Are all SMEs in Africa equal

The problem with equality is that it is an extremely relative matter. Even two businesses trading in the same sector in the same town with the same turnovers and profit margins, will perceive themselves as not being equal. If we then throw the pool of SMEs into the African bucket, how do we then measure equality?

A key area for me is legislation. Legislation can be a good thing, as good business is often founded on a controlled environment. Legislation can create the controlled environment conducive to business and economic development. However, too much legislation is not a good thing, as it leads to unnecessary red tape, which in turn leads to bureaucracy and a decline in economic development. Too often in Africa the playing fields are not level, simply because governments tend to err on the side of too much red tape ie. legislation and regulation.

So where is the balance to be found?  It is a matter of great concern, but until such time as governments see the need or de-regulation it is unlikely that businesses will benefit from less red tape.

Markets generate the opportunities that so many entrepreneurs are seeking. Yet, governments who have all the import statistics, and which would be useful as part of an import replacement programme, make little to no effort to provide these statistics in the form of useful information to the business community. Why not? Do they have something to hide? A small town in the USA hosts a large motorcycle rally that hosts 400,000 Harley Davidsons over a period of 10 days. At the end of the 10 days they can tell you exactly how many cokes, coffees, underpants, hamburgers, you name it, were sold over the period. They then use that as a yardstick to plan for the next year’s rally, and to charge external vendors for retail space. Everyone is informed and therefore successful, as their decisions are based on useful information.

Finally, while I am totally abhorrent of xenophobic behaviour, whether the African governments are prepared to acknowledge it or not, the fact is that the Chinese are just another bunch of colonialists, simply dressed in another guise. Key to Chinese success in Africa is the fact that they do not interfere in other countries’ politics. You are welcome to do what you like in your country, and as long as you also bow to the pressure from China on issues such as the Dalai Lama, all is well. In a continent where democracy is slowly arriving, there are still too many thugs and criminals, commonly known as politicians and political leaders, which makes the Chinese welcome business-bedfellows. They also share a passion for corruption and bribery. 

However, what is not being noticed is the impact of the Chinese on local markets.

I am aware of landlords who receive their rent cheques for business tenants from the Chinese embassy. I am aware of Chinese traders who simply order more stock. Their stock is funded by the Chinese government. Cash flow is never a problem. Growth is easily funded. In fact I wish I was Chinese in this respect.

African governments claim they want to develop SMEs, but make it impossible for their people to compete against the Chinese traders. The reality is most businesses start small in services and retail, but how can SMEs compete against the Chinese government – they cannot.  And the problem is pervasive from South Africa, to Botswana, to Namibia to Zambia, to Tanzania. In fact the stories never end. In some of the most parts of Africa, the trader is a Chinese fellow.

Therefore in conclusion I believe that the biggest reason for inequality in Africa between SMEs, is our governments who lack insight into SME development, have no visions for what their economies could be, and are too busy cozying up to the new colonials instead of protecting their own markets and entrepreneurs.

Co-operatives in Africa

Co-operatives in Africa are implemented in different ways in each country. Some do it similar to one another and others do it their own way.

I was surprised to find a statistic the other day which indicates that 17% to 19% of global GDP is generated by co-operatives. However, this made me dig a little deeper. I was curious to understand more about cooperatives, because the South African experience from recent efforts to develop co-operatives has been dismal to be polite.

What I discovered is that in most countries, co-operatives were either used as buying co-operatives in order to lower input costs for SMEs, or as sales co-operatives intended to give SMEs better access to markets without having to lose the focus on the production perspective. Early South African co-operatives were created for the same reasons, and we predominantly agricultural based, where small farmers needed help in reducing costs and / or selling their products.

However, in none of these co-operatives did the business model change. The intent was at all times geared to improving the profitability of the members.

A key problem in the South African context is that the co-operative was perceived as being a new business model, which it was not. It is merely a different legal format for a business. Consequently the business model is often ignored completely, and the result is a dysfunctional co-operative that fails rather quickly. Furthermore, generous funding is simply handed out as a lump sum and without control, often leading to fraudulent misuse of the money.

The South African co-operative needs to get back to the raison d’ etre for co-operatives – communal buying and / or selling. The global Internet bubble of the late 90’s failed for the same reasons, - a total lack of understanding and implementation of a profitable business model. They believed they had a new model which essentially lost sight of the profit motive.

Let us get back to basics and use co-operatives properly.