- Global Steering Group for Impact Investment, a U.K.-based charitable organization, is asking the world to support African small and medium-sized businesses that have been hurt by the COVID-19 pandemic.
- GSG says SMEs provide a large portion of the jobs in Africa which are now at risk as businesses close up shop. The trend could erase the economic gains made by many countries.
- About 20 million jobs in Africa may be lost due to the pandemic.
Krisztina Tora is sounding the alarm about extending a financial lifeline to African entrepreneurs, who have helped drive economic growth on the continent but are at risk of going out of business due to the COVID-19 pandemic.
In South Africa, about 60% of small or medium-sized enterprises (SMEs) have fired workers or considering letting workers go, while in the rest of the continent about 20 million jobs are at risk because of the outbreak which has hurt economic growth, says a report authored by Tora, the market development director of the Global Steering Group for Impact Investment, a U.K.-based charitable organization.
“It’s essential that we support SMEs right now in Africa because they are the beating heart of the continent’s economies,” Tora told Karma. “Unless we do something, 20 million people will lose their jobs and 70 million additional people will go into extreme poverty.”
GSG was created four years ago during the U.K.’s presidency of the precursor to the G20, a policy coordinating with representatives for world government groups.
Since the start of the pandemic, the organization has formed partnerships with organizations like the Organisation for Economic Co-operation and Development to support a more equitable global recovery as outlined by the United Nations’ sustainable development goals, aimed at reducing poverty and furthering social progress by 2030.
GSG has 28 national advisory boards around the world, including in South Africa and Zambia, staffed by local citizens who identify business development priorities and enable the deployment of capital.
Tora is tasked with working with the national advisory boards to help them deliver their national priorities. Stakeholders like Tora are concerned the pandemic will erase economic gains made by countries such as Ghana, one of the only African countries on track to meet the U.N.’s global development goals.
The GSG report outlines strategies for dealing with the economic pain such as boosting funding for microfinance institutions that have proven adept at extending credit to SMEs.
Tora is skeptical that traditional, country-level finance institutions can get the job done because banks have a poor track record of lending to small businesses, which they view as risky and more prone to not paying back creditors. Only 20% of SMEs on the continent are currently accessing bank financing, according to the GSG report.
Tora says that microfinance institutions may be the best option for the continent’s SMEs to weather the pandemic.
Government-backed and private direct financing institutions need to step up and provide liquidity to microfinance companies that in turn can help support entrepreneurs.
Tora urges investors to review the work of a group of stakeholders who are in the process of creating an emergency liquidity fund to support SMEs. The Covid Response Capital Bridging Facility aims to raise around $60 million this year.
Tora says African small business owners have stared down adversity before and the world just needs to give struggling entrepreneurs some support and the SMEs will do the rest.
“Community businesses are super resilient,” says Tora. “There have been so many different crises. We have to learn from them. They need this kind of refinance and will use the liquidity to get their businesses restarted.”