There are millions of these small enterprises and they are the unsung heroes of economic growth. They create jobs and wealth, leading to a healthy competitive market. Crucially, SMEs drive innovation and provide opportunities for investors and venture capital firms. Figures from the Department for Business Innovation and Skills in the United Kingdom show that there were 4.9 million private sector businesses at the start of 2013, employing 24.3 million people with an annual turnover of £3,300 billion. These figures demonstrate the sheer scale and importance of the SME sector, without which no mature free market economy could survive. How then can a rich nation such as Angola continue to grow when it has almost no SME segment in its economy?
Angola is a fascinating case study. It is not only a fledgling free market but also a fledgling democracy. It has large reserves of oil and it has made enormous progress since 2002 in building infrastructure and educating its people. Major global organisations are turning Angola in to an exciting place to do business and the government is highly cognisant of the need for economic diversification. This drive has led to a significant injection of capital to support micro, small and medium sized enterprises with more than $600 million provided so far as part of the Angola Investe program, which was launched in 2012 by the Angolan government.
“Angola is arguably the most promising nation for investment in sub-Saharan Africa.”
The level of interest and investment in Angola has led to a great deal of positive sentiment from external bodies. The World Bank’s June 2013 Angola Economic Update states that, “Angola’s economy is now gathering momentum with robust GDP growth supported by strong fiscal and external balances, a stable exchange rate and moderate inflation.”
However, despite the positive story and strategic investments, the SME market has so far failed to materialise in a significant way. This missing middle presents a challenge to the government’s plans for economic diversification – but it also presents investors with a rare opportunity to move into a virgin territory.
Angola is arguably the most promising nation for investment in sub-Saharan Africa. It has a stable government, a peaceful society and one of the world’s youngest populations. Most of Angola’s twenty million people live in cities and around half the population is under the age of twenty. More young people are going to university than ever before and the government provides grants to facilitate overseas education.
Angola also has a large number of entrepreneurs. Many of these are tiny, micro-entities that exist outside of the tax system. These are essentially sole traders who are self-sufficient but who do not have the infrastructure or access to capital to grow a business. At the other end of the spectrum are the global oil companies and public sector bodies that hire large numbers of Angolans.
Well organised and well-structured SMEs that work in a formal manner, paying taxes and social security, with HR departments and systems are incredibly rare. In most mature economies these businesses are niche players, driving specialised innovation and experience. They create highly expert professionals and a rich and colourful work force. There is a glaring gap in Angola and for this reason it is difficult for the economy to diversify. This is where the real opportunity lies.
One of the reasons why SMEs have not traditionally been successful in Africa has been the lack of access to capital, the high cost of borrowing and reluctance from banks to lend to small businesses. Set up costs can also be high in Angola, particularly Luanda. In the manufacturing sector for example, there are simply not enough factories, so industrial start-ups may need to buy land in order to build a facility.
It is in areas like this that venture capital companies can step in. They not only provide access to capital and credit but they have an important role to play in guiding and advising young companies.
Fundo Activo de Capital de Risco Angolano (FACRA) is a public venture capital fund that supports Angolan SMEs in building, innovating and expanding their businesses in Angola. Capital investments from venture capital companies or external businesses are greatly needed in order to stimulate local industry, to provide space for innovation to flourish and succeed. This need means that the time is right for overseas businesses to take market share, create jobs and steal a lead in one of the world’s fastest growing markets.
There are a number of areas where SMEs can – and will – play a major part in the growth and development of the nation’s economy. Agriculture and manufacturing are ripe for growth and the government of Angola is particularly keen on working with young businesses and external parties in helping to stimulate growth in these sectors.
The IMF Angola Economic Update 2013 states that growth in agriculture and manufacturing has been relatively strong over recent years but is performing below its full potential. Agriculture employs two-thirds of the Angolan labour force and whilst the sector grew by 7.3 per cent in 2012, it remained below its 10-year average rate of 13 per cent. The report goes on to say that, “….increasing investment to boost productivity in agriculture and manufacturing could make a strong contribution to employment creation, particularly given the human-capital dynamics of the Angolan labour force.”
The technology sector is also underdeveloped, presenting investors with an opportunity to drive innovation in areas such as mobile apps and software. Angola’s communications and information technology industries are expanding rapidly – 4G networks launched in 2012 and mobile phone penetration is more than 50 per cent. Angolans are hungry for technology and with little innovation currently happening in the country, there is a major opportunity for companies to move in and steal a march in the sector.
Hospitality is perhaps one of the largest and most important sectors for development in the country and further afield across sub-Saharan Africa. Luanda is a major business hub and as such requires world-class hospitality. There are opportunities for investment in everything from hotels to restaurants and leisure facilities as the country works towards providing the infrastructure needed to accommodate business and leisure travellers from around the world.
The development of these key industry sectors will also help to boost intra-Africa trade and stimulate a strong regional market. A strong African market will see African goods and services replace the region’s dependence on imports. It will also drive innovation, create jobs and raise living standards across the board.
Angola is a nation that desperately needs to build an SME segment in order to diversify its economy and continue to grow. It has all of the ingredients necessary to make this happen: Political will, a young and hungry population, tax incentives for foreign companies and a stable, peaceful society. The government in Angola is investing billions of dollars of the nation’s wealth in building infrastructure, educating its people and providing a framework for growth.
The country is also attracting investment from external bodies. The World Bank has promised to provide $1 billion for infrastructure development and the Africa Development Bank is set to loan Angola $1 billion to develop its electricity grid.
There is a lot happening in this young nation – but much more to do in order for it to realise its full potential. Attracting the investment of foreign companies is one way in which the people of Angola can benefit from the development of an all-important SME segment.
By Teodoro DE Jesus Xavier Poulson, Member of Investment Committee, FACRA
The Fundo Activo de Capital de Risco Angolano (FACRA) is a public venture capital fund that supports small and medium enterprises (SMEs) in building, innovating and expanding their businesses in Angola.
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