[Column] Bob Koigi: Positioning Sub Saharan Africa small businesses to reap global markets' dividends
Global merchandise trade has been on a meteoric rise for the last ten years with exports of manufactured goods hitting the $1 trillion mark in 2016 according to the latest world trade statistical review by the World Trade Organization.
World exports of agricultural products has been on an impressive 15 per cent increase year on year and have grown by 70 per cent since 2006. The services sector has equally recorded impressive jump with travel and other commercial services being the frontrunners.
An impressive technological revolution coupled with individual countries’ structural changes has been responsible for catapulting the export market to the reigns it now enjoys.
The internet for example has played central role in allowing information flow and diversifying potential for smaller firms in the international markets. Governments have also been rolling out spirited campaigns at reducing barriers to international trade through regional blocs.
However, even with the robust global market, small and medium companies that account for 50% of gross domestic products in emerging markets, providing job opportunities to over 70% of the population are yet to reap the benefits of the export market, contributing between one quarter and one third of manufactured exports and accounting for only 10% of the foreign direct investment.
Shockingly though, majority of these same small and medium entities contribute significantly to their national economies.
In Sub Saharan Africa for example SMEs make up more than 95 per cent of market participants, and contribute around 50 per cent to their respective country’s GDP.
So, why is there a negligible number of these SMEs in the global markets? One school of thought advances that the international activities expose SMEs to a more complex and risky business environment, for which, compared to larger firms, SMEs are relatively unprepared and less well-resourced.
They argue that individual governments can actually address some of these risks and complexities.
The governments need to revise their legislation and their relations especially with neighbouring countries which will slowly open up markets for any aspiring SMEs that would like to venture beyond borders. That is the trick that the developing countries have realized and it is working for them.
Indeed, the numerous benefits that companies accrue from having a presence in the export market, like boosting sales due to access to ready and diversified markets that were hitherto unavailable to these businesses, entices more companies to court the export market.
Positioning of these companies to a larger market allows them to diversify their business and spread their risks. As a result, companies are not tied to changes within the domestic market or on one specific country.
Venturing beyond borders also assists in yielding valuable ideas and information about new technologies, new marketing techniques and foreign competitors.
The gains can help a company's domestic as well as foreign businesses while giving leeway to companies with surplus production to sell their products in a foreign market without being forced to introduce prohibitive measures to dispose their surpluses.
On the flip side, however, companies grapple with the unique challenges that the export market poses. The stringent measures that require to be met in the export market have stood in the way of the SMEs full participation in the market.
Exporting companies spend more resources and time trying to please and satisfy the importing country.
For example, Euregap, an initiative introduced by European countries importing Kenyan commodities especially horticultural produces have seen many small companies that were in the exporting business pull out all together due to the extra cost that has eaten into their margins.
That coupled with the many financial risks like collections of payments using rudimental methods like open account, consignment, documentary collection, prepayment and letter of credit, which are not only complicated but also time consuming bog down many companies with the idea of investing in the global market.
SMEs considering entering the highly competitive global market should first call to mind the potential demand for the company’s products. This helps the company with essential information on prospective consumers who will receive the exported products.
Again it is worth considering economic development. This is because the higher the development of a market, the more attractive an export destination it is.
This is largely attributed to the fact that further development equals increased purchasing power of the population.
Multiple award winning Kenyan journalist Bob Koigi is the Chief Editor of East Africa at Africa Business Communities