This is Part 2 of a 5-part series: Strengthening Governance in Africa
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East Africa’s small and medium enterprises (SMEs) are doing well but can do more to lift living standards in the region, says the head of the East African Business Council, Faustin Mbundu. He counts among them businesses that are so small that they are not formally registered with their national governments.
He says in East Africa, SMEs account for about 60% of all employment, and contribute up to 30% of gross national product.
In India, these businesses account for up to 70% of GDP, a figure Mbundu says Africa should aim for.
Mbundu says SME’s face a number of challenges, including a limited access to markets, either due to lack of market intelligence or poor access to infrastructure and other support services. Many small businesses also lack business and management skills to expand.
Mbundu, who is the chair of the Arusha-based business group, encourages governments to strengthen small businesses in a number of ways.
First, keep it simple.
“When you have a policy,” he explains, “that says [for example that] you have a fund to make it easier for SMEs to access finance, [then] you have to make sure that the prerequisites for [tapping] that finance are easy [to understand.]. When users say [the policy] is too complex, you make it easier.”
Next, provide help. Mbundu says many people are pooling their resources to form associations or cooperatives, but their leadership cheats or fails through mismanagement.
“When you have people pulling their small resources together, you need [to improve] their management,” says Mbundu. “You need to get consultants who can help them manage their money, put portfolios together, help them market, to audit, to promote good corporate governance, you get rid of the management problem.”
He says the East African Business Council is working with the African Capacity Building Foundation to provide grants to help train small business men and women in tax management and other related issues.
Mbundu says his group is also encouraging undeclared small businesses, sometime run by one person, or by a family, to register with the government and with private sector organizations. He says some think if they don’t register, they can avoid paying taxes. But he says taxes are nothing compared to the benefits they can receive.
If they register with the government (including government-run tax agencies), they get a tax ID number that will give them access to training and information on tax-related issues. When they register with private sector organizations, they can receive valuable information about buying and selling their goods, including crops.
“In one region of East Africa people do not have enough food, but in another area, there are a lot of maize and crops, so market information is important.
“[And] when you [need to know how to] standardize your products for the East African market, the Bureau of Standards in East Africa can [teach you about] their procedures….Once you [register], you are known and can be targeted for education and training.”
This – along with many other benefits – are provided by a combination of NGOs and government officials who can help small businessmen get vocational training or team up with other associations with the same interests.
Mbundu says governments also need to have a focused regulatory and incentive framework that encourages growth. This includes facilitating SME participation in government contracts.
Mbundu is confident East Africa is on the right path to promote small business growth. His goal is to keep emphasizing the importance of the sector and keep the momentum going.
