According to the latest African Economic Outlook report, most African SMEs have a 77 per cent chance of stagnating while medium and large firms have 18 per cent and 5 per cent chances respectively.
For firms that started largely, the probability of scaling down to small or medium size was 33 per cent while those that started out medium had a 31 per cent chance of scaling down to small size.
“By contrast, firms that started out small had a 23 percent chance of growing into a medium or large firm, and firms that started out medium had a 13 percent chance of growing into a large firm.
“Overall, it seems much easier for African firms to shrink than to expand. Currently 55 percent of firms are small, 30 percent are medium, and 15 percent are large,” the report stated.
In its review, the outlook explains that the dominance of small firms lowers productivity, particularly in the manufacturing sector, and subsequently prevents creation of high-quality jobs for Africa’s growing labor force.
“More needs to be done to encourage large companies to set up businesses in Africa and to help small firms grow by removing constraints such as poor infrastructure, political instability, and corruption,” the report added.
Stagnant growth of African firms was attributed to corruption, an unconducive regulatory environment and inadequate infrastructure. The report further notes that approximately 1.3 to 3 million jobs get lost every year due to administrative hurdles, corruption, and poor tax administration.
It further adds