Theme: AGP within the context of AfCFTA
Gallagher Estates, Midrand
4 March 2020
Thank you very much Programme Director, Mr Bonolo Ramokhele;
Minister of Trade and Industry, Ebrahim Patel;
Minister of Higher Education, Science & Technology, Blade Nzimande;
Minister in the Presidency for Women, Youth and Persons with disabilities, Ms Maite Nkoana-Mashabane;
Minister of Public Service & Administration, Senzo Mchunu;
Deputy Minister of Finance, David Masondo;
Secretary-General of the African Continental Free Trade Area, Mr Wamkele Mene;
President of the Black Business Council, Mr Sandile Zungu;
Senior Government officials;
Business leaders across various sectors of the economy;
Ladies and gentlemen.
Let me start by expressing BUSA’s and my deep appreciation for being invited to be part of this important conversation.
I’m honoured and humbled by the opportunity to be here and share some thoughts on the Africa Growth Platform (AGP). I’ll be outlining the opportunity that beckons for you, our country and indeed the African continent. You have asked me to address you on an idea whose time has arrived: locating Africa’s SMEs within the context of the execution of the Africa Continental Free Trade Agreement (ACFTA). It is these small businesses whose mainstreaming would attest the efficacy of the ACFTA.
Africa has great potential not only to become a global growth frontier, but to attract investment that would lead to meaningful development and growth.
To realise this potential requires us to box cleverly. I say this because as we gather here, significant developments are unfolding across the globe, including tumbling stocks across major and emerging economies as the coronavirus fears grip the markets.
Investors are growing increasingly concerned about how much the virus will depress global economic growth and hit companies’’ bottom lines.
The elevated uncertainty, the decline in Chinese economic activity, and supply chain disruptions threaten global economic stability. In fact, earlier this week the Organisation for Economic Co-operation and Development (OECD) warned that if the spread of the virus is not sufficiently contained, the pace of global growth could halve.
In another significant move, the U.S. Federal Reserve yesterday delivered an emergency half-percentage point interest rate cut in a bid to protect the longest-ever economic expansion from the spreading coronavirus.
All these developments come on the back of pedestrian manufacturing activity, which has been negatively impacted by trade frictions and protectionist tendencies in some regions. If you add the rising geopolitical tensions, the swell of nationalism and protectionism into this mix, then you realise that nothing will be handed to us on a silver platter.
Closer to home the picture is not rosier either. Just yesterday we were sobered by the news that our economy contracted in the fourth quarter of last year, which is a second recession in less than two years and the sixth consecutive year that SA’s economy has grown below 2%. With the National Treasury forecasting a paltry 0.9% GDP growth for 2020 and unemployment rising from a very high base, it is beyond debate that it can’t be business as usual.
More alarmingly, 8.2 million young people between the ages of 15 and 34 are not in education, employment or training. These young people cannot be spectators for long; at some point they will forcibly demand a stake in the economy. This tough economic backdrop makes today’s conversation even more critical.
Youth unemployment in Africa is a high risk for the future of the continent.
Two thirds of Africa’s 420 million young people are currently unemployed, which highlights a clear need for new solutions to drive entrepreneurship and employment growth.
Quality education, policy certainty and a conducive regulatory environment are non-negotiable if we want to entice more FDI our way. This is critical because the African youth dividend runs the real risk of being overrated. The developmental deficit in the continent is an opportunity to attract investment, so long as we can ensure a stable policy and regulatory environment.
Africa’s young population is well-endowed with entrepreneurial spirit with early-stage entrepreneurial activity 13% higher than the global average. However, due to insufficient support and infrastructure, the continent’s start-ups are 14% more likely to fail than those elsewhere in the world.
This calls for an innovative approach to helping Africa’s SMEs reach the scale where they become sustainable. With our fastest growing young population, Africa is well placed to exploit technology and innovation in the era of the Fourth Industrial Revolution.
I, along with my Africa Regional Stewardship Board co-chair, Dr Oby Ezekwesili, have been given a thumping new responsibility by the World Economic Forum — to deliver on the Africa Growth Platform that was launched at WEF Africa in Cape Town in September 2019.
The idea of the Africa Growth Platform is to address Africa’s job creation crisis by massively scaling-up millions of SMEs and start-ups across the continent by bringing together governments, investors and entrepreneurs to enhance funding prospects and create better enabling environments for small business growth.
It is a business community-driven response to the current youth unemployment crisis and entails helping small businesses grow beyond their domestic borders and compete in international markets through intentional linkages to the supply chains and value chains of large corporations in specific industries.
The AGP does not aim to reinvent the wheel.
It aims to build on the currently fragmented existing entrepreneurship support initiatives by fostering collaboration and sharing of best practice between the key stakeholders, in order to increase their collective impact faster. For example, we will seek synergies with the African Union Development Agency-NEPAD, which on the margins of the 74th session of the United Nations General Assembly launched the “100,000 SME’s for 1 million Jobs by 2021” campaign at the AU Permanent Observer Mission. Like the AGP, this initiative places special emphasis on harnessing Africa’s youth demographic dividend.
AGP aims to scale small businesses in three ways:
o firstly, by securing commitments from governments to implement policy reforms aimed at stimulating and accelerating business growth.
o secondly, by building a community of investors, whether private investors, foundations, multilateral institutions or corporate entrepreneurs to enable better coordination and pooling of resources that could facilitate larger subsequent rounds of funding. The SME financing gap is valued in sub-Saharan Africa at a whopping, $331bn, including $42bn for women entrepreneurs.
o thirdly, the platform will create and sustain a community of SME and start-up businesses themselves, promoting collaboration and sharing best practices.
Exciting work that aims to fine tune execution is currently underway.
I’m pleased to say we are now armed with the outcomes of the post-Davos survey of 260 entrepreneurs across 20 African countries, including South Africa, which indicates that investment in infrastructure; more transparent taxation and a reduction of red tape are standing in the way of SMEs scaling up and operating across borders.
These outcomes are telling us that our infrastructure choices should not only provide the basics for our economy; they must support long-term productivity and link up people and markets to attract investment. The survey also tells us that most of the respondents are yearning for more dedicated SME funding programmes, easier procurement processes, and the faster payment of invoices.
Not paying SMEs on time is a violation of the rules of fair trade. Imagine successfully delivering goods or services and then being slowly starved to death due to delayed payment. Both governments and corporations must pull up their socks in this regard.
The SMEs are also calling for more transparent funding options, easier access to mentors, more networking events, business skills training and easier access to support programs.
We will need to do better in turning exciting ideas into strong commercial products and services and this requires investment in skilling our people. We must strive to build an Africa that lives on the digital frontier.
We have heard the SMEs, and I trust that this feedback will enable us to sharpen data-driven interventions.
African economic growth is projected to be 4.1% this year by the African Development Bank. While higher than that of other emerging and developing countries, it remains insufficient to address the structural challenges of persistent current and fiscal deficits, debt vulnerability, acute youth unemployment & infrastructure backlogs.
The challenge, ladies and gentlemen, is twofold:
o Lifting the current growth rate, and
o increasing the efficiency of growth in generating employment through a thriving small business sector.
There is no single stakeholder who can resolve these issues alone, try as they might. Ours is an era of purposeful partnerships, inclusive growth and stakeholder capitalism.
We can achieve a lot more if all of Africa’s stakeholders act in concert to create jobs by scaling 100 million SMEs and startups by 2025.
With President Cyril Ramaphosa as the Chair of the AU and the inaugural year of the ACFTA, as well as the Presidential Infrastructure Championing Initiative (PICI) that South Africa will lead as part of its tenure as the chair of the African Union – all of us gathered here have an opportunity to be meaningful partners.
It is in our interests to have a thriving small business sector: more people get employed, the market gets bigger, incomes grow, poverty reduces, social cohesion is enhanced.
I have skin in the game, by the way: It was my singular honour that, together with the founding members — Alibaba Group, A. T. Kearney, Dalberg Group, Export Trading Group, U.S. African Development Foundation, Zenith Bank — when we launched the Davos Friends of the AGP in Davos this past January, AngloGold Ashanti was one of the first companies to raise their hands as the global founding partners of the AGP. This was complemented by the endorsement of the senior African government leaders also present in Davos, particularly the Presidents of Botswana and Ghana.
During wars, the soldiers yearn for their leaders to negotiate peace. In our case, the legions of the unemployed yearn for collaborative traction on this initiative.
Failure to do so will amount to strategic avoidance by all of us.
A borderless Africa is not just a political ideal. We could draw lessons from Asia in this regard, particularly the growth of China’s middle class. A borderless China has in 40 years seen phenomenal economic development to become the second largest economy in the world. A continent that moves as one when drawing investment and developing infrastructure would fare better than one that was fragmented.
We need to think continentally, whether we think trade and investment or infrastructure. The major challenge for the continent is the seriousness with which it takes its borders. They are too hard and need to be softened.
The good news is that there is momentum we can build on.
The 3rd edition of the Africa Visa Openness Index Report — published by the African Development Bank with the Africa Union Commission — shows that African countries are on average becoming more open to each other.
But the fact that Africans still require visas to travel to just over half of other African countries shows that more progress is needed to realise free movement of people and goods on the continent-wide.
Similarly, it is quite lamentable that Africa currently has the lowest percentage of intra-regional trade in the world at 18%, compared with 70% in Europe, 55% in North America, 45% in Asia, and 35% in Latin America. According to the African Export-Import Bank, the current 18% figure could more than double within the first decade after implementing the free trade deal.
It is my conviction that ACFTA would be enabled by an African leadership from across society that champions a Pan-African rather than a nationalist agenda. The dream of a single market in Africa needs to become a reality in practice.
I recognize that considerable progress has been made over the past decade on establishing regional transport corridors. On the eve of this new decade, how fast can these infrastructure corridors be transformed into globally competitive industrial corridors?
There is a yearning for more action and much less talk.
We will all have to work together to enable an inclusive and diverse business environment, equipping the next generation with the tools to make a meaningful impact on Africa’s future and the future of the world.
A highlight of my Davos expedition this year relates to the reimagined role of corporations. The message is clear: we must define ourselves as more than just an investor for a high shareholder return, but a trustworthy and reliable partner for development.
We must recognise that the long-term viability of our businesses as engines of value creation is largely a function of the viability of the societies and economies in which we operate.
Put differently, businesses are stakeholders in the health of their social, policy and economic enabling environment.
Ladies and gentlemen, we all have an intrinsic material stake in both the social cohesion of the jurisdictions in which we have significant operations. In short, we are being called upon to harmonise the needs of all stakeholders, including but not only shareholders.
The AGP is a living example of how this approach can be used to take an industry cluster slant, bringing stakeholders together to enable specific interventions that can significantly improve the ability of businesses within target sectors to grow and create jobs.
At a broader level, the implementation of Agenda 2063 will require cooperation and therefore dialogue amongst a range of sectors, not least amongst governments, the African private sector and education institutions.
Before I conclude, let me dispense with a few thoughts, which I’m mindful may not be new to you, but require reinforcing.
o It is common cause that SMEs contribute significantly to economic development and are associated with discovering of new markets and exploiting them to their advantage.
o Likewise, SMEs are the heart of founding new ventures and a source of income and employment for millions of Africans. This means SMEs are central to wealth creation by stimulating demand for goods, investment and trade.
o Africa has an estimated population of more than 1,3 billion that’s growing at over 2% annually in most countries, with more than 50% of the people in many countries below the age of 25. This population has a growing need for the services, jobs and economic growth provided by locally based SMEs.
o It is encouraging that in Ghana, for example, SMEs account for 70% of GDP while employing 49% of the labour force; and in Kenya it contributes 50% to GDP and employs 80% of the labour force.
o In the OECD countries, over 90% of businesses are SMEs, employing between 60% and 70% of the working population and contributing roughly two thirds to GDP. In our emerging market peers including Brazil and India, small businesses are the backbone of the economy.
All of these tell us that we need to transcend the thinking that small enterprises exist only to be part of the supply chains of larger businesses. We should enable high growth small businesses to be disruptors that will create whole new industries and jobs. These are the next generation of corporations.
It is possible.
I am informed that at WEF Africa last September over 200 African start-ups from over 20 countries applied for the Forum’s Global Start-ups programme, which requires among others to have raised at least $1million in funding. A major game changer is that these start-ups are deploying Fourth Industrial Revolution technologies to solve basic African problems.
Last year venture capital flows to Africa crossed the $ 1 billion mark. African startups attracted a record high of $1.34 billion in venture capital last year, with fintech seeing $678.73 million alone. In comparison to other continents this is still a drop in the ocean. What is impressive is the rate of growth year-on-year.
In 2018 African startups raised $725.6 million, a significant step up from $203 million in 2017.
A thriving, dynamic and growing small business sector is a critical component of an inclusive economy. We also need to specifically ensure the successful integration of women-owned businesses in Africa’s high growth agenda.
In the build-up to the September WEF Africa 2020, we will be bringing stakeholders in the ecosystem together to enable specific interventions to address the challenges that SMEs and startups are facing that are preventing them from growing and creating jobs. Solutions need to be demand driven.
I’d like to appeal to all of you to pledge support and actively work towards the successful execution of this endeavour.
Importantly, I’d like to urge this Summit to come up with three concrete initiatives to take the AGP forward in 2020, both in South Africa and the rest of Africa.
It is my hope that we emerge from this summit with concrete, actionable plans with clear milestones.
My best wishes for a successful and productive summit and it is my hope that we emerge from this summit with concrete, actionable plans with clear milestones.
The tide can and should be turned.
Sipho Mila Pityana BUSA (President)