AfricaLive.net speaks to Africa’s capital market leaders, entrepreneurs and bankers on the role of the financial services industry in driving the growth of SMEs across the continent.
Are African exchanges beginning to find the levels of liquidity that could have a significant impact on African entrepreneurship? Are many SMEs overlooking the capital markets due to a misconception on what they can offer to companies at their stage of growth? And what steps are being taken to drive collaboration between Africa’s markets?
Access is to capital is only part of the challenge facing Africa’s entrepreneurs. What do financial services sector leaders see as the key elements for entrepreneurial success in Africa? What can be done within the business community to create the environment for growth for Africa’s SMEs?
“Our goal is to contribute more to the financing of SMEs. More than ninety-five per cent of companies in Africa are SMEs, so their importance cannot be stressed enough. They also provide half of the jobs and account for half of the growth in the continent, so their importance is undeniable.
Exchanges can play a role in educating SMEs, which is what we do in our Elite Programme. We need to educate them because most SMEs feel like capital markets are not for them. They feel that capital markets are for large corporations, and they think we are too complicated and expensive for them. We, therefore, have to advise them on how they can achieve their goals through the capital markets. We advise them to put in place good governance, good business plans, and a great vision for growth.
As an exchange, we go out of our way to reach out to organisations and exchanges throughout the continent. One of our main partners is the West African regional exchange based in Cote d’Ivoire. We also have three West African companies enrolled in our elite programme already.“
Mr Karim Hajji, CEO of Casablanca Stock Exchange and President of the African Securities Exchanges Association.
“We are currently building programmes to help SMEs in our country to get financing. This is in alignment with our goal of transitioning from a frontier market to an emerging market. Our central bank will play a key role since it is the driver of innovation in our financial industry. Our central bank is spurring innovation at the moment by working on blockchain and fintech solutions.
We believe that the future of the financial sector will look very different from what it is now. We foresee more trading platforms based on the blockchain emerging and completely disrupting the sector. The traditional stock exchange structure that features brokers will be replaced by one that focuses only on analysts and consultants. There is, therefore, a huge need for futuristic thinking.
African capital markets contribute less than 5 per cent to their economies while their counterparts in emerging markets contribute more than 30 per cent. This shows that the potential for growth of African capital markets is huge. The transition of the Tunisian market from a frontier to an emerging market will largely depend on the new government that will be ushered in after the elections.
The new administration will have to have our capital market high on its agenda, to improve our economy.
Tunisia has a uniqueness about it. We just came from a bloodless coup which is a rarity, and we have also become a democratic state. The international community, therefore, needs to know that we can easily be the Singapore of Africa.“
Mr Bilel Sahnoun, CEO of the Bourse de Tunis. Tunisia.
“Mauritius can be the base for African focused entrepreneurs to develop from. A priority for us is to grow the Africa Board of The Stock Exchange of Mauritius (SEM), and in time it will grow and the depth and liquidity of our markets will grow.
SEM is gearing up to play a far greater role in the region as a capital raising hub.
Much more can be done to raise the profile of Mauritius as a capital-raising platform for international issuers, namely for those looking at investing in Africa and other emerging regions of the world. First, there is a need to develop a local ecosystem that is supportive of good companies having good growth prospects which choose Mauritius and SEM as their capital-raising and listing platform. Institutional investors from Mauritius should be willing to include these companies in their investment portfolios.“
Sunil Benimadhu, CEO of The Stock Exchange of Mauritius
“Nairobi Securities Exchange has always had the belief that for Africa to grow it must trade with itself. We are now working as part of the Association of Stock Exchanges of Africa.
Since the establishment of the association, we have created one unified platform for all 29 exchanges in Africa to meet twice a year. The purpose of the association is to drive the sharing of knowledge and begin discussions around cross-border trade and really addressing the issues affecting the African continent.
We are also working on a pilot program that will be called the African exchange linkages program, through this program we will be linking six stock exchanges as the first phase. This will allow investors in other markets to have a window into what is happening in other markets. This will also allow ease in exchanging as this can be done directly from the country the person would like to exchange from.
We believe we are playing a big role as a leading market by providing direction and integration.“
Geoffrey Odundo, CEO of Nairobi Securities Exchange
“The role of the stock exchanges is to be the mirror into the countries. We are also supposed to be platforms that provide accurate exchange of information. This simply comes down to fostering good corporate governance and filtering this down to our citizens through education.
If I look at Rwanda today it is a country that has grown to have an efficient government, is well organized. I would even say the government approach to business is almost perfect. The capital markets and public sector need to strive for the same and it starts with fostering good corporate governance and creating fundamentally sound businesses that will protect business and investors.“
Pierre Celestin Rwabukumba, CEO of The Rwanda Stock Exchange
When it comes to business here in South Africa, the availability of capital is not the biggest issue. The most significant issues are skillset and scalability. The failure rates of SMEs is the biggest concern. However, businesses with the right vision and expertise often fail fast, learn fast, and come back again. Cases of failed businesses that bounced back are all over Silicon Valley.
Success as an entrepreneur involves soul searching to see if you are cut out for this. This is because it is a very hard road to take, and not everyone is built for it. It has to be way more than a desire to make money. It has to be vision and passion-driven. When you realise that entrepreneurship sits well within you, then you will begin to learn your lessons as you go. One of the most important lessons is patience. You have to learn and believe in the concept of the one thousand days milestone. This concept says that one achieves their first major milestone after they have clocked a thousand days.
The second lesson is the lesson of overnight success. The “overnight success” in an entrepreneur’s journey is a decade. After a decade, you begin to see a lasting legacy forming. We used to look at our peers and wonder why our operation was not growing faster. We then realised that most of our peers had been in the business for over ten years. Once we embraced the concept of “overnight success” we were a bit easier on ourselves. We went easy not in terms of work ethic, but in terms of patience and perseverance.
Samantha Pokroy, CEO of Sanari Capital. South Africa.
“It has become clear to us that we cannot have inclusive growth without including the SME sector. We have been very active in the corporate and government segments, and we are now ready to look at SMEs. The government cannot meet its seven hundred thousand a year job creation target without backing the SME sector. It is, therefore, clear that this needs to be the centre of our attention as a country.
A shocking statistic that has come to our attention is that two-thirds of SMEs in Uganda do not make it to their third birthday. Besides a lack of capital, other factors lead to this failure as well. One of them is a lack of soft organisational skills such as proper bookkeeping and maintenance of financial records.
Another challenge is the lack of access to large markets. This has seen SMEs struggle to do business with larger companies. We have moved to remedy this by setting up an SME incubator. We have trained about a thousand SMEs at no charge by putting them through a four-month training programme. We teach record keeping, health and safety policies, legal frameworks, and negotiation of contracts, and the programme is open to SMEs across all sectors.“
Patrick Mweheire, CEO of Stanbic Uganda.
“Being the oldest bank in this market that predates even the country’s central bank, we have built a reputation as a good corporate and high net worth banker. We have also been at the fore forefront in innovation, launching things as mundane as ATMs and exciting things as exciting as the Blockchain-powered mobile money wallet. Our focus now is supporting SMEs since we know their importance in this economy. The banking sector in Rwanda has created less than five hundred jobs over the past twelve months while a group of forty SMEs that we looked at has created over two thousand in twenty-four months. This tells us that it’s not the formal sector that is creating jobs, but the SMEs. We, therefore, must support this growth, recognising that most African economies are built off of the backs of SMEs.
If you look at the developed world, SMEs contribute 20 to 30 per cent of their GDPs on average. The developing world has to replicate this to experience faster growth. One of the biggest hindrances to SME growth is the lack of collateral. We, however, have schemes that seek to cover the risk and ensure banks can lend to businesses they would otherwise feel uncomfortable lending to. In Rwanda, we have partnered with the business development fund which is a government-backed funding agency. They provide guarantees up to 75 per cent for youth and women, and 50 per cent for everyone else. There are also a few programmes that seek to provide up-close guidance to start-ups. We have government programmes as well as our internal programme. Our programme is being run in partnership with the MasterCard Foundation, the German Development Agency, and the Business development fund. We have enabled thirty-eight entrepreneurs to disperse over a million dollars in the past six months or so. This may not seem like a lot until you consider the fact that these were once thirty-eight unemployed people, who now run small companies as we speak.“
Robin Bairstow, CEO of I&M Bank Rwanda.
“My strategic agenda is to look into various sectors and look for opportunities to help spur growth. Agriculture is one such sector, where we can provide leverage for farmers by delivering value asset financing. Energy is another sector that we can play a role-in. We can play a role in helping the country move on from just hydroelectric electricity into other sources like solar.
Those two sectors may have captured our attention, but nothing has caught our eye more than the SME sector. An economy like Zambia depends on SMEs to stay afloat, so we have to play a part. We understand that the industry faces a myriad of challenges. Chief among the challenges faced by SMEs is lack of collateral to put up against a loan. It is, therefore, upon us to come up with innovative offerings and products that can enable SMEs to approach us for loans without needing collateral.“
Mizinga Melu, CEO of Barclays Zambia.
“When it comes to SME success, it is not only about money. If an SME has an excellent management team with vast experience, it will always find funding from somewhere. If there is a gap in knowledge, then they can import that from other areas. It’s all about education, experience and proper management. Though African SMEs have lacked in those departments for a while, things are improving fast.
We prefer companies that are run by a board of directors than one run by family members. Platforms such as AfricaLive are, therefore, so important because they help these SMEs find out what to do to attract investors.“
Mike Donaldson, CEO of RMB Corvest. South Africa.
“We recognize that there are many opportunities in different regions of the continent. We are looking at markets such as Rwanda, Uganda, Tanzania, and Kenya. These markets are quite competitive, but that does not put us off.
We aim to support SMEs and help them scale into new markets. We recommend them by furnishing them with information about new markets so that they are well informed. We also have an in-house bank assurance department which looks into extending insurance to exporting SMEs. Information and insurance will help them feel secure as they venture into new markets.
We recognize that SMEs are the backbone of any economy. They are the biggest employers, spenders and consumers as well. We, therefore, have to be keen on them. We help SMEs set up the administrative structure, then take them through a workshop to ensure they know how to manage finances. The other piece is to enable them to do more research and development. We do this because we are aware that most SMEs go into markets without understanding them. Walking into a new market blindly backfires because they are most likely to find a competitor who is better than them.“