ECONOMY-AFRICA: Struggling to Get Money to Make Money

By James Hall Reprint | | Print |

James Hall

SOUTHERN AFRICA, Sep 20 2003 (IPS) - Seeking to create home-grown business people, but lacking in the millions of dollars and years of experience needed to create large companies, African countries have sought to empower small and medium enterprises (SMEs) as a way to achieve an indigenous commercial class that can "take back the African economy."

But the ambition depends on capitalisation, which has proved a challenge to obtain.

"Africa must put its money where its mouth is. Governments must provide small business loans, either directly, or through empowerment programmes tied to local banks. The biggest stumbling block to achieving success for the average small African business person is finding the money to start operations," said Joao Chiange, who owns a fleet of taxis in the Mozambican capital Maputo.

"I bought my taxis with money saved from working, and by borrowing from my family. I’m a small business person. But you can’t capitalise an auto dealership or a car manufacturing plant that way," Chiange said.

"Lack of capital to start businesses is the reason the country’s economic growth is being hindered," wrote the business editor of the Times of Swaziland this week in a comment.

Echoed the Central Bank of Swaziland’s governor, Martin Dlamini, "Many Swazis have the potential of running businesses, but they only lack finance to start up."

Where is the money to come from? Not from government, economists believe.

The annual state of the economy report released this week by the Central Bank of Swaziland insisted, "Whilst government’s involvement in the money lending business could be seen as a positive move to bring a solution to the difficulties faced by small to medium enterprises in acquiring funds, it also competes with those banks that are willing to lend to these enterprises.

In light of this, government has been strongly advised to pull out from the money lending business, and concentrate on its role of providing a conducive business environment."

The answer, the bank believes, is to ensure that private savings held in banks are channeled into small business loans.

Banks have reason to lend to small businesses. This would create new customers. Some regional banks offer, free of charge, business courses, workshops and seminars to any aspiring entrepreneur who is interested.

"We believe that by making our customers more prosperous, we will ensure customer loyalty, and we acquire new business as their businesses grow," the manager of a bank in Nelspruit, South Africa, said.

But banks are also hampered by stringent qualifications for loans, which are sometimes set by government banking oversight agencies.

"In Swaziland, there is a problem of security for loans. Eighty percent of the population lives on communal land under chiefs, and they do not own title deed to their properties. Banks require security in case a loan cannot be repaid. This has kept a majority of aspiring business people out of loan contention," a Swaziland bank loan officer told IPS.

But capital is not the only necessity to ensure a thriving small business. Money alone means nothing if business knowledge is lacking.

"When business profits are not saved, or are spent unwisely, the business obviously closes down because there is no money to buy new stock. So there is also the need to educate small business people on business management that will help them sustain their efforts profitably," said Swaziland’s Central Bank governor Dlamini.

"People must know that a business must first grow before they can start paying themselves salaries from their revenues; not like in the present situations where people use the little profits they make, and then fail to buy new stock," he said.

But learning business survival tips is relatively easy compared to the harder task of obtaining capitalisation. "Above all, Africans are faced with the serious problem of obtaining capital to start business, which I feel can help in uplifting our economic growth from where it presently lies," Dlamini said.

Rather than rely on government and commercial banks, some aspiring entrepreneurs are turning to their communities to find capital. In Swaziland, farmers have been combining their small holding lands to form cooperatives to cultivate cash crops in quantity for the export market. Such cooperation has inspired others to find empowerment through themselves.

"Our area needed a telephone spa. The phone company was willing to provide the phones and lines for a cash deposit. The community came up with the money, and put me in charge," said Nomsa Dlamini, who had previously been an unemployed secretary.

The phone spa, located in a suburb of the central commercial town Manzini, is ploughing its profits back into expansion, introducing a line of stationary, and selling newspapers, magazines and cell phone equipment.

"Africans have been financing funeral expenses through funeral societies for years. People contribute small amounts, and it grows into what is needed. We would like to see this applied to business creation," said Lutfo Dlamini, Swaziland’s Minister of Enterprise and Employment.

Thabo Mboweni, South Africa’s Central Bank governor, told a group of economic journalists recently, "We believe a rising tide raises all ships, so our job is to create an environment of good economic conditions. It is up to the small entrepreneur to take advantage of this, and for private financial institutions to give them the boost they need."

Where private banks cannot help, Southern Africa’s entrepreneurs are looking to each other, their families and neighbours to get the funds required to realise their own business dreams.(ENDS/IPS/AF/SA/EC/IF/JH/SM/03)

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