RESCUING SMES CAN SAVE AFRICA'S ECONOMY FROM COVID-19
BY AURELIE NGO MAMBONGO
Since Small and Medium Enterprises (SMEs) are critical to Africa’s economic life, some measures taken to prevent the spread of COVID-19, such as lockdowns and social distancing, will make it difficult for the continent to build its economy back up after the pandemic. Thus, African governments can save Africa’s economy by financing and leveraging technology to boost local SMEs during the pandemic period.
SMEs represent about 90 percent of Africa’s businesses and provide about 60 percent of jobs on the continent. Also, the COVID-19 pandemic is not only a health crisis but also an economic crisis that could cause sub-Saharan Africa’s GDP growth rate to drop down to -5.1 percent in 2020. Since many African countries are heavily dependent on imports and exports, the COVID-19 pandemic will lead to an increased level of food insecurity and a shortage in the supply of pharmaceutical products on the continent. This drop in the GDP growth rate will increase fiscal pressures on African governments, which will affect countries’ revenues and spending.
In light of the negative economic impact of the COVID-19 pandemic, African governments should shift resources mobilized from the debt relief—up to 20 percent of revenues for some African countries—and international aid towards the financing and leverage of technology of SMEs while enforcing health measures to prevent the spread of the COVID-19.
African governments can finance SMEs to save Africa’s economy. SMEs risk a lack of liquidity during the COVID-19 pandemic because lockdown measures will slow economic activities. Transfers of funds will help SMEs continue to operate despite the negative economic impact of the COVID-19 pandemic. African governments can use telecommunication companies’ data to make small regular payments to targeted populations via electronic transactions, such as mobile-money services.
African governments’ best response to the negative economic impact of the COVID-19 pandemic consists of focusing on the rescue of SMEs.
Africa has the highest rate of mobile-money service usage in the world. In 2019, sub-Saharan Africa recorded 469 million mobile-money users, according to the Africa Report. SMEs could also benefit from governments’ grants, loans, or guarantees, which they can access through local banks and Microfinance Institutions (MFIs). Furthermore, financing SMEs could constitute an incentive for businesses in the informal economy to enter the formal economy through registration. Financing SMEs electronically will support economic activities during the COVID-19 pandemic in order to keep the continent’s economy from collapsing.
Additionally, African governments can leverage technology to boost SMEs’ activities in order to save the continent’s economy. Health measures, such as lockdowns and social distancing to prevent the spread of the COVID-19, will slow economic activities. African governments can keep the regular pace of economic activities by making policies that would encourage SMEs to the use of e-commerce.
In 2018, Sub-Saharan Africa counted about 239 million mobile internet users. Moreover, Africa has 264 operational e-commerce start-ups, which are active in no less than 23 countries across the continent. African governments can partner with e-commerce start-ups and sponsor the creation of new ones. E-commerce start-ups would constitute canals through which consumers and suppliers can make electronic transactions. African government can establish pick-up centers across neighborhoods and partner with delivery services such as DHL to deliver products to those pick-up centers. After making orders through e-commerce start-ups, consumers could pick up their orders at their closest pick-up centers.
Encouraging the use of technology in SMEs’ activities will help save the continent’s economy from the COVID-19 pandemic negative economic impact by keeping economic activities operating.
In conclusion, the COVID-19 pandemic constitutes a significant threat not only to Africa’s healthcare system but also to Africa’s economy. Thus, African governments’ best response to the negative economic impact of the COVID-19 pandemic consists of focusing on the rescue of SMEs. African governments’ response to the COVID-19 pandemic will determine the level of damage on the continent.
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Aurelie Ngo Mambongo is a Pacific Council member and a graduate of the Emerging Leaders Program at the Harvard Kennedy School of Government.
The views and opinions expressed here are those of the author and do not necessarily reflect the official policy or position of the Pacific Council.
