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September 24, 2018

Small businesses will create jobs

Africa SME Champions Forum Founder Didier Acouetey  with African Guarantee Fund CEO Felix Bikpo during an Africa SMEs Champion Forum in Nairobi on November 18.
Photo/Enos Teche.
Africa SME Champions Forum Founder Didier Acouetey with African Guarantee Fund CEO Felix Bikpo during an Africa SMEs Champion Forum in Nairobi on November 18. Photo/Enos Teche.

Africa’s GDP growth has been unprecedented and relatively sustained.
Its trade with China has grown from $10 billion in 2000 and is on course to soar to $400 billion in the next four years. Ethiopia, Rwanda and Tanzania are among the fastest growing economies in the world.

Over the two decades in which Africa has registered impressive GDP, three consequential things have happened.
First, there has been a rapid bulge in the population of the young people. For example, 53 per cent of Uganda’s population is below the age of 15 years. Africa’s median age is estimated to be below 20 years.

Secondly, Africa’s cities have grown phenomenally, making Africa the most rapidly urbanising landmass on the planet.
It is instructive to note the rate of growth in Nairobi’s population outpaces the annual national population growth by about 65 per cent.

Third, thanks to the expanded access to education, Africa’s youth have more years of schooling than their forebears. Over 50 per cent of East Africa’s youth are enrolled in secondary schools.
One would expect that the continent has found the proverbial sweet spot — a large, youthful and well-educated labour force.

I estimate that over three million youths enter the labour market in the East African Community yearly. However, only about 15 per cent of them can find work in the formal sector. The remaining 2.55 million join the growing ranks of unemployment or eke out a living through self-employment in the informal sector. The latter is invariably associated with impermanence, uncertainty, low wages and working poverty.
Many analysts have questioned the quality of Africa’s meteoric GDP growth. The continent’s growth has been associated with a deindustrialisation trend and an inordinate upsurge in imports from China, India and Turkey.
Moreover, the agriculture sector has remained at subsistence level, starved of science and technology, and unattractive to Africa’s youth. We have outsourced manufacturing and presided over the inexorable collapse of agriculture and the rural economy. Where will the jobs come from?

Self-employment through micro, small and medium-enterprises (SMEs) are touted as an antidote for youth unemployment.

Huge amounts of public funds are committed to grants and loans to provide capital for youth-owned businesses. And the youth believe they can start and run their own enterprises.
A survey commissioned by the East African Institute of the Aga Khan University revealed that over 50 per cent of East African youth preferred self-employment to formal employment.

But the findings of a survey by the Kenya National Bureau of Statistics released last week makes for depressing reading. About 46 per cent of SMEs failed in the first year of establishment and 2.2 million others have been closed in the last five years.

SMEs fatality is phenomenal and unconscionable, especially if we believe they  are part of an ecosystem of solutions to address youth unemployment.
Young entrepreneurs must be equipped with the skills and knowledge to start and run successful businesses. And we must create a conducive policy environment for SMEs to grow and thrive.

 

Dr. Awiti is the director of the East African Institute at Aga Khan University

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