3rd AU MSME Forum: SMEs as Lifeblood of Africa’s Economic Transformation

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The 3rd Annual African Union Micro, Small, and Medium Enterprises (MSME) Forum, held in Windhoek, Namibia, from September 9th to 13th, 2024, brought together policymakers, industry leaders, entrepreneurs, and development organizations from across Africa under the theme “Fostering Financial Empowerment and Educational Innovation for African Startups & MSMEs.”

A cross-section of dignitaries at the opening ceremony of the 3rd African Union MSME Forum in Windhoek, Namibia

Micro, Small, and Medium Enterprises (MSME) are increasingly being recognized as the bedrock of Africa’s recovery effort from the economic setbacks caused by Covid-19. Although MSMEs account for between 70% and 90% of employment in Africa they continue to face hurdles such as limited access to finance, infrastructure challenges, and regulatory bottlenecks. Despite these constraints, the MSMEs sector remains strategic in Africa’s quest for job creation, poverty eradication, and attaining economic prosperity.

It was in recognition of this strategic role that the 20th Ordinary Session of the AU Conference of African Ministers of Industry (CAMI 20) directed Member States to foster enabling environments for SME growth. The AU subsequently developed an SME Development Strategy and Action Plan which prioritizes the economic empowerment and inclusion of SMEs as the basis for developing intra-African value chains and bolstering regional trade.

The Annual AU MSME Forum also aligns with the AU’s SME Strategy and the maiden MSME Forum was held in June 2022 in Cairo, Egypt under the theme: “Economic Empowerment of SMEs, Women and Youth Entrepreneurs to Realize Africa’s Industrialization in the Context of the Integrated Market” while the 2nd AU MSME Forum was held in September 2023 at Addis Ababa, Ethiopia under the theme: “Start-up Acts: Fostering Development and Innovation in Africa.”

The Forum is fast growing into a premier platform for reflection on the state of MSME development in Africa for ecosystem leaders, policymakers, and SME owners as well as serving as a platform for fostering collaborations among stakeholders in Africa’s SME ecosystem. It was against this backdrop that the 3rd Annual African Union Micro, Small, and Medium Enterprises (MSME) Forum was held September 9 – 13 in Windhoek, Namibia, in collaboration with the Namibian Investment Promotion and Development Board (NIPDB), among others.

The Forum featured discussions on sub-themes such as How MSMEs can take advantage of the integrated African market ushered in by the African Continental Free Trade Area (AfCFTA); Navigating the sources of funding for African entrepreneurs; The role of digital and financial literacy in SME development; The role of insurance services in creating access to finance for SMEs; How SMEs can finance, educate and innovate for each other as well as Launch of Lithium-Ion Afro-Hackathon and launch of the AU SMEs definitions.

Amb. Albert Muchanga, AU Commissioner for Economic Development, Trade, Tourism, Industry and Minerals delivering his opening statement

“Innovation Critical for Africa’s MSMEs Sector to Thrive” – Amb. Albert Muchanga

In his opening statement, Amb. Albert Muchanga, AU Commissioner for Economic Development, Trade, Tourism, Industry and Minerals, described innovation as critical for Africa’s MSMEs sector to thrive. He therefore challenged the SME owners at the Forum to think critically about innovation and urged African governments to address the crucial challenges around intellectual property and patenting to spur more innovation from African entrepreneurs highlighting the significance of the AfCFTA Protocol on Intellectual Property Rights as a tool for supporting MSME innovation on the continent.

To this end, the AU Commissioner also underscored the importance of research and development (R&D) in fostering innovation. “Governments must create an enabling environment for R&D to boost innovation. Another challenge before African governments is: How do you facilitate access to finance to enable local MSMEs to grow?” Amb Muchanga told the government representatives at the Forum.

To the SME owners and entrepreneurs, Muchanga said: “As entrepreneurs, consider corporate savings and how you can self-finance your business for growth. Access to finance remains one of the most significant barriers to growth for African MSMEs and many MSMEs struggle with obtaining the necessary capital to scale their operations. You should explore innovative financing models like purchase order financing, which allows businesses to obtain financing based on confirmed orders rather than credit history or collateral.”

Amb Muchanga further announced the launch of the Africa Enterprise Network (AEN) Fellowship, whose pilot phase will support 50 MSMEs from across Africa across sectors such as sustainable agriculture, digital transformation, and manufacturing. The 12-month program will provide training, mentorship, and networking opportunities for MSMEs to scale up and thrive in a competitive global market. “The fifty businesses selected are already making positive impacts in the sectors of sustainable agriculture, manufacturing, digital transformation, mineral beneficiation and creative industries,” he noted.

“Africa’s Youth a Unique Competitive Advantage for SMEs Growth” – Namibian VP

In her keynote address, H.E. Netumbo Nandi-Ndaitwah, the Vice President of Namibia (represented) emphasized the importance of MSMEs in achieving the grand vision of the AU’s Agenda 2063. She underscored Africa’s large youthful population and enhanced intra-African trade brought about by the African Continental Free Trade Area (AfCFTA) as offering the continent a competitive advantage. Given that MSMEs constitute a significant part of the business landscape, VP Nandi-Ndaitwah believes SMEs are well-positioned to drive growth.

“It is worth noting that Africa has made significant strides in the development of MSMEs and startups, demonstrating the potential of its vibrant entrepreneurial ecosystem. African startups raised USD 5.2 billion in venture capital in 2021 alone, showcasing the growing investor confidence in the continent’s innovation and business potential. With five unicorns Africa is steadily catching up with other continents. The global numbers remain comparatively higher, however, Africa’s youthful population, over 60% of which is under the age of 25, presents a distinct competitive advantage,” she noted.

The Namibian VP described the Forum as a vital platform for policymakers, investors, and stakeholders to brainstorm and find solutions to the challenges faced by African MSMEs, namely market access, funding, and limited opportunities. “Overcoming these challenges is essential for MSMEs to contribute to economic growth, job creation, and sustainable development in Africa. Our expectations from this forum are recommendations and action plans that will create a conducive environment for the MSME ecosystem to flourish.”

Ms Nandi-Ndaitwah said Africa’s young entrepreneurs possess the requisite energy, creativity, and drive to not only catch up with their counterparts in other parts of the world but to position Africa as a global leader in innovation and growth as well as foster the emergence of thousands of African unicorns. “Now is the time for all entrepreneurs to aspire to grow beyond the startup and MSME phases. The call to action is clear:  innovate, seek growth and expansion and create sustainable and scalable businesses that will create jobs for our youth.”

Ms Pamela Coke-Hamilton, Executive Director of the International Trade Centre (ITC) delivering her pre-recorded address

“AfCFTA to Transform MSMEs into Key Players in Regional, Global Trade” –  ITC Director

In her pre-recorded address, Ms Pamela Coke-Hamilton, Executive Director of the International Trade Centre (ITC), spoke on the potential of the AfCFTA to transform MSMEs into key players in regional and global trade as enshrined in the AU SME Strategy which recognizes that Africa’s economies can only thrive by empowering small and medium-sized enterprises to grow and by so doing create better jobs, make social inclusion a reality and end poverty on the continent.

“It’s why we’re proud to be a partner of this year’s Forum and to be co-hosting workshops on educational technologies and the AfCFTA training offerings, e-commerce, and pitching while providing mentoring for the winners of the event’s pitching competition — activities we’re organizing with the Afreximbank, the Afrikan Youth Business Council, and Alibaba. At ITC, we’ve seen over the past 60 years that connected, sustainable, inclusive trade can only come when we put SMEs first,” said Ms Coke-Hamilton.

The ITC Director said through the AfCFTA, Africa was already witnessing the delivery of the AU’s Agenda 2063 and its vision of sustainable development by beginning to realize the $22 billion in export growth potential within Africa while also boosting trade with partners around the world, “in a way that does not perpetuate old commodity-dependent trading relationships but prioritizes value addition, diversification, and resilience.

“But we cannot achieve this potential unless we tackle the barriers that hold Africa’s small enterprises back. Like the challenges they face in upscaling, or accessing finance, or having the right data, or complying with an ever-growing list of standards. That’s why we at ITC, through our One Trade Africa Initiative, are working closely with partners such as the African Union Commission to tackle these challenges head-on, both at the regional and continental levels,” she noted.

Ms Coke-Hamilton said in alignment with the AU SME Strategy the ITC would be hosting the first-ever global gathering of ministers responsible for SME issues in 2025. “It’s an event that was inspired by forums like this one—and one that we hope will forever change how the international community engages with small businesses and the issues that matter most to them.

“It’s an event that will only succeed with the support of the African Union Commission and ministers responsible for SMEs across the continent, who are tirelessly advocating for Africa’s SMEs both at home and abroad, including in decision-making centres like the World Trade Organization. And with Africa serving as home to the largest share of the world’s SMEs, their voices must be heard in all global conversations that concern their future,” concluded the ITC Director.

Ms Ron Osman Omar, Ag. Director, Division for Industry, Minerals, Entrepreneurship, and Tourism (IMET) at the African Union Commission (AUC) unveiling the new AU SMEs definition

The AU’s SMEs Definition: A Unified Approach

One of the highlights of the third AU MSME Forum in Windhoek was the launch of AU SMEs definition, a critical milestone in harmonizing how MSMEs are categorized across Africa. Ms Ron Osman Omar, Ag. Director, Division for Industry, Minerals, Entrepreneurship, and Tourism (IMET) of the Department for Economic Development, Trade, Tourism, Industry and Minerals (ETTIM) at the African Union Commission (AUC) carried out the unveiling of the definitions.

Ms Omar explained how the AU achieved consensus on the definition of SMEs based on annual turnover in United States Dollars (USD). “This new definition classifies micro-enterprises as those with an annual turnover of less than USD$1 million, small enterprises as those with an annual turnover of between USD$1 million and USD$5 million, and medium enterprises as those with turnover of between USD$5 million and USD$20 million,” she stated.

Ms Omar described this classification as long overdue. “For years, we have seen a fragmented approach where each African country used different criteria to define MSMEs. Now, with a standardized approach, it will be easier to create coordinated policies and programs that cater to the specific needs of the various categories of MSMEs, whether it is financing, capacity building, or improving market access,” she noted.

3rd AU MSME Forum delegates standing for the AU and Namibian anthems

2024 AU MSME Forum: MSMEs as Lifeline of Africa’s Economy

The highpoint of the 3rd AU MSME Forum was the presentation of a communiqué, summarizing key discussions and actionable recommendations that emerged throughout the five-day event. Among other key activities of the Forum was a design thinking workshop that explored the various challenges faced by African MSMEs. Some of the key challenges identified were lack of access to finance, gender bias, color bias, collateral requirements, lack of infrastructure, product mismatch as well as lack of information and skills gaps, among others.

As a way forward on the financing challenge, the participants proposed several innovative financing models, namely, Purchase Order Financing, which allows businesses to obtain funds based on purchase orders rather than credit history or collateral; Expanding the Use of Products as Collateral, a model successfully used in the mining sector and now being proposed for broader industry adoption; as well as the Formation of MSME Cooperatives, allowing small enterprises to pool resources, reduce risks, and qualify for larger financing opportunities.

Others were Preferential Treatment for MSMEs in Procurement i.e., ensuring a percentage of government contracts are set aside for MSMEs to foster fair competition and growth; Development of legal frameworks tailored to MSMEs’ needs and streamline procurement processes through centralized systems; Mentorship of MSMEs on scaling up and navigating the business landscape by successful African unicorns; as well as Widespread financial literacy programs to help MSMEs manage finances effectively.

The 3rd Annual MSME Forum was a landmark event that sought to mainstream MSMEs in Africa’s economic agenda with the launch of Enterprise Africa Network Fellowship as its climax. With AfCFTA already boosting intra-African trade and the new standardized AU definition of MSMEs, the continent is no doubt on the path towards positioning its MSMEs as the engine of its economic transformation agenda. As the Forum’s communiqué made clear, realizing this crucial goal require coordinated efforts across governments, AU, international partners, the private sector and Africa’s MSME ecosystem.

The 3rd AU MSME Forum showcased many stories of determination and resilience of Africa’s young entrepreneurs across various sectors and value chains –  despite prevailing systemic challenges associated with entrepreneurship on the continent. The challenge before policymakers remains the creation of an enabling environment for the scale-up of these African success stories in entrepreneurship and innovation towards the realization of the shared vision of inclusive economic growth as enshrined in Africa’s Agenda 2063. Indeed, MSMEs are not just the backbone of Africa’s economy – they are the lifeline of the continent’s economy!

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