The global economy has been hard-hit by spiralling inflation, surging debt, geopolitical instability and the effects of extreme weather events. Paul Baker and Zahraa Beeharry of International Economics Consulting call this “the perfect storm”.

In their recent article titled “Time to build Africa’s resilience”, Paul and Zahraa suggest that this storm has increased macroeconomic uncertainty and worsened the fiscal outlook of many African countries. They argue that the African continent has to become more adaptable in the face of global shocks that have a knock-on effect on its stability.

The challenges facing African entrepreneurs

Entrepreneurs are the engine of economic growth, but many have struggled under unusually unfavourable conditions since the Covid-19 pandemic. “Some of the current challenges to small business owners include inflation, decreased purchasing power, market uncertainty and fluctuating exchange rates,” says Zahraa.

The International Monetary Fund anticipates that one-third of the global economy will be in recession this year, and imported inflation is driving costs up to unprecedented levels.

“Even the most innovative entrepreneurs are finding current socioeconomic conditions a strain, and shifting markets bring uncertainty since it’s not clear what consumers will need once countries emerge from recession,” she says.
However, entrepreneurs must weather the storm because they are the ones that create pathways out of unemployment and bring innovative solutions to countries that need them most.

Improving business conditions  

Zahraa says reforms are necessary to increase investor confidence, and bureaucracy is a further barrier. “In certain countries, it can take weeks to obtain permits or licences to conduct business, which adds to the cost of doing business,” she says.

Established businesses should support small businesses via incubation hubs and accelerators, consulting services, mentorship and networking opportunities. “Assisting startups with comprehensive and tailored business plans and facilitating access to markets will go a long way towards helping them to thrive,” says Zahraa.

Access to capital also remains a fundamental challenge, especially for women-led businesses, and there should be more tax incentives for startups. “The World Bank highlights a concerning reality where globally, women’s businesses are unserved or underserved to around $1.7 trillion, so greater gender sensitivity is needed in our business and economic landscape,” she points out.

What can the African Continental Free Trade Area contribute?

The African Continental Free Trade Area (AfCFTA) could provide enormous opportunities for small businesses through its aim to create a single market for goods and services produced in Africa and reducing tariffs on 90% of goods.

“Participating countries will receive extensive support from the Guided Trade Initiative helping to kick-start trade on the continent,” says Zahraa. Entrepreneurs can consider partnering with other organisations, including industrial associations, to reduce costs and share resources further.

She reports that a World Bank study on the economic and distributional effects of AfCFTA indicates that the most significant income gains will come not from the liberalisation of tariffs but from the reduction or elimination of non-tariff barriers, highlighting the importance of trade facilitation measures.

This will make it easier to trade across borders and promote the development of regional value chains.

Where local entrepreneurs can grow

Zahraa says potential growth areas include financial technology (fintech), renewable energy and the health sector.

The continent still has large unbanked populations that must be brought into the formal economy. New financial models, such as peer-to-peer lending, provide an alternative to commercial-bank financing.

Entrepreneurs can tap into the continent’s abundant natural energy resources. The European Union’s clean energy target will demand investment in cleaner energy sources and cleaner manufacturing, which may provide opportunities for small businesses, especially in those countries that want to maintain their exports to European markets.

In the health sector, there is a growing recognition that Africa needs to move away from a dependency on global pharmaceutical markets. This became clear during the Covid-19 pandemic when the continent had to rely heavily on international goodwill for vaccines.

The sector is ripe for innovation – for example, Kenya’s e-Health Department has begun piloting a system to curb the importation of fake goods and medicines.

The mPedigree system allows customers to use text messaging to determine whether medication packs are genuine or counterfeit. The platform combines cloud computing and basic mobile-phone technology, and this traceability will combat fake medicine cartels operating in East Africa.

“A transformative shift can be seen on the continent as we observe a wave of African entrepreneurs stepping up to tackle some of the long-standing challenges that we face through innovative solutions, reducing the reliance on government funding and foreign aid,” says Zahraa.

To weather the storms, entrepreneurs should advocate for better business environments but also become agile, monitor changes in the market and adjust their products and services accordingly.

They should also take advantage of opportunities such as these to provide solutions that will advance development on the continent. Although progress towards the United Nations Sustainable Development Goals has stalled since the pandemic, entrepreneurs are uniquely placed to help drive the agenda forward – provided they get the support and funding they need.

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