforms that will lead to economic development.  One such is to create the enabling environment that will support the real sector, such as small and medium-sized enterprises (SMEs).  Our growth story needs to continue and this can be facilitated through the diversification of our economy.  An excellent channel is through the development of our financial systems.  Our financial systems are currently dominated by the banking system which means there is an urgent need to develop our financial markets.  Financial deepening especially helps those industries more dependent on external finance and also helps to reduce financing constraints, particularly for smaller firms.  SMEs are the backbone of an economy and therefore one of the key roles the financial markets can play is in the provision of finance to SMEs. Read more