Innovations Session N°2

The recording of the session is available in English and French on YouTube

Promoting local entrepreneurs and opportunities in local markets

Small and medium-sized enterprises form the backbone of the African economy, representing more than 90% of businesses and employing about 60% of workers, many of whom are women and youth. They face a series of constraints such as weak infrastructure and logistics that limits services such as road networks, payment systems and warehousing facilities, and leads to higher production and delivery costs for SMEs; access to finance and inadequate skills to respond to demanding markets.Despite limitations, Africa has a wealth of successful and innovative entrepreneurs who invest in local value chains, work hard to meet consumers’ expectations and convince them to buy local, and create employment, especially for youth and women agripreneurs. Smallholder farmers, cooperatives and small and medium enterprises (SMEs) are upgrading their skills to supply local markets and get their businesses to scale.As shown by the COVID-19 pandemic, SMEs to survive and thrive need flexibility and innovation for market expansion, product development, use of technology and new skills. To be more competitive, they also need support in terms of policy reform, development of the trade support ecosystem and capacity building at the enterprise level.Finance is the backbone of any business to start and grow. SMEs often quote finance as their biggest constraint, due to high interest rates, credit worthiness, large collateral requirements and a limited knowledge of loan application together with burdensome processes. High interest rates and fears of losing business in the event of a default in repaying loans also deter SMEs from requesting bank loans.

Small enterprises tend to start with financing from informal sources (e.g., family and friends, own savings, retained earnings, sale of assets) but as enterprises grow, financing switches to more formal sources (e.g. banks and financial support institutions for debt and equity financing) is critical to scale up production, create new products or expand geographically.

Key points for discussion on serving local markets

• • In serving local markets in value-added products, what are the main challenges encountered by business and SMEs and how innovation helps them to grow?
  • Are changes by consumers towards buying local products perceived?
  • How should public and private sector support investment in local processing facilities and growth look like from a business perspective?
  • What are the main business development skills and capacities barriers for entrepreneur to serve local markets and examples on how to overcome them?
  • What are the key drivers to capture more added value in local market for local businesses?
  • To overcome the immediate pressures created by COVID-19, what short-term emergency financing and targeted technical assistance are needed.