SMEs in Africa - do interventions help SMEs

The question is whether these make a difference.

1.          If we look at the Porter approach to clustering and competition, Porter Diamond and Five Forces, Porter suggests that it is important to have strong competition in order to stimulate strong businesses locally. External business entering the market may disadvantage local businesses initially, but as staff begin to move around, and local innovation begins, so the local businesses begin to grow in strength. However, by forcing local participation in all new ventures, one deters investors from entering the market as the investor is unlikely to achieve required returns.

Therefore one has to question government policies that do not allow unfettered entrepreneurial enterprise in their country.

2.          If we look at other protectionist measures such as the South African BBBEE, while the intention is good, it does not address the key issues of why big business does not deal with SMEs in the first place. The truth is that often SMEs present increased risk to the large business. Therefore, instead of forcing big business to do business with SMEs, governments should be identifying the cause of the increased risk in doing business with SMEs, and then attempting to mitigate this risk.

Government interventions are a fact of life in all governments. However, more thought must be given to the cause of the perceived problems, rather than the symptom of the perceived problems.