Prosperity should always be at the heart of any initiative geared towards driving economic growth and development.
According to Uganda Investment Authority (UIA), SMEs are the engine of growth for economic development, innovation and wealth creation in Uganda.
The SMEs are spread across all sectors with 49 per cent in the service sector, 33 per cent in commerce and trade, 10 per cent in manufacturing and eight per cent in other fields. They employ over 2.5 million people, account for approximately 90 per cent of the entire private sector, and generate over 80 per cent of the manufactured output that contributes to 20 per cent of the gross domestic product (GDP).
Despite this considerable contribution to the economy, data shows that SMEs bear disproportionately higher trade financing and payments-related transactional costs and are, therefore, less cost-efficient and less likely to be involved in international trade. Oftentimes SMEs do not have access to the same types of financial tools and privileges as other larger organizations. When it comes to access to foreign currency, they rarely have priority.
In order to become more competitive, it is crucial to increase one’s involvement in foreign markets, as international businesses report higher sales and higher growth than their non-international peers.
Evidence suggests that the role of SMEs in international trade is crucial. SMEs in the USA, for instance, account for 20 per cent of the country’s exports, and in the EU that number is as high as 40 per cent. The volume for Africa is substantively lower where SMEs account for only three per cent of international exports. Diversity in the players involved with international trade helps increase competitiveness and quality of goods and services provided.
It is paramount that this sector is adequately democratized through ensuring lowered costs and barriers to access. AZA, through its BFX product, empowers SMEs to grow past their borders and broaden their horizons through business-to-business financial inclusion.
The AZA motto is that everybody has the right to manage and move money and has, therefore, developed products that allow SMEs to actively participate in the financial sector despite their geographical location.
For many African businesses, the major setback when partnering with banks is the long turnaround time for transactions, which takes up to four to eight working days. This makes it difficult to make payments to suppliers and contractors in good time.
Often SMEs have business emergencies, like the purchase of a replacement machine or part that needs to be processed immediately. BFX has enabled many businesses to overcome this barrier by settling payments in one to two business days. One such company is Shop Me Away, a five-year-old Senegal-based e-commerce platform, which was struggling to pay its suppliers outside Africa on time.
BFX was able to complete the transactions faster, sometimes within 24 hours and offered them a more favourable rate to trade XOF for EUR at two per cent, which was 50 per cent less than what other financial institutions were charging.
The existence of this cost-effective and prompt financial service has allowed many businesses like Shop Me Away to expand and grow resulting in an increase at a micro level, businesses’ profits and at a macro level, Senegal’s overall production networks, and economic growth.
Apart from the tight control that banks have within these economies, the growth of SMEs has been hampered by many other things including lack of access to trade financing, unfavourable trade policies with high tariff environments, lack of regional integration, and poor infrastructure to facilitate the movement of goods and persons.
Statistics show that there are over two billion people in the world living outside of our current financial system. AZA, through its partnerships with SMEs, intends to utilize its hybrid financial infrastructure products such as BFX to further democratize the financial systems in frontier markets and increase financial inclusion for everybody.
The author is the head of Sales for East Africa at AZA, one of Africa’s biggest non-bank currency brokers.