IB Global Politics HL

Internal Assessment

Political Engagement Activity

Topic: How can the lack of Employment and Funding in the SME
Sector of Sub-Saharan African States be addressed by Development
Agencies and Local Banks?

Political Issue: An Investigation into the factors that limit Sub-Saharan African State
SMEs’ access to finance & development using evidence from leadership within an
International Development agency/local bank and consultations.

Candidate ID:

Session: May 2021

Word Count: 1997

Table of Contents
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Section 1. Introduction 3
Section 2. Engagement Activity 4
Section 3. Bicec Bank & State Banks 5
Section 4. United States Agency for International 7
Development
Conclusion 9
Bibliography 11

Section 1: Introduction

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Small and Medium-Sized Enterprises have varying definitions depending on their region and

country, but generally, SMEs1 are enterprises whose personnel fall under certain limits. SMEs

provide about 80% of the region’s employment, cover over 95% of all firms in Sub-Saharan Africa

and play pivotal roles in the development of developing countries. These enterprises significantly aid

in industrial development, satisfying increasing local demands of services, and allowing for increased

specialisation (Fjose et al., 2010). Despite their imperative roles, SMEs in this region experience

low levels of employment and ease of job creation due to their lack of access to finance. In effect,

this has further impeded their economic growth, consequently, African economies have not been able

to maximize their economic potential, which prevents individuals in these low-income communities

from reaping the benefits and products of these enterprises. In several Sub-Saharan African states,

SMEs in countries such as Burkina Faso, Senegal, Kenya, and Cameroon have a small share of all

business loans in their region. The primary cause for this limited access to finance may range from

unstable political climates, inadequate education in business development, and etc. This may cause

reluctance in financial institutions to give out loans to these SMEs. This raises the question: How can

the lack of Employment and Funding in the SME Sector of Sub-Saharan African States be

addressed by Development Agencies and Local Banks? As I live in Cameroon, the majority of the

enterprises in my area are SMEs and operate in poor communities that have limited access to

resources, so without proper connection to finance, these SMEs are not able to fully invest back in

the communities, limiting employment in cities such as Douala. Not only do these businesses lack

visibility, but there is no capital market supporting them. This paper will examine barriers SMEs in

Sub-Saharan Africa face when striving to gain access to finance at an international and local level

and offer development and sustainability initiatives taken by development agencies.

1 Small and Medium Sized Enterprises

Internal Assessment

Political Engagement Activity

Section 2: Engagement Activity

My political engagement activity consisted of three consultations that I set up with two

employees from a development agency in the United States and a Credit Bank in Cameroon along

with the CEO of a Real Estate Management Company. To gain insight on the international level, I

reached out and contacted Herpin Jateng, a USAID2 Program Manager for financial inclusion to

explore the initiatives USAID has put into place to increase SMEs’ access to finance from financial

institutions and international donors and to explore the impacts of neoliberal development. His

expertise in inclusive business development and access to finance for Sub-Saharan African SMEs

allows me to gain a lucid insight on this political issue. Due to COVID-19 restrictions, I set up a

phone interview instead. From this interview, I was informed on the roadblocks to employment and

access to finance in the SME sector and USAID’s development programs implemented for market

entry and growth at the national level. To obtain a national perspective, I reached out to local banker

Samuel Mondo, Head of Loan and Credit Department at Bicec3 in Douala and Richard Noupoue,

CEO of SGCI Sarl4 . Their expertise in the handling of financial files from SMEs and evaluation of

business loans offers a clear insight on the influence of Bicec and other financial institutions towards

SME unemployment and underfunding. I planned and scheduled an interview which fit in with their

schedule, despite time constraints. From the discussions, I learned about the core determinants of a

bank offering loans and business strategies that may foster the creation of jobs and incentivize loans.

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Internal Assessment

Political Engagement Activity

Consolidating the insight obtained from my engagement activities and individual research, I

deduced that the primary factors that limit Sub-Saharan African SMEs’ access to finance and

adequate employment is their relatively small size as they have limited assets to offer as security in

return for investments and loans from banks. Along with this, their operation in the informal sector

creates a sense of reluctance of loans from financial institutions. Development agencies cooperate

with foreign governments and business developers and banks negotiate loans to solve these issues at

the surface.

Section 3: Bicec Bank & State Banks

From my interview with the Head of Loan and Credit Department at Bicec and CEO of SGCI

Sarl, I strived to understand the causes of this surge in unemployment in the SME sector and

measures placed by financial institutions to combat it. Mr. Noupoue made me understand that certain

privately owned banks in Cameroon are capitalist-minded, meaning they only strive to employ the

most qualified employees for additional revenue and often have little to no intent in aiding SMEs.

Through insight from Mr.Mondo, I learned that the cause of inadequate financing is that

enterprises in this region generally have “a weak assembly of financial records and proof of profits”,

this prevents developing countries from effectively negotiating interest rates with their banks and

lenders. Bicec bank has thus implemented the method of factoring in 2009, whereby they transfer the

accounts receivable of an SME to a bank, which will eventually finance them. This has allowed them

to invest FCFA 50 billion into SMEs, speed up their development, and win new markets. From an

international perspective, the EU has adopted the Small Business Act for Europe (SBA), which is a

flagship policy initiative to support small and medium-sized enterprises in Europe (2019 SBA Fact

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Sheet & Scoreboard, 2019). States in Europe have a neoliberalist model of development that

supports open competition, free markets, and privatization of state enterprises. Therefore, they offer

more support to SMEs and recognize their vital importance.

As I delved deeper in the interview, I wanted to understand the effects of unemployment and

how it is addressed to aid SMEs like Multi Services & Matériel Industriel in Douala who seek large

support to sustain their workforce. According to the World Bank’s ‘Ease of Doing Business 2018’

report, Sub-Saharan Africa has an average rank of 140 out of 190 in terms of the ease towards

starting and operating a business These low rankings explain the ramifications of the lack of proper

financing and employment.

According to Mr. Noupoue, financial institutions such as Avance (Cameroon) aid SMES by

making loans at high and guaranteed levels to SMEs in order to increase their capital. For example, if

a small trader needs a sign at the entrance of his business, it provides the necessary tools this trader

needs with a guarantee unlike land titles, which improves visibility. This initiative encourages

entrepreneurship in the regions of Sub-Saharan Africa as it enables financial institutions to work with

several SMEs who seek to gain exposure into African markets. This spike in entrepreneurship is the

key to economic development in the areas of Sub-Saharan African as it allows for innovation and an

introduction into the neoliberal world.

From this insight, it can be understood that financial institutions are limited in their aid

towards employment in SMEs due to improper management of financial records, lack of visibility,

and private banks view development from a capitalist standpoint thus only aid where investment

return is viable. However, through negotiations of guaranteed loans and implementation of financing

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Political Engagement Activity

mechanisms such as factoring which raise SMEs’ visibility, financial institutions may foster their

economic development, allowing increased demand for employment.

Section 4: United States Agency for International Development

Through my interaction with the Program Manager for financial inclusion for USAID, I

sought to gain an international perspective to the issue of unemployment in the SME sector in Sub-

Saharan Africa. I understood that the number one reason Sub-Saharan Africa is experiencing a lack

of employment and access to finance is the fact that approximately 70-80% of these entities are in the

informal sector, so do not have proper registration and operate in the black market. The taxation

policies further perpetuate this effect. States such as Cameroon impose a hefty 19.25% Sales Tax

Rate on the sale of goods and services, this aspect coupled with the poor adjustments of public

regulations in operating businesses in the region aggravate this situation. According to (Business,

2019), Sub-Saharan Africa has an average rank of 131 out of 190 in paying taxes and 146 out of 190

in getting electricity Due to this development, financial institutions are reluctant to provide loans to

these SMEs as they are unaware of how they will manage these loans, as they have no financial

record history as proof of their credibility. These SMEs therefore do not keep records of their sales to

evade high taxation and operate under several accounting systems. This further creates a lack of

complicity and an untrustworthy environment between SMEs and financial institutions, further

hindering aid from development agencies and employing workers.

However, development agencies may address this political issue by offering technical support

to the regions on a local level, increasing interactions with government officials/local banks, and

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Political Engagement Activity

increasing provision regarding business growth and market entry/exposure. Agencies such as USAID

including Mr. Herpin Jateng have implemented a number of measures to address this political issue

through the $8M USAID/Washington-funded Technology and Innovation for Financial Inclusion

(TIFI) program. USAID has developed key objectives focused on business performance

improvement. SMEs need additional guidance in regards to growing their businesses to address the

high unemployment rates in their regions, so USAID has created an environment with business

development service providers at the country level to provide SMEs as it pertains to building their

competence in accounting, business growth and market entry. Development agencies like USAID

have cooperated with government officials, most notably in Kenya and Burkina Faso and central

banks to harmonize and structure better public finance policies that encourage SMEs to transform to

the formal sector and motivate financial institutions to provide loans and credit. This will give SMEs

leverage when handling their finances and creating employment opportunities. According to

Neoliberalism, government interference into markets almost always has negative long-term

consequences on development (Murphy et al., 2016, p.52) due to the opportunity of corrupt

officials hindering cash flow. Neoliberalism assumes that free markets are the key to economic

growth and development. Therefore, if development agencies adopt these tools and strategies

proposed to increase finance and visibility, it will encourage free enterprise within SMEs along

with increased foreign investment of goods and services which will allow goods and services

providers to employ more workers to meet demands and in turn will decrease unemployment as

there is an increased number of workers benefitting from the economy.

From this interaction, although development agencies are significantly limited in their aid

due to several administrative setbacks that plague their financing from investors and financial

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Internal Assessment

Political Engagement Activity

institutions, their high capacity to cooperate with foreign governments, technical support, and ability

to increase market exposure for these SMEs allows them to tackle unemployment in youths and

citizens in the region.

Conclusion

From these activities, Mr.Mondo, Mr. Noupoue, and Mr. Jateng made me understand that the

issue of unemployment and lack of finance in the SME sector in Sub-Saharan Africa is largely due to

the lack of government support programs and proper political climate that promote entrepreneurship

in the region, which is an imperative factor that drives development. This overall contributes to the

rise of unemployment in several Sub-Saharan African states, as SMEs do not have the adequate

resources to compete in a market, which decreases the demand for employment and places employers

in these states below the poverty line. This effect will lead to lack of education, production, and

purchasing power in communities. An uneducated and non-productive individual can therefore not

contribute to the development of a nation and serves as a liability. Overall, my engagements taught

me that the political issue of unemployment is ultimately determined by a government’s practices

and their approach to development. To solidify my engagement, I could have directly interviewed an

SME or an individual struggling to find employment to examine the more profound ramifications of

the political issue on these actors. However, my research was sufficient and offered adequate insight

towards the political issue of unemployment.

Bibliography

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Political Engagement Activity

Business, D. B. (2019). Doing Business 2020. World Bank Group. Retrieved from

https://doingbusiness.org/content/dam/doingBusiness/media/Profiles/Regional/DB2020/SSA.pdf

Business finance for SMEs | ACCA Qualification | Students | ACCA Global. (n.d.). ACCA.

Retrieved February 17, 2021, from https://www.accaglobal.com/ca/en/student/exam-support-

resources/fundamentals-exams-study-resources/f9/technical-articles/sme-finance.html

Fjose, S. F., Grünfeld, L. A. G., & Green, C. G. (2010). SMEs and growth in Sub-Saharan

Africa. MENON Business Economics. Retrieved from

https://www.norfund.no/archive/Bilder/Publications/SME%20and%20growth%20MENON

%20.pdf

Herpin, J. (2020, September 29). Personal interview [Personal interview].

Mondo, S. (2021, January 3). Personal interview [Personal interview].

Murphy, R., Gleek, C., & Gleek, C. M. R. (2016). Pearson Bacc ESS: GlobPol bundle (Pearson

Baccalaureate) (1st ed.). Pearson Education ESL.

European Commission. (2019). 2019 SBA Fact Sheet & Scoreboard. Retrieved from

https://ec.europa.eu/docsroom/documents/38662/attachments/1/translations/en/renditions/native

Noupoue, R. (2021, January 21). Personal interview [Personal interview].

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Political Engagement Activity

White, M. (2020, September 23). Fears rise over widening trade finance gap and SME rejection

rates in Africa. Global Trade Review (GTR). https://www.gtreview.com/news/africa/fears-rise-

over-widening-trade-finance-gap-and-sme-rejection-rates-in-africa/

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