How Easy is it for SMEs to Conduct Business in Africa?

With the increasing global emphasis on investment opportunities in Africa’s rapidly growing economies for multinationals and SMEs alike, it is vital for investors and SMEs to understand the business landscape of a country before deciding to expand into its markets.  Thinkroom Consulting has in the last two years worked with Microsoft through its Biz4Afrika program to empower over 240,000 SMEs across Africa and place them online to consume services.

Thinkroom Consulting’s inaugural report, titled An SME Landscape Study: The Conduciveness of Starting and Conducting Business in Africa, released on 19 November 2015 at Microsoft South Africa’s offices in Johannesburg, reveals a unique ranking of twelve African countries based on their conduciveness for SMEs to start and conduct business.

This secondary study incorporates the assimilation of key indicators from a number of credible studies across twelve African countries to determine a measure for the conduciveness of starting and operating a business as a Small and Medium Enterprise (SME) in the country in question. The twelve African countries covered are Botswana, Ethiopia, Ghana, Kenya, Mauritius, Namibia, Nigeria, Rwanda, South Africa, Uganda, Zambia and Zimbabwe.

After engaging in a robust research endeavour on the African SME landscape, key selected indicators were grouped and weighted in order to determine a measure for the conduciveness of starting and conducting business on the continent. Twelve African countries with sufficient available data were then ranked to indicate the most to the least conducive countries to start and manage an SME. This score was further benchmarked against countries outside of Africa (United States, United Kingdom and France) to provide an indication of the measure compared to non-African, developed markets. The derived African country rankings are as follows:

The value of the report lies in the fact that it is a consolidated study that considers a holistic set of macro- and micro- environmentalfactors that are relevant to SMEs and may have a direct or indirect influence on the conduciveness of a particular country to accommodate SME startups, as well as their operations. It considers the macro-environment, SME environment, internet and mobile capacity, in addition to the infrastructure and logistics of each country in the study.

“The ability for SMEs to have access to online infrastructure is vital in the African market. It opens up opportunities for trade and e-commerce, and access to cloud-based software at a fraction of the cost of traditional IT infrastructure. Our work with Thinkroom and our SME audiences in Africa during Global Entrepreneurship Week has focused on getting businesses started and working online,” says Perry Kamel, Microsoft’s Senior Business Development Manager for the SME audience in Africa.

Top-ranking Countries – Mauritius, South Africa & Botswana

Mauritius, South Africa and Botswana arerankedin the top threeof the twelve countries evaluated. These countries thus have the most favourable environments for SMEs to start and operate a business. The rankings of these countries can be attributed to a number of variables that were taken into account in the study.

Some of the variables discussed in the report are highlighted here, including internet- and mobile phone penetration, the overall ease of doing business, as well as infrastructure and logisticsin each of these countries.

Mauritius’ internet penetration (% of population) is at 39%, while there are 132 mobile cellular subscriptions per a hundred Mauritians. Internet and mobile penetration in South Africa is slightly higher, with a 51.5% internet penetration and 150 mobile cellular subscriptions for every hundred South Africans. Internet penetration in Botswana is at 15% of the population and the ratio of mobile cellular subscriptions to every hundred people in the country is 167:100.

According to the World Bank, it is relatively easy, overall, to do business in Mauritius, ranking 28^th out of 189 economies measured; with South Africa ranking 43^rd and Botswana 74^thout of 189 economies measured. In terms of infrastructure and logistics, Mauritius ranked 115^th out of a 160 countries on the World Bank’s Logistics Performance Index (LPI), indicating a need to improve the country’s infrastructure and logistics. South Africa ranked 34^th out of 160 countries on the LPI, indicating relatively well-developed infrastructure and logistics, whileBotswana ranked the lowest out of these three countries; 120^th out of 160 countries measured.

Lower-ranking Countries – Kenya, Nigeria & Ethiopia

Kenya, Nigeria and Ethiopia are among the lower-ranked countries in the Conduciveness of Starting and Conducting Business in Africa report. The findings pertaining to these countries are of particular interest, as they stand in contrast to their rankings amongst other African countries in terms of GDP growth. A clear distinction should therefore be made by investors and SMEs between the economic opportunity offered by a given country, and the actual conduciveness of the SME environment to unlock that potential.

Some of the variables in the study that influenced the ranking of these countries are discussed below.

The internet penetration (%of the population) in Kenya is at 47.3%, while there are 74 mobile cellular subscriptions for every hundred Kenyans.Surprisingly, Nigeria’s internet penetrationis at 39.7% of the population and there are reportedly only 78 mobile cellular subscriptions for every 100 Nigerians. The situation in Ethiopia seems rather dire in comparison, with only 1.9% of the population having access to the internet and only 32 mobile cellular subscriptions for every hundred Ethiopians.

According to the World Bank’s LPI score, Kenya ranked 74^th out of 160 countries for the state of their infrastructure and logistics; Nigeria ranked 75^th, while Ethiopia ranked 104^thout of 160 countries measured. Out of these three countries, it is reportedly the easiest, overall, to do business in Ethiopia, ranked 132^nd out of 189 economies measured, while Kenya was ranked in 136^thplace and Nigeria in 170^thplace.