Small businesses key to economic growth in Africa.

• Author: Mupotola, Moono
• Position: SPECIAL REPORT

The COVID-19 pandemic has had an adverse economic impact on Africa, with sub-Saharan Africa experiencing its first recession in 25 years. The continent's gross domestic product (GDP) is expected to decline from about 3% in 2019 to -2% to -5% in 2020, with the region's major sources of revenue declining. To give a few concrete examples, commodity exports and remittances declined by 17% and over 23% respectively, and the tourism sector has lost up to $120 billion in revenue.

The partial or complete lockdowns in most African countries imposed a huge economic shock on the private sector, especially for those on the fringes of the formal economy. Micro, small and medium-sized enterprises (MSMEs), took a heavy toll. If not effectively addressed, this does not bode well for the continent's recovery prospects, as MSMEs are the engine of Africa's job growth. Although many African countries borrowed from the African Development Bank (AfDB) for economic stimulus packages to cushion the effects of the pandemic, the support for MSMEs has been limited.

The current crisis, also required the Bank to reconfigure its MSME support systems to address the pandemic's economic consequences. This included, for the first time, leveraging the Bank's Regional Operations Envelope to bolster national budgets and supplement policy-based allocations from the Bank. These operations all had very strong MSME-support components to mitigate the impact on these enterprises.

With MSMEs constituting 80% of Africa's enterprises, multilateral financing institutions, such as the AfDB, need to support these small businesses to trade. Enhanced Bank support to MSMEs is particularly important now that the African Continental Free Trade Area (AfCFTA) is in force and will be creating tremendous economic opportunities. Creating a larger market that goes beyond national borders will increase product demand, ensuring full capacity utilization of these MSMEs, and ultimately result in expanded MSME investments in the continent.

More importantly, MSMEs as part of a supply chain are better placed to benefit from partnerships with potential foreign investors, seeking to expand or launch their business on the continent. MSMEs would benefit from improved management practices, technology transfers, capital infusion and greater market penetration locally, regionally and globally. Through its support interventions, which address the above, the Bank is enabling MSMEs to leverage both the AfCFTA and...