Africa SMEs 1

IMPACTS OF SMEs ON AFRICA

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 Africa SMEs 2

Impacts of SMEs on Africa

1.1 Research Background

According to the IMF growth outlook of the Africa, the sub-Saharan Africa which for the

last decade has maintained robust growth rates seems to be slowing down. The IMF notes that

apart from Kenya and Senegal that are experiencing the growth rates above 5%, the majority of

other countries in the sub-Saharan Africa are experiencing a depressed growth rate. The group

trimmed the initial focus for the economic growth rate in Africa of 2.9% to 2.6% (Aboah, White,

and Meuwissen, 2015; pp.7). Some of the major causes of the downward review of the economic

performance of the continent are the low-performance rates in the Africa two biggest economies.

In 2016 for example, the Nigeria economy which is classified as the largest in the Africa

continent in terms of the GDP slipped into recession.

The situation has not been any different in Africa second major economy, South Africa

which is also in recession. Therefore, without the robust economic performance of these major

economies, the contributions by others such as Rwanda, Ethiopia (which have experienced

incredible growth rates in the past decade) is small. However, what plagues Nigeria and South

Africa economy is what essentially inflicts several other African economies. Notably, except for

the South Africa, investments in basic infrastructure in Africa is poor. Much of the continent's

population lives in the rural areas (Aboah, White, and Meuwissen, 2015; pp.9). However, the

basic infrastructure such as roads and electricity in the countryside of Africa is lacking. Much of

the investments in infrastructure is made in the major cities. Even then, much of the

infrastructure is put in areas that are in rich suburbs.

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Lack of these basic infrastructures particularly when the majority of the population is located

has been the Achilles hill in the Africa battle of modernization. Moreover, it makes the trade in

Africa expensive. For example, it takes close to a week to transport a container cargo from

Kenyan port of Mombasa to the Uganda capital city, Kampala. Therefore, goods will reach the

port from China much faster, but it will take days before the products reach the owner in Nairobi

or Kampala (Aboah, White, and Meuwissen, 2015; pp.13). The lack of the investments in

infrastructure of the rural areas has also dwindled the global multinationals from doing business

in Africa. Another factor that has also been slowing down the Africa economic engine is the

reliance on raw commodities and the lack of value addition of the exports (Mpofu, Milne. and

Watkins-Mathys, L., 2013; pp. 7). It is the case that the fall in mineral prices in South Africa has

contributed to the fall in the GDP forecasts. It is the same case with Nigeria economy which is

heavily dependent on oil and gas. Therefore, the fall in the global oil prices negatively affected

much of the country economic output.

In many African countries, unemployment rates are markedly high. It should be noted

that in the recent past there have been xenophobic attacks in South Africa as the locals protest

against the influx of the migrants in the country. Notably, many African young women and men

make a journey across the continent from Ethiopia for example on the road to South Africa,

where opportunities are seen as relatively high. It is likely that some of the migrants eventually

secure a job, but the majority remains unemployed. The fall into the recession and the few

employment opportunities that exist and which lead to the competition between the locals and

the migrants were the contributing factors to the fracas that has been experienced in the country

in the recent past (Kira, 2013; pp. 9).

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In the recent past, the number of African youths graduating from local universities has

increased drastically. However, the growth in the graduation rates has not matched the economic

growth that would generate jobs for them (Etuk, Etuk and Michael, 2014; pp.9). Therefore, many

of the recent African graduates remain without a job. The IMF forecast of a drop in the growth

rates of Africa only makes the dream of ever getting a job ever more distant. Furthermore, the

IMF in the forecasts estimated that the population growth rates of Africa would remain above the

economic growth rates (Gbandi and Amissah, 2014; pp.6). In other words, the population will

expand at a much faster rate than the opportunities that will be created for the people to earn a

living.

It is apparently a vicious cycle of poverty. Also contributing to the problem as noted by

the IMF is the lack of critical policy adjustments by the governments that would otherwise help

to stabilize the African economies. The lack of such policy adjustments means that the countries

macroeconomic parameters are exposed to the international shocks. Civil wars in Africa is also

another factor that has contributed to the impoverishment of the African countries (Akuru and

Okoro 2014; 47). After many of the countries gained independence from the European colonizers

less than six decades ago, they plunged into civil and ethnic wars. In countries such as Uganda,

Rwanda, Mozambique, Angola civil wars have had tremendous negative impacts on the

expansion of infrastructure. In countries such as DRC Congo and Chad, the continuing civil wars

and battle for resources has affected the growth momentum of the continent economy (Akuru

and Okoro 2014; 47).

In all their reviews, IMF has highlighted the tremendous growth potential that is held in

sub-Saharan Africa and the continent at large. Times and again, the IMF has indicated the need

for these countries to strengthen their macroeconomic stability through policy adjustments. The
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organization notes that adjustments will help the countries in the continent better manage

instabilities in the market (Jaiteh and Jakobsson, 2014 pp. 13). Furthermore, they will help restart

the now silent engines of economic growth thereby creating opportunities for the many

unemployed young people across the continent. The IMF also highlights the need for countries in

sub-Saharan Africa to address structural weakness which has thus far led to a poor fiscal position

and crediting (Akuru and Okoro 2014; 48). Addressing the challenges will allow for the

rebalancing of the macroeconomic and make the economy more stable. The IMF has also

advised that the poor performance of the economy risks crawling back the efforts the countries

have made in combating poverty. Therefore, it has recommended that the countries take

measures to protect the vulnerable in the society through the social protection measures.

Like already mentioned, the industries that would otherwise create employment for the

youths in Africa are few and in many places non-existent. In Kenya for example, the informal

sector often called the juakali comprising of small artisans employs close to 60% of the youths

(Jaiteh and Jakobsson, 2014 pp. 8). Among the jobs that are created annually in the economy,

many of them are in the juakali sectors. The other small and medium sized enterprises in Kenya

are in agricultural processing especially doing small value addition.

In Nigeria, it is estimated that there are over 200 SMEs which just like in Kenya are the

major drivers of the economy (Akuru and Okoro 2014; 48). The contribution of the SMEs to the

overall GDP has also seen a major policy focus shift towards supporting them. It should be noted

that majority of the people that run these SMEs lacks skills in management, financial resource

reporting and appropriation (Jaiteh and Jakobsson, 2014 pp. 11). The policy focus that is often

carried out in conjunction with international donors and organizations such as IMF is designed to

help the SMEs run more effectively by equipping the holders with relevant skills that can better
 Africa SMEs 6

help them manage and run the businesses efficiently. Notably, when the SMEs are performing

poorly, the economies also struggles (Beck and Cull, 2014; pp. 585). Therefore, supporting

SMEs is also helping the economy at large, and this is crucial in tackling the many problems that

bedevil Africa especially fighting extreme poverty and diseases.

Past strategies of focusing the growth of the big business that is heavily dependent on the

imports to have proved virtually ineffective. In other words, despite the investments in large

industrial plants, little value has been realized especially concerning providing employment

opportunities (Jaiteh and Jakobsson, 2014 pp. 14). The policy shift allows the governments to

concentrate much of their focus on helping the SMEs start and grow. Importantly, World Bank

has underscored the importance of these SMEs in promoting greater local material utilization,

creating the jobs, mobilizing resources and supporting the rural development (Akuru and Okoro

2014; 48). Like alluded to earlier, much of the African rural areas remain underdeveloped.

Supporting development in these impoverished areas could be crucial in unlocking the growth

potential of the Africa (Cant. and Wiid, 2016; pp. 9).

1.2 Research Rationale

Like vastly discussed in the research introduction, the African population is increasingly

expanding. However, the economic growth rates have not been matched by the population

growth. Therefore, many of the people in Africa continent remain poor, and employment

opportunities are few. The government cannot give employment to all the citizens, more so in

Africa where corruption is endemic, and hiring is based on nepotism. Therefore, the private

sector has been seen as the solution to helping support growth in Africa, create jobs and bring

about development in the rural areas. The large companies that are synonymous in the developed

countries and which creates the majority of the jobs in Africa. In many cases, the SMEs are
 Africa SMEs 7

poorly funded but continue to thrive and create employment opportunities for many youths.

Therefore, the significance of the SMEs in helping create jobs and bring about development in

Africa cannot be underestimated. Therefore, it is necessary to carry out research on the role that

the SMEs plays in the growing the economies of Africa and identify ways through which they

can be supported to expand and help in fighting extreme poverty in the African continent (Beck

and Cull, 2014; pp. 586). The research is qualitative and will rely on descriptive data for

presentation and analysis.

1.3 Research Aim

Africa is plagued with many challenges of underdevelopment, low human resource index

among and extreme poverty. For example, in Nigeria close to 60% of the population is said to

live below the poverty line (Beck and Cull, 2014; pp. 586). The story is the same in several other

African countries. Notably, the employment opportunities for the youths remains low in Africa

due to the lack of quality jobs created by the manufacturing. In turn, many youths are starting up

small businesses to support themselves financially and create employment opportunities for the

others. In Kenya for example, juakali which is essentially SMEs employs close to three-quarters

of the workforce. However, despite the role that the SMEs plays in creating jobs and ending

poverty, they are poorly supported by funding and government policies and regulations (Beck

and Cull, 2014; pp. 587). The aim of this research paper is to look at the subject of the SMEs

more deeply, thoroughly explain the contribution of the SMEs to the economies of Africa, state

the challenges that they face and how they can be supported to become huge businesses. The

observation is that if the SMEs expand, they will create more opportunities for the youths, bring

about development in the rural areas and end extreme poverty.

1.4 Research Objectives

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The objectives of this study is to evaluate the impacts of the SMEs are on the GDP of the

African economies. In other words, what contributions do the SMEs make in the GDP of the

African economies? Another objective that the research seeks to achieve is to establish the

impacts of the SMEs on the FDI inflows in a country. Essentially, the FDI inflows support the

economic growth and performance of a given country. The important factor, in this case, is

whether the FDI is designed to support the growth of the SMEs for example through

collaboration such as mergers and acquisitions. The last objective of the research is to establish

the effects that SMEs have on the overall unemployment rates in Africa.

1.5 Research Questions

The key questions that the research seeks to find answers to are, the impacts of the SMEs

on the Gross Domestic Product. The other question is what impacts the SMEs have on

influencing the FDI levels in the country. The last question which is central to this research is the

role that is played by the SMEs in fighting unemployment in Africa.

1.6 Structure of Thesis

The problem of the unemployment in Africa is of monumental magnitude and poses a

challenge to many other countries. In other words, unemployment in Africa if not addressed may

become a global challenge. For instance, the majority of the people making journeys across the

Mediterranean from Africa to Europe are often young unemployed youths who are looking for

greener pastures in Europe. Consequently, there is resistance in the European countries as the

economies there remain depressed and the jobs become scarce. From another perspective, it is

likely that youths who do not have a job may end up joining terror groups that operate in Africa

thereby increasing the global insecurity.

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However, the Africa has been regarded as the next frontier of the growth after Asia and

Latin America. Therefore, if investments are made into the African continent, more people will

get opportunities there reducing the social impacts that come with immigration and further strain

on the developed economies. The question that remains is if investments are needed in Africa in

what areas can they have the greatest of the impacts? The paper seeks to answer this question by

analyzing the role played by the SMEs in the African economies to work as a guideline for the

policy makers, business leaders and charity organization to use in making useful investments that

will have positive impacts on the African youths and population at large (Matamanda and

Chidoko, 2017; pp.14). Usually, if a sector contributes significantly to the GDP, then it is

considered crucial for the growth of the country and a focus on the investments. The research

seeks to establish this connection to act as a guiding principle to the investors interested in doing

business in Africa. Another crucial consideration is whether the SMEs attracts the FDI in the

countries of Africa that would spur economic growth and help lift people out of poverty.

Chapter 2-Key Concepts

2.1 SMEs

Globally, there is no one accepted a definition of what an SME is, because the

abbreviations imply the 'small'' and 'medium'' which have various meanings in different

countries. For instance, what may be considered small in the United States may be regarded as

big in Africa? Among the considerations that are made in the United States in defining SMEs are

the size of the workforce and the financial parameters (Busse, Erdogan, and Mhlen, 2016; pp.

238). In the perspective of the first consideration, an SME would be any business that has

employee less than or equal to 500 (Busse, Erdogan, and Mhlen, 2016; pp. 238). The EU uses

the criteria of the headcount and balance sheet total to define an SME. A medium enterprise
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using the parameters is any firm that has less than 250 staff a turnover that is equal or less than

50 million (Busse, Erdogan, and Mhlen, 2016; pp. 238). A small business based on EU

standards has staff less than 50 and turnover that is equal or less than 10 million. The Canadian

business classification standards define a medium business as having less than 500 employees.

On the other hand, a small business has less than 50 employees (Busse, Erdogan, and Mhlen,

2016; pp. 239). The Canada, therefore, defines a SMEs as any business that has 0-499 employees

and a gross revenue of $ 50 million (Busse, Erdogan, and Mhlen, 2016; pp. 239).

The consideration for the revenues differs depending on the sector. For example, within

the service sub-sector, an SME would be considered to have less than $7 million annual revenues

(Beck and Cull, 2014; pp.588). Note that other service sectors such as the computers may have a

relatively small workforce and greater annual revenue and hence the need to use the two

parameters in the classification but also to group the businesses according to the sectors. In

Malaysia, a medium business has employees from 75- to 200 (Beck and Cull, 2014; pp.588). A

small business has employees from 5-75. In Kenya, SMEs are defined depending on the

employees and the annual revenues. Therefore, any business that employs 50 or less than staff is

considered an SME. In addition, the revenues should not exceed $ 1 million (Beck and Cull,

2014; pp.588). For this paper, the 50 employees and less than $1 million dollars in revenues will

be used as the definition of an SMEs (Beck and Cull, 2014; pp.589).

2.2 Economic Growth:

Assessment of how an economy grows is done after a given time interval say for

instance, a year. Usually, it involves comparing how much the economy has generated the

present year compared with the previous. Therefore, if the economy produced less the current

year compared to the previous, then it is considered to have grown negatively. Typically, a
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negative growth is defined as a recession, or contraction of the economy (Gbandi and Amissah,

2014; pp.7). On the other hand, if the economy produces more than the year before, it is said to

have experienced a positive growth. The rate of the growth is determined by finding the

difference between the current and the previous. Important also to note, if the economy is

growing, the companies also produce more and earns greater profits. Therefore, economic

growth rates are the key factor that investors consider when making investment decisions. The

rise in the profits and stock price due to the economic growth also allows companies to expand

thus producing more goods and services and thereby further spurring growth (Gbandi and

Amissah, 2014; pp. 9). The economic growth is not only enjoyed by the companies but the

society too. An expansion of the economy implies more money to spend and better standards of

living. Therefore, people living an economy that is expanding can afford housing, vacation, and

luxuries. Due to the benefits of the economic growth highlighted above, many countries across

the globe always strife to maintain the economy on an upward trend by developing policies that

support the growth of the industries (Ibrahim, Keat and Abdul-Rani 2016; pp. 12).

However, the growth of the economy has many factors at the play some of which are

outside the limits of a countrys leaders. Therefore, sometimes like mentioned in the case of

Nigeria and South Africa, countries sometimes experience a negative growth or a recession

(Gbandi and Amissah, 2014; pp. 9). The implication is that the companies in such countries

struggle to make a profit and hardly make any hiring. On the contrary, during the recession,

many businesses lay off employees, which create social problems such as poverty and diseases

such as depression. Moreover, instead of the firms expanding their production, they scale them

down since the demand is low. In addition, the government earns lesser revenues and thus

struggle to provide basic services to the citizens. In some cases, economic growth has been the
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start of the civil war and the breakdown of the economies. For instance, the SMEs contributed

close to 30% of the total exports and are a crucial cog in pushing the economic wheel of the

country. It is, therefore, no doubt that a lot of questions and discussions have been held in public

with regard to developing tax regulations that would support the growth of SMEs otherwise

called broad-based strategy.

2.3 Review of Theories and Models

Usually, economic models are designed to break down the complex nitty-gritty of an

economic concept into something that can easily be comprehended by the people. Importantly,

the model is supposed to yield postulations that can help explain economic behaviors that can be

tested. However, one outstanding feature of the economic model is that it is often subjective

because it lacks the necessary objective measures that can be tested. The two main classes of the

economic models are theoretical and empirical. This section of the paper will seek to discuss the

theoretical and empirical models that can be applied in explaining the economic growth and the

SMEs. Notably, the theoretical models only use defined constraints in the model to verify the

economic behaviors. The purpose is to explain specific questions by giving qualitative economic

answers. On the other hand, the empirical models seek to transform qualitative predictions into

numerical values.

Purchasing power parity is a crucial economic theory that argues that after the

adjustments in the exchange rates between two given countries, the price levels should be the

same. The argument is based on another theory called the law of the price which postulates that

an identical item should cost the same across the countries (Fatoki, 2014; 922). In other words, if

a car costs $ 1200 in the United States, once the adjustments are made on the exchange rates say

with naira, the Nigeria currency, the car should cost the same in Nigeria as the United States.
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Evidently, such a theory assumes many things, for instance, it fails to account for the cost of

transporting the car to the Nigeria, the levies that may be imposed by the government and the

profit margins that the importer would seek to get from the sale. What is most crucial for this

theory is that if the price levels are different for the same product after the exchange rate

adjustments, then people will seek to buy the product from the country with the lowest price

(Angelo, 2017; pp.8). For instance, if an Africa country, for instance, manufactures a car, but the

price of the same car with the similar specification is lower in Japan, then people will start

buying from Japan than South Africa.

The model best explains how the Africa SMEs struggle to remain competitive in a

globalized market. For instance, if there is a small computer assembly plant in South Africa and

another one in China, the technologies in China helps them assemble more products per unit time

and thus enjoy the economies of the scale (Ardjouman, 2014; pp.179). Consequently, people will

purchase from China than South Africa, the SME in South Africa can therefore only buy what is

assembled in China, rebrand and resell it in Africa. In the process, the jobs that would have been

created through the assembly are lost.

Interests Rate Parity is also another key theory to consider, and it compares the values of

the assets. If the exchange rate adjustments are made between two countries, then the value of

the assets should be the same (Angelo, 2017; pp.9). The theory is of importance concerning the

FDI flow into Africa. The companies buying assets in those countries wish for them to gain in

value. Usually, the value of the assets does not remain the same and changes with the economic

performance and outlook.

The Solow-Swan Economic Growth Model

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The building blocks for the Solow-Swan model is the evaluation of the population

growth, the rate of the economic and technological progress a country makes over a given time.

In other words, the economy of a given country over a certain period expand as the population

increase and the technology of the production becomes more advanced (Greiner, Semmler, and

Gong, 2016; pp. 8). For instance, if the initial technology of farming land is an ox and plow the

economy will be less developed or grow slower than when the technology is tractors. Another

consideration is that what is being produced must have people that want to consume it.

Therefore, if the population increases, then the demand for the goods improves, and the

technology used in the production also is enhanced. The assumptions of this model are that the

economy is operating in a perfectly competitive market. Other assumptions include work L and

capital K which are production factor.

In a Solow-Swan the assumption is that labor and capital are moving freely. In other

words, the model also suggests that the production factors are moving freely. Moreover, the

resources in the model are assumed to have been used completely. Another consideration made

by the model is that the economy is closed. In other words, production is homogeneous, and the

output is either channelled towards the investments or consumption. In this model of economic

growth, any new capital units are equal to the investments. Therefore, an increase in the capital

also causes a rise in the output. Importantly, if the capital inflow reduces the output from the

economy will also decrease. Notably, as the economy grows and the capital axe is undertaken,

the output margin reduces as compared with the previous period. The implication is that all

economies experience a law of diminishing returns. Using this model, the FDI inflows to Africa

will increase the working capital (Francis and Willard, 2016; pp.17).

Harrod-Domar Growth Model

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The basic premise of this model is that the growth of the economy depends on the capital

output and the level at which the citizens make the savings. Therefore, an increment of savings

should contribute to greater productivity and enhanced economic growth rate. The model is

applied in analyzing the business cycle thus helping support economic growth (Busse, Erdogan,

and Mhlen, 2016; pp. 285). The key concept of this model is that savings and investment are

central in supporting the economic growth of the country. Therefore, if the savings increases and

invest the savings, the economy will grow. Taken in the light of African economy context, low

savings levels lowers the amount invested and thus poor economic growth performance.

Therefore, if more is saved and invested, the production or output will increase, and the country

will grow. In this model, the capital-output ratio suggests the level of the capital that needs to be
 Africa SMEs 16

invested in the economy to produce a dollar worth of output. Therefore, if the capital-output ratio

is low, the economic growth increases and so do the output that is generated.

Some of the challenges that are associated with the model are that the growth of the

economy is the same as the development. In other words, if an economy A grows at 10% the

development also increases at the same level (Beltratti, 2013; pp. 8). In reality, the statistics that

illustrate an increase in the economic performance cannot be the same as improvement of the

literacy levels, health, and education among other social needs. The model also is reliant on the

growth of the foreign aid. Another shortcoming of this model is that physical capital as a means

of evaluating an investment is inefficient in countries of Africa because of corruption and

wastages (Jones and Muller, 2016; pp. 32). In addition, the savings ratio in developing countries

cannot be reliable in evaluating economic growth. Usually, the marginal propensities to save in

developing countries is low as more people spend their earnings to support the families. The

financial system is also another factor that makes this model inefficient because, in countries that

have an undeveloped financial system, the level of the savings cannot indicate the amount of

investment.

The Domar Model

Among the key considerations of this model are the impacts of the investments on the

economic growth. The model argues that investment generate income in the economy and

expand the capacity for productivity. In this model, joblessness in the economy is seen as a

disadvantage (Chambers, 2014; pp. 33). The inadequate use of the capital dwindles investments

and drives joblessness. In Africa due to inefficiency and wastage, the resources or capital may

not be well utilized. Therefore, the investments are low, and the income reduces. Therefore,

unemployment of the capital affects the income levels of the country. The reduction of the
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income also affects the demands for goods and services which further slows down the economic

growth of the country. The conditions that define a steady growth rate in this model is G, Gw,

and Gn or the changes in the capital inflows and the employment of the resources.

Lewis Structural Change

The model suggests that the growth of the modern industrial sectors would attract the

rural workers. Importantly, the approach would allow industrial firms to offer better income to

the rural workers thus improving industrial output. However, since the people from the rural

areas are less skilled, their impacts on the overall industrial productivity is insignificant. As the

rural workers improve their skills, the industrial productivity increases thus helping support

economic growth through enhanced output levels (Chambers, 2014; pp. 34). Importantly, the

people that migrate to the towns to support industry earn higher incomes than if they were

undertaking the traditional agricultural activities. The increase in the incomes also enhance
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savings that increase the capital that can be invested. As the savings are put in the increased

productivity of the industry, the output increase and the economy grows faster.

Rostows Model

This model of the economic growth of the development looks at the stages that a country

or economy undergoes before it matures. Therefore, in the beginning, the economy is reliant on

simple traditional means of production. Therefore, people rely on subsistence agriculture and

partly in the barter trade (Lewis, 2013; pp.162). Many of the African economies actually lies at

this stage of the economic development. The next step in the growth and development is a

transition in which the economy start becoming more specialized and see an expansion of the

infrastructure which helps increase surplus in the output of the country (Cingano, 2014; pp. 8). In

stage three of the economic growth and development, the economy simply takes off, the growth

is seen in the industry, more investment is recorded, and the growth is regional, and there is a

change in the political climate. For instance, people get more political freedoms and voice and

the standards of living increases greatly (Lewis, 2013; pp.163). In stage four of the development,

the economy simply matures up, at this point, it becomes more diversified, relies more on the

innovation and depends on less on the imports and investments. In the last stage of the growth

and development, the economy becomes more consumer oriented. Moreover, the economy

produces more durable goods and the service sector rather than the manufacturing dominates the

economy.
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Neoclassical Model

The model looks at the economic growth by evaluating from the aggregate output by

considering factors such as capital, labor, and the technological progress. Simply the model is

simplified as:

Yt = At f [Kt, Lt]

The t in the model represents the period, Yt is the output value of an economy. Importantly, the

greater the Y value, the greater the economic growth for a given period t. The Kt represents the

capital output, and Lt denotes the level of labor utilization (input). The At is for the technological

progress. Usually, advancement in technology would increase the output for the period under

review. In other words, the greater the At, the larger the Yt. However, the main drivers of the

technology are the entrepreneurs and innovation (Lewis, 2013; pp.161). Therefore a complete

representation of the neoclassical model of the economic growth is:

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Yt = 0 + 1Kt + 2Lt + 3SMEt + 4EXRt + 5INFt + t

The equation above incorporates the impacts that the inflation would have on the overall growth

of the SMEs. The and consider the parameters and errors in the evaluation.

2.4 Empirical studies of SMEs on Economic Growth

A study done by Matilla (2017), found that the Chinese inflows in the Sub-Saharan

Africa have supported the growth of the GDP and increased the employment opportunities.

Further, in his study Matillla (2017), correlated the impacts that the FDI inflows in China have

had in supporting the economic growth. Matilla (2017) established that just like in the case with

China, FDI inflows in Sub-Saharan Africa have supported the growth of the GDP and

employment creation.

Senkuku and Gharleghi (2015; p.54) sought to investigate how the government policies

attracts the FDI. The study focused on Tanzania. The findings from the study was that change or

reforms in government policies positively attracted the FDI inflows. Importantly, it established

that FDI was central in supporting GDP growth of Tanzania and fighting unemployment.

Ayentimi, et al., (2016, p.10) found that a correlation exist between the financial

integration in a particular county and FDI inflows into a country or region. Therefore, the

greater the financial integration, the larger the FDI that a country may attract. Ayentimi et al.,

(2016, p.11), specifically found out that increased financial integration in West Africa was

supporting the inflow of FDI in the region.

Adams and Ansah, (2015; p112), found that the financial reforms in Ghana had attracted

FDI inflows in that country. The researchers underscored the importance of the FDI in

supporting the economic growth of a country. Importantly Adams and Ansah (2015; p.113)
 Africa SMEs 21

established that financial reforms especially in the banking sector contributed positively to the

economic growth.

The empirical study assumes an autoregressive distributed lag method to evaluate the

contributions that have been made by the SMEs, in helping extreme fighting poverty in Africa,

promoting economic growth and development. Recent research shows that in many countries, the

SMEs have grown incredibly. The increase in the number of the SMEs has also be merged with a

rise in the output and productivity of the firms (Rjoub et al., 2017; pp. 7). Evidently, the SMEs

have the potential to be the catalysts for the socio-economic development of the African

societies, improving the standards of living. Equally, the SMEs has been primed as the solution

to helping the African economies attain macroeconomic objectives, which include creating jobs

for the youths, improving the entrepreneurial capabilities of a country and poverty reduction

(Rjoub et al., 2017; pp. 7). The three critical empirical data that will be evaluated in this study is

the impacts that SMEs have made in the GDP of a country, encouraging FDI inflows and

fighting the problem of the unemployment in Africa.

Conceptual Framework:

GDP

SMEs FDI

Unemployme
nt
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2.5 Research Variables

The three research variables that will be used to investigate the study questions are

described as follows. First is the SMEs and the GDP, for example, evaluate the number of SMEs

in a country and whether the growth in the number of the SMEs has led to an increase in the

GDP of a given country? Therefore, a rise with SMEs and a resultant rise in the GDP then it will

imply that there is a direct correlation between the number of SMEs and the GDP growth of a

country (Jerven, 2013; pp. 9).

Another pair of the variables that is will be investigated by the study is the impact of the

SMEs on the FDI. The idea is to investigate the role played by the SMEs in attracting the FDI

into a country. The assumption is that as SMEs grow, investors from other countries become

interested depending on the returns potential of a given SME and the sector it operates. The

assumption is that the expansion of the SMEs illustrates the confidence mood of the economy

and thus attracts the interests of the foreign investors thus promoting FDI to the country (Jerven,

2013; pp. 9). Therefore, there should be a correlation between the growth of the SMEs and the

FDI inflows.

The third variable in the study is what the impacts of the SMEs would be the total

unemployment levels of a country. The assumption again is that as the SMEs increase, they

create more work opportunities for the unemployed. Therefore, increase in the number of the

SMEs in a country should be matched with a decrease in the unemployment levels of a given

country. Therefore, just like the FDI and the GDP, the growth of the SMEs should have a direct

correlation to the reduction of the unemployment.

 Africa SMEs 23

Chapter 3

3.1 Research Design

The design used is a descriptive survey. It is appropriate for this research because it

allows for the use of the elements of both quantitative and qualitative research elements thereby

allowing for a more wholesome look at the impacts of the SMEs on the economy and the social

well-being of them to the country under consideration (Lambert and Lambert, 2012; pp. 255). In

other words, the model does not seek to infer what the impacts of the parameter are but rather

examine its contribution to the factors under the considerations. The study will importantly use

the secondary data in evaluating the impacts of the SMEs on the overall vibrancy of the African

economies. In addition, the study design allows for a correlation analysis of the factor under

consideration and the impacts that it has on the overall outcome. For example, like mentioned in

the variables, examining the relationship that exists between the SMEs expansion and the

reduction in the unemployment rate.

3.2 Research Methodology

The subject of the study is the countries in the African continent which have the desired

statistics on the subject matter. Therefore, the study will seek to examine the overall FDI inflows

into the African continent. Such data will be analyzed alongside the number of the SMEs that

were recorded in a given year (De Beer, 2016; pp. 33). The approach first offers a chance to look

directly at the descriptive data such as tables and infer the impacts of the inflows of the SMEs.

For example, does the data show that a rise in the SME for a given year, the FDI inflows

increased. At the same time, what was the economic performance of the continent for that given

year? The approach, therefore, allows to analyze the impacts of the FDI flows on the SMEs and
 Africa SMEs 24

at the same time examine whether there was any improvement in the economic performance.

Equally, the SMEs impacts on the job creation and the correlation to the economic progression.

The data collection for this research is to utilize available secondary economic data on African

economy at large (Hopkins, 2014; pp. 27). The data evaluated would be for the past ten years.

The period of five years allows for a better look at the economic growth of African countries and

correlate it to the number of SMEs that were added in the economy (Rjoub et al., 2017; pp. 8).

Furthermore, the period allows accommodating for the inefficient economic data reporting

system. Therefore, for a given country say X the last economic data update may have occurred

five or a year ago.

3.3 Data Collection Methods

The methods that would be used in the analyzing the data is a linear regression. The

analytical approach is appropriate for the project because it allows establishing the relative

importance of the independent and the dependent variable (Issawi, 2013; pp. 9). Therefore, the

method enables to evaluate the significance made by the SMEs say for example on the FDI

inflows, unemployment and GDP.

3.4 Population and Sample Size

The importance of sampling in research cannot be understated. It allows for using a small

sample of the population to predict the overall impact of the parameter on the total population. In

this research, a number of African countries will be used to estimate the impacts of the SMEs on

the GDP, FDI, and unemployment. Therefore, the sampling will help in making inferences about

a statistical parameter of the whole population.

 Africa SMEs 25

African Countries Number of African Countries Number of selected African Countries

I. Eastern Africa 18 4

II. Central Africa 9 3

III. Northern Africa 8 2

IV. Southern Africa 5 2

V. Western Africa 17 4

Total 57 15

The selection criteria used for samples were the availability of the statistical data and the

significance of the country in the region. For example, in the eastern African region, Kenya,

Rwanda, and Ethiopia would be considered. The observation is that for close to a decade now,

these countries have recorded significant expansion of the GDP and attracted interests of the

multinational companies (McMillan, Rodrik, and Verduzco-Gallo, 2014; pp. 15). For instance,

Kenya is already home to regional or continental headquarters of several multinationals such as

IBM among others. Moreover, the country has a thriving private sector which is obviously

critical in measuring the contribution of the SMEs in the job creation, FDI inflows and GDP

expansion (De Beer, 2016; pp. 34). Moreover, the country has been at the centre of innovation

and technology in Africa with innovations such as M-Pesa money transfer services which have

been credited worldwide as revolutionary in promoting financial inclusion of the developing

world (De Beer, 2016; pp. 34). It also has to be said that the country has some geopolitical

significance due to its location among other factors. Therefore, it is a justified pick for this study.
 Africa SMEs 26

Other countries such as Rwanda and Ethiopia have sustained an economic growth rate of over

6% in close to a decade, and therefore they make a good case for the inclusion in this study

(Acheampong and Osei, 2014; pp. 242). It is important also to note that the eastern Africa region

has maintained a high rate in Africa than any other region. Moreover, there has been the

discovery of oil and gas in the region thus attracting investors, and it would be crucial to examine

what these recent discoveries have done in promoting the growth of the SMEs and job creation.

The recent civil strives in the Northern Africa has dented the growth momentum

witnessed in the area in the years past. However, Morocco has sustained an impressive growth

rate and continue to attract FDI and the increase in the SMEs (Ayandibu and Houghton, J., 2017;

pp. 14). Therefore, an evaluation of the SMEs in this area would again help project the overall

impacts of them on the overall economic performance of the region. South Africa has been a

model of success in Africa, great infrastructure, stable governments and good standards of living

(Acheampong and Osei, 2014; pp. 242). Importantly, it has quite a substantial number of

industries and SMEs. It is for this reason that the county is selected for this study. Another

country from the south that is also selected is Botswana, in the recent past, the country has

undergone tremendous developments in energy, infrastructure, and construction (Liedholm and

Mead, 2013; pp. 5). It would appear that these developments would encourage the growth of the

SMEs and creation of the jobs. Therefore, it is a relevant addition to the sample. Other countries

such as Mozambique and Zambia, Namibia have experienced good economic growth rates. In

the Central Africa, two countries were selected for the study, Angola, and Gabon. Angola after

years of the civil wars has been able to recover and restart growth (Acheampong and Osei, 2014;

pp. 242). The presence of gas and oil in the country has also attracted FDI inflows into the

country, thereby giving a chance to query the impacts the FDI have had on the SMEs and job
 Africa SMEs 27

creation. Another country in this region that is also of interest is Gabon, which has among the

highest per capita income in Africa. Just like Angola, the country is also has high amounts of oils

and gas and this may be the factor attracting FDI inflows (World Bank. 2017; para 2).

The Western Africa has been plagued by a number of challenges especially the insecurity

posed by terror groups such as Boko Haram. Moreover, the terror cells operating in the North

Africa may infiltrate the region posing a big challenge to the government and the economic

growth of these regions. The region is home to Africa largest economy (Nigeria) and thus is of

major significance in this study (Acheampong and Osei, 2014; pp. 242). Much of the economic

studies conducted in the past always include Nigeria in the analysis, because it has a vibrant

economy with a thriving private sector. Therefore, it is justified to include it as part of the study

for the reasons given above. Moreover, the country has been close to the last two years.

Therefore, it can help in analyzing the impacts of this negative growth on the GDP, SMEs, and

FDI and unemployment levels. The last country from this region is Ghana, which has enjoyed

robust economic expansion in the last decade (Acheampong and Osei, 2014; pp. 242). The

country also has a vibrant private sector and is greatly peaceful.

Algeria is another North Africa country that is added in this research. The county is rich

in natural resources especially oil and gas and the evaluation is meant to see how SMEs in the

country have performed. Tanzania is also included in this research. The country has had recent

discoveries in gas and is rich minerals. It also has a vibrant private sector. The Democratic

Republic of Congo (DRC) is also rich in natural resources, but several civil wars. It is an interest

thus to find the performance of the SMEs in the economy. In the West Africa, Senegal which has

a stable democracy and vibrant private sector, and thus seeks to evaluate the performance of the

SMEs (Page and Sderbom, 2015; pp. 13). The last country that is included in the study as a
 Africa SMEs 28

sample is Ivory Coast. Another country with a thriving private sector (Dewan, Banerjee and

Randolph, 2014; pp. 9). The purpose is to evaluate the contribution of SMEs in the FDI inflows,

unemployment and GDP growth.

3.5 Reliability

The reliability of the data collected is a concern to provide the consistency in the

research. In other words, if someone else was to repeat the research afresh, would they get the

same set of results? Furthermore, the reliability also helps to illustrate that the scores obtained

from the study have not occurred due to chance but because of the variables under consideration.

One way of enhancing the reliability of the data is ensuring that statistical data is obtained using

the same manner to ensure consistency. In this paper, the economic data for the countries

selected for research will be obtained from international organizations such as World Bank, IMF

among others. Such organizations have a standardized system for collecting and reporting data

which enhances reliability. Furthermore, such systems allow for a better regression analysis of

the data.

3.6 Accessibility

The ease with which the research data or material can be accessed is also conscious in

this research. In many countries of Africa, data collection, storage and transmission is often a

challenge. Other problems affecting the access to data is the seemingly political system that

seeks to control access to some information that may be regarded as private. Therefore, national

data is often regarded as inaccurate or exaggerated to meet a certain political objective.

Therefore, inflation index may be reported at a lower rate than the actual figure. However,

organizations such as World Bank, conduct independent research annually and report their
 Africa SMEs 29

findings in their websites. The information is available to the members of the public for viewing

and other considerations. The research will access data from websites of these organizations.

Moreover, it will seek to compare the data reported by a country against that given by the

international organizations such as World Bank. (Gebremichael, 2014; pp.9). Information can

also be obtained from the private sector alliances and groups that actively monitor the FDI

inflows or outflow in Africa.

3.7 Ethical Consideration

Research must be objective in the collection and analysis of the data and not simply

designed to achieve a pre-determined outcome from the analysis. The hypothesis and not the bias

should be the basis of concluding the outcome of a research question. Like already mentioned,

the research question that the study seeks to answer is the correlation that exists between the

SMEs and the FDI, GDP growth and reduction in the unemployment (Quartey et al., 2017; pp.

19).

Another ethical consideration to make in this research is ensure that the data and the

source are credited to avoid plagiarism or intellectual property theft. The point is particularly

important considering that the research relies heavily on the analysis of the secondary data and

giving credence to the source is thereby important. The study also maintains professional

standards by ensuring that all the stages of the study are subjected to a rigorous scientific

procedure to minimize bias and upload the objectiveness of the research. In all the studies, it is

crucial to observe and maintain privacy and confidentiality of the participants and privileged

information that may be availed in the course of the study (Fakieh, Bloun and Busch., 2016; pp.

14). Furthermore, such information should only be obtained through the consent of the owner.
 Africa SMEs 30

The study will also develop and use protocols that guide in obtaining the information that

is necessary for the study. In the analysis of the data and its collection, considerations would

also make on the sensitivity to cultural and social differences that exists among the African

communities. The sensitivity allows for the cultural values of the African countries to be

respected and make sure that negative stories are not spurned out just to tarnish the progress or

lack thereof on the continent (Mary, Ngozi and Simon, 2015; pp.18). Another consideration in

this research is to allow for the access to the data that is presented in the research for the validity

of the information thereof. Such an open access help people that may doubt the findings or

suspect flaws in the process to repeat the study and see whether same results would be

reproduced (Janet et al., 2015; pp. 7). The study also has appropriate quality measures to ensure

that the data used in the research meets the quality standards expected for the inclusion in the

final analysis. Other ethical considerations are also made of the research designs, model and

analysis to minimize biases.

3.8 Data Analysis Method

The first method of the data analysis applied in this research is descriptive data analysis

that is meant to highlight the salient features of a given data set. The two particular areas of focus

on the description of the data are the measures of the central tendency and variability. Some of

the consideration to make in regard to the measures of the central tendency is the mean. The

average can help describe the overall trend in a study like this, for example, what is the average

impacts of the FDI inflows in the African growth of the SMEs (Han, Xiang and Yang, 2017;

pp.12). In addition, by comparing the average number of the SMEs and the mean rate of

unemployment, then the contribution of the SMEs in fighting joblessness on the African

continent could be demonstrated. The measures of the variability are also crucial in carrying
 Africa SMEs 31

out the analysis of the distribution of the data. For example, the standard deviation can help

determine how the values obtained for a given country differ from the mean. The measures of the

variability also help in determining the distribution of the data set from the normal standard

curve of distribution. In other words, it may help in evaluating whether the data is evenly

distributed or skewed.

Correlation Analysis

The idea of the correlation study is the comparison of the sets of the data. It is important

to keep in mind that the study looks at the three data sets. The SMEs and FDI, SMEs and the

GDP growth and lastly the SMEs and unemployment. The correlation analysis allows for the

evaluation of these variables and how they fluctuate together. Notably, if the correlation is

positive, then it illustrates how the factors under consideration reduce or increase in parallel

(Amoateng, Cobbinah and Ofori-Kumah, 2014; pp.332). For example, a positive correlation

would be obtained if the increase in SMEs leads to a rise in job creation. A negative correlation

will occur if the SMEs growth is not seen as supporting the creation of the jobs. One value that is

relied upon in correlation analysis is the correlation coefficient, which helps to estimate how the

fluctuations in one variable affect another.

Regression Analysis

An integral part of this analysis is the regression. The approach is crucial in establishing

the relationships that exist among the variables that are being considered in the study. Therefore,

it helps to create a relationship between the FDI, GDP, SMEs and Unemployment. Notably, all

these factors are central to this study because they seek to establish the relationship that is there

between these variables (Oyelana and Smith 2015; pp. 8). The relationship that is sought in
 Africa SMEs 32

regression analysis exists between the independent and independent variables. For this study, the

relationship is between the SMEs and the FDI, GDP and unemployment. Establishing such a

relationship in the context of the African economy is crucial because it can be used as the basis

by the policy makers in pushing for investments decisions that would allow for the expansion of

the African economies to create more jobs for the youths.

3.9 E-views

The tool allows for the prediction of the economic scenarios that would result for given

condition, thus giving insights into the impacts of each variable into the overall performance of

the economy. For example, e-view would help estimate what would happen if the SMEs

increased significantly and the FDI also record huge increments. For example, what would

happen to the GDP under such conditions?

Chapter 4

4.1 Descriptive Statistics

FDI inflows in Africa table and Graph

Country
FDI ($billions) 2009 2010 2011 2012 2013 2014
Ethiopia 0.221 0.288 0.627 0.279 0.953 2.132
Rwanda 0.119 0.423 0.106 0.16 0.258 0.292
Nigeria 8.555 6.026 8.841 7.07 5.563 4.656
Morocco 1.97 1.241 2.521 2.842 3.361 3.526
Angola 2.205 -3.227 3.0324 -6.898 -7.12 1.922
Gabon 0.573 0.499 0.696 0.832 0.771 1.011
South Africa 7.624 3.693 4.139 4.626 8.233 5.792
Botswana 0.209 0.218 1.371 0.543 0.398 0.515
Ghana 2.373 2.527 3.248 3.295 3.227 3.363
Kenya 0.116 0.178 0.14 0.163 0.372 0.944
Algeria 2.747 2.3 2.571 1.5 1.692 1.503
Cote d'Ivoire 0.396 0.358 0.302 0.33 0.407 0.439
 Africa SMEs 33

DRC -2.47 2.742 1.687 3.312 2.098 1.843

Tanzania 0.953 1.813 1.229 1.8 2.087 2.045
Senegal 0.33 0.272 0.338 0.276 0.311 0.403

Unemployment Rate in the Selected Countries

 Africa SMEs 34

Country Unemployment Rate (%) 2009 2010 2011 2012 2013 2014
Ethiopia 7.283 7.317 7.386 8.302 7.064 6.995
Rwanda 2.794 3.393 3.712 4.321 4.317 4.386
Nigeria 11.232 11.311 11.394 11.812 11.039 7.454
Morocco 18.083 17.747 17.926 18.615 18.964 19.92
Angola 11.513 11.526 11.532 11.544 11.561 11.524
Gabon 37.478 35.723 35.754 35.715 35.734 39.646
South Africa 48.336 51.212 50.282 51.698 51.426 51.291
Botswana 29.504 33.779 33.713 33.666 33.766 31.904
Ghana 15.587 8.614 8.492 8.526 9.846 10.007
Kenya 23.99 24.074 24.049 24.036 24.063 23.857
Algeria 21.508 21.97 22.56 27.617 25.062 25.688
Cote d'Ivoire 13.991 13.976 13.909 14.071 14.063 13.997
DRC 6.596 6.614 6.615 6.618 6.626 6.613
Tanzania 5.074 5.883 7.092 6.526 5.903 4.211
Senegal 14.689 13.769 12.522 12.546 12.533 13.499
 Africa SMEs 35

Country No. of 201 201 201

SMEs 2 3 2014 2015 6
8.64 10.25 10.39 7.56
Ethiopia 8 7 2 2
5.93
Rwanda 8.84 7.62 8.873 2
-
4.27 1.54
Nigeria 9 6.31 2.653 1
Morroco 3.01 2.551 4.508 1.1
5.15
Angola 5 4.804 3.007 0
 Africa SMEs 36

5.25 2.26
Gabon 1 4.315 3.879 2
2.21
South Africa 3 1.7 1.299 0
4.45
Botswana 6 4.149 -1.7 2.9
9.29 3.57
Ghana 3 3.986 3.916 7
4.56 5.93
Kenya 3 5.352 5.713 2

GDP growth Rate for Selected Countries

Country GDP Growth Rate (%) 2009 2010 2011 2012 2013 2014
Ethiopia 8.803 12.551 11.178 8.648 10.582 10.257
Rwanda 6.288 7.291 7.787 8.84 4.7 7.62
Nigeria 6.934 7.84 4.887 4.279 5.394 6.31
Morocco 4.244 3.816 5.246 3.01 4.535 2.551
Angola 2.413 3.408 3.919 5.515 6.814 4.804
Gabon 0.13 7.09 7.092 5.251 5.638 4.315
South Africa -1.538 3.04 3.284 2.213 2.489 1.7
Botswana -7.652 8.564 6.048 4.456 11.343 4.149
Ghana 4.846 7.9 14.046 9.293 7.313 3.986
Kenya 3.307 8.402 6.112 4.563 5.88 5.352
Algeria 1.632 3.634 2.892 3.375 2.768 3.789
Cote d'Ivoire 3.251 2.018 -4.387 10.707 8.889 8.794
DRC 2.855 7.079 6.865 7.158 8.504 9.51
Tanzania 5.382 6.359 7.905 5.141 7.263 6.965
Senegal 2.423 4.179 1.761 4.411 3.485 4.311

Country
No. of SMEs 2012 2013 2014 2015 2016
Ethiopia 8.648 10.257 10.392 7.562
Rwanda 8.84 7.62 8.873 5.932
Nigeria 4.279 6.31 2.653 -1.541
Morroco 3.01 2.551 4.508 1.1
 Africa SMEs 37

Angola 5.155 4.804 3.007 0

Gabon 5.251 4.315 3.879 2.262
South Africa 2.213 1.7 1.299 0
Botswana 4.456 4.149 -1.7 2.9
Ghana 9.293 3.986 3.916 3.577
Kenya 4.563 5.352 5.713 5.932

SMEs
 Africa SMEs 38

Country SMEs 2009 2010 2011 2012 2013 2014 2015 2016
Ethiopia 1327
Rwanda 3028 3129 4627 6655
Nigeria 65089 65074 72396 81144
Morocco 34658
Angola 850 6571 1327
Gabon 3490
South Africa 253217 199754 59731 217624
Botswana 10852 11639 12217 15447
Ghana 15324 13760 15649 13154
Kenya 45366
Algeria 10661 9564 12256 13938
Cote d'Ivoire 2600
DRC 411
Tanzania 1163
Senegal 2375

Correlation Statistics

SMEs and GDP growth Rate

 Africa SMEs 39

Correlation between SMEs and Average is:

-0.52855978(0.0428)

Correlation between SMEs and FDI

 Africa SMEs 40

Correlation between SMEs and Average is FDI:

0.70089163

SMEs and Unemployment Rate

 Africa SMEs 41

Correlation between SMEs and Average is:

0.63852987(0.0104)

Regression Analysis

SMEs and Average Unemployment

 Africa SMEs 42

Simple linear regression results:

Dependent Variable: Average
Independent Variable: SMEs
Average = 13.346299 + 0.00018041584 SMEs
Sample size: 15
R (correlation coefficient) = 0.63852987
R-sq = 0.4077204
Estimate of error standard deviation: 10.78871

Parameter estimates:
Parameter Estimate Std. Err. DF 95% L. Limit 95% U. Limit
Intercept 13.346299 3.1981971 13 6.4370143 20.255584
Slope 0.00018041584 0.000060309419 13 0.000050125257 0.00031070641

Analysis of variance table for regression model:

Source DF SS MS F-stat P-value
Model 1 1041.641 1041.641 8.9490929 0.0104
Error 13 1513.1514 116.39626
Total 14 2554.7923
 Africa SMEs 43

Regression Analysis

SMEs and FDI

Simple linear regression results:

Dependent Variable: FDI
Independent Variable: SMEs
FDI = 0.94449519 + 0.000026679284 SMEs
Sample size: 15
R (correlation coefficient) = 0.70089163
R-sq = 0.49124908
Estimate of error standard deviation: 1.3470651

Parameter estimates:
Parameter Estimate Std. Err. Alternative DF T-Stat P-value
Intercept 0.94449519 0.39932298 0 13 2.3652413 0.0342
Slope 0.000026679284 0.0000075301603 0 13 3.5429902 0.0036
 Africa SMEs 44

Analysis of variance table for regression model:

Source DF SS MS F-stat P-value
Model 1 22.778078 22.778078 12.55278 0.0036
Error 13 23.589598 1.8145844
Total 14 46.367676

Predicted values stored in new column: Predicted Values

SMEs and GDP Growth

Simple linear regression results:

Dependent Variable: GDP
Independent Variable: SMEs
GDP = 5.7631069 - 0.000022901735 SMEs
Sample size: 15
R (correlation coefficient) = -0.52855978
R-sq = 0.27937544
 Africa SMEs 45

Estimate of error standard deviation: 1.8249102

Parameter estimates:
Parameter Estimate Std. Err. Alternative DF T-Stat P-value
Intercept 5.7631069 0.54097502 0 13 10.653185 <0.0001
Slope -0.000022901735 0.000010201338 0 13 -2.2449737 0.0428

Analysis of variance table for regression model:

Source DF SS MS F-stat P-value
Model 1 16.784389 16.784389 5.039907 0.0428
Error 13 43.293865 3.3302973
Total 14 60.078253

Predicted values stored in new column: Predicted Values

4. 4. Impact of SMEs ON GDP

The implication is that the GDP growth in Africa from the sample may not necessarily be

what drives the economic growth. Instead, big projects such as infrastructure could be what spurs

the economic growth in the continent. Therefore, the more investments are made in the

infrastructure such as roads, airports, the greater the economy expands. It is possible that the

contribution of the SMEs in the African economy is understated due to the poor reporting

systems (Inyang, 2013; pp.7). In several African countries, data about SMEs is ad hoc such that

it is impossible to state the number of the businesses that operate in a country and thus difficult

to predict their contribution to the economic growth of such countries. Usually, a positive

correlation should exist between the SMEs numbers and the GDP growth. However, the unique

challenges posed in accurately recording data could explain the anomalies noted in this study.

The regression analysis also gives a small R-squared value which could indicate small variability

in the distribution of the data (Gbandi and Amissah, 2014; pp. 34).
 Africa SMEs 46

4.5 Impact of SMEs on FDI

The correlation shown between the SMEs and FDI is positive. Usually, as the FDI

increases the performance or the number of SMEs is also expected to rise. In other words, as

more money flows into an economy it should stimulate or support the growth of the SMEs.

Therefore, the FDI and SMEs performance are expected to be in parallel, meaning when one

reduces the other is also expected to drop (Bouazza, 2015; pp. 5). However, the correlation,

therefore, agrees with the hypothesis that as the SMEs increases the FDI

4.6 Impact of SMEs on Unemployment

What the correlation establish in this case is positive. The implication is that the

reduction in the performance of the SMEs leads to a drop in the employment opportunities that

are created by the economy. On the other hand, a rise in the SMEs activities creates more

employment opportunities for the people.

4. 7 Result Summary

The results of the regression and correlation analyses suggest that negative association

exists between the SMEs and the FDI and GDP growth. Usually, it would be expected that an

increase in the FDI flow into a country would encourage the SMEs to flourish. But it is also

possible that the investments could be government to government and not necessarily money

used to support the growth of the private sector. Therefore, it is likely that large FDI inflows may

not lead to a rise in the performance of the SMEs. However, if much of what is coming into a

given country is in the form of private equity, then it may support the growth of the SMEs. The

analysis also showed that a positive correlation exists between the SMEs performance and the

unemployment rate. Like already mentioned, the SMEs are expected to create jobs for the
 Africa SMEs 47

unemployed, therefore, their increase in number should cause a reduction in the unemployment

rate.

Chapter 5: Conclusion and Recommendations

5.1 Conclusion

Africa is home to some of the world fastest growing economy like the case with Ethiopia.

Some economies such as South Africa are struggling. The unemployment rates in countries such

as Gabon, South Africa and Kenya remains remarkably high which implies that young people in

such countries are struggling to make a living. The data analysis showed the positive correlation

that exists between the SMEs and the unemployment rate. Therefore, it is fair to say that the

SMEs are central in addressing the problem of unemployment in Africa. The Africa

infrastructure remains largely underdeveloped, and this impedes growth and development. Some

of the FDI coming into the Africa could be directly channelled towards supporting the

development of the African infrastructure which will enhance intra-Africa trade.

The civil wars had plagued the continent over decades. However, these are being

replaced by stable governments in places such as Rwanda which is essential in helping SMEs to

thrive. In the research objective one of this study, SMEs and GDP do not have a positive

correlation which is rather an unusual scenario but not impossible. The study also showed that in

the African context and the countries selected for this study, the SMEs do not necessarily attract

FDI into Africa. It could be explained regarding the interests of the investors that want to put

their money in Africa. Perhaps the industries that the SMEs operate in are not so attractive as to

attract the FDI inflows. The objective three of the study gave a positive correlation, thus

confirming the hypothesis that a rise in the SMEs also leads to a jump in the jobs that are created
 Africa SMEs 48

in an economy. Equally, if the SMEs are struggling the jobs that are generated in an economy are

fewer.

5.2 Recommendations

The first recommendation is for the need for the private sector in Africa to be helped in keeping

data of the businesses that are started in a year. Furthermore, the data from different countries

could be put into one database for ease of access and comparisons.

1. The second recommendation is the need to use a larger sample when researching this

kind to minimize chances of errors and biases in the selection of the countries to be

included in the study.

2. The SMEs in Africa as evidenced by analysis support the growth of jobs and should thus

be helped to grow by giving relevant funding assistance.

3. The governments in Africa should seek to initiatives that would support the growth of

SMEs to expand economies and create employment.

5.3 Limitations

1. Limited access to the SMEs data in the population sample

2. Lack of data on FDI, GDP and unemployment in some countries selected for the study

3. Inconsistencies in the data provided by the national government of the sample countries

4. The failure to integrate unique challenges faced by African countries in data collection

5.4 Implications

1. The research implies that if the SMEs are supported, they could help fight the problem of

unemployment in Africa.

2. Another implication is that in countries such as Gabon, there is an outflow of the FDI
 Africa SMEs 49

3. In a country such as Angola, the inflow of the FDI does not seem to translate into the

growth of the SMEs.

5.4 Future Research Directions

1. The future research on this area of SMEs should seek to find out the areas of the

economy that the SMEs make most of the impacts

2. Another direction is to find out what impedes the growth of the SMEs in Africa

3. Future research should also seek to establish the challenges that the SMEs faces in Africa

and how governments can assist them to overcome the challenges.

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