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19 January 2022

Investment in Small Impact-Driven Businesses as a Key to Recovery

When the Covid-19 pandemic hit, the global economy experienced its worst crisis in decades and the Nigerian and Ghanaian economies were not exempt from its negative effects. With businesses closing down and jobs shrinking, may investing in small businesses be the key to economic recovery in these countries?

The goal of the New Economy Booster accelerator program was to support the regrowth of the Nigerian and Ghanaian economies by supporting impact-driven ventures and businesses in the key areas of healthcare, education, agriculture, trade, culture and creativity, and tourism. Its premise was that if these social enterprises can grow and scale their operations, they will not only help revive the economy but also provide much-needed products and services to fill the gaps that traditional businesses do not offer.

Nigeria and Ghana’s economy

Nigeria’s economy has been in decline for years due to poor economic policies, growing insecurity and an overreliance on oil exports — and the pandemic has exacerbated this situation.

The Nigerian Bureau of Statistics recently put the country’s unemployment rate at 33.3%, the highest in recent history. Its economy also experienced a 1.8% decline in 2020, the worst in nearly 40 years, in addition to record levels of inflation. It is clear that the pandemic is causing severe damage to a previously fragile economy.

In Ghana, the economic situation has seen some improvement since the pandemic began, but there is still a lot to be done to fully recover. Global trade restrictions are having severe consequences for the country’s economy, which is heavily dependent on exports. And despite an improvement in inflation rates in 2021, 2020 brought a significant increase in inflation.

How small businesses can help

How can these two countries recover their pre-pandemic economic level and grow it? One key is to support Small and Medium-sized Enterprises (SMEs).

SMEs account for 96% of businesses and 84% of employment in Nigeria, and 85% of businesses and over half of full-time employment in Ghana, making them extremely important to both economies. However, they are being disproportionately affected by the pandemic. 

The New Economy Booster program final event consisted of a discussion on the role of entrepreneurship in rebuilding Africa’s economies.

Claude Grunitzky, serial entrepreneur, founder of Trace TV and the event’s keynote speaker, expressed the need for Africa to focus on ‘market-creating innovations’, new ways to create jobs and prosperity for Africans. With this focus, the pandemic could actually become a take-off moment for African economies.

SMEs are the best suited for these kinds of innovations, as they need to be agile and flexible by nature. But what exactly does this focus look like? And what are some of the barriers for entrepreneurs and SMEs in Africa?

Barriers to SME growth

According to Grunitzky, youth-led businesses are a major key to unlocking Africa’s potential. However, the three main hurdles that young, African entrepreneurs are faced with are lack of access to investment, poor knowledge and a negative mindset. 

It is notoriously difficult for indigenous African companies to gain funding due to a lack of trust in Africa’s volatile economies. And most of the funding on the continent goes to expatriates instead of locals. This needs to change if we are to see significant growth in African economies

Grunitzky also highlighted a knowledge gap. In his words, “workers are not trained to do the kinds of jobs that are needed to sustain growth across Africa.” One key way to support SMEs and entrepreneurs is to provide them and their employees with access to affordable training and the resources they need to effectively address the problems they face.

Finally, and perhaps most importantly for Grunitzky, many African entrepreneurs do not have the right mindset to succeed. Due to a culture of not valuing young voices and not being encouraged to take risks, many entrepreneurs lack the boldness required to succeed in their businesses. 

How the New Economy Booster addressed these issues

These are some of the challenges the New Economy Booster set out to solve. The businesses and entrepreneurs that participated in the program were selected for their level of innovation and the impact they were having or hoped to have on key economic areas. Their solutions create jobs and prosperity, often for those who need it the most. 

The initiative provided in-depth training and access to resources to help close the knowledge gap and, in doing so, give the entrepreneurs the confidence and information they would need to take risks and succeed. In addition, the businesses were given access to investors from across the African continent and taught to pitch their ideas in order to secure funding. It saw significant success, with some businesses securing partnerships with international organisations and governments, and others in due diligence processes with investors.

Learn more about the program and the businesses it has supported in its Dealbook.

This article is part of a series featuring impact-driven entrepreneurs from Ghana and Nigeria sparking innovation in COVID-19 affected sectors. To keep up to date with the New Economy Booster program, subscribe to our newsletter, follow us on LinkedInTwitterInstagram, and Facebook, and listen to the testimonies of the participants and program managers on our YouTube channel.