Start-ups are important to Africa’s economic recovery. Here’s how govts can ensure that they thrive

Small and medium enterprises (SMEs) are the backbone of the African market economies, representing about 90% of businesses and employing up to 60% of the population. The COVID-19 pandemic has wrought significant havoc on these crucial players in the economic landscape. Vikas Bali, the CEO of Intellecap, shed light on the impact of the pandemic on SMEs and the way forward for economic recovery. The pandemic has led to a compression in demand for SMEs, with many having to reduce prices yet still experiencing erosion in demand. Furthermore, disruptions in the supply chain, especially from Asian countries like China and India, have posed significant challenges. Wages have been reduced, and some businesses have even contemplated shutting down permanently due to the impact. Amidst these challenges, some opportunities have emerged, particularly in digitalization of value chains and e-commerce. Businesses are rapidly adapting to the new landscape by moving online and exploring digital payment solutions. However, to ensure the resilience of SMEs in the future, key lessons must be drawn from the current crisis. Access to capital remains a major challenge, with high interest rates and limited formal credit options. Interventions such as developing tailored financial products for SMEs and introducing credit guarantee products can help ease this burden. Governments can also play a role by mandating small suppliers sourcing norms, compelling large private sector companies to source from SMEs. Looking ahead to the post-COVID-19 world, key drivers for investments in Africa will include leveraging scale, attracting more capital flows, and increasing inter-regional and intra-country trade to make the continent more attractive for private capital. By nurturing start-ups and SMEs, African governments can pave the way for a strong economic recovery post-pandemic.