Local content: The power of partnerships in driving MSMEs growth

African MSMEs hold immense potential to drive innovation in Africa’s systems, representing 60 percent of the population under 25. However, limited access to resources and information poses barriers to their entry. Addressing these challenges is crucial to empower their engagement in productivity.

According to the African Development Bank, the AfCFTA possesses the transformative potential to establish a consumer market encompassing 1.3 billion individuals. Projections from The World Bank indicate that by 2035, the AfCFTA is expected to contribute an incremental income of $450 billion to Africa’s economy, alongside a substantial surge of more than 81 percent in intra-African exports.

This is the largest free trade area in the world measured by the number of countries agreeing to connect 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3.4 trillion (bearing in mind that one country has yet to join the agreement citing their national prioritization of regional economic zones). AFCTA has the potential to lift 30 million people out of extreme poverty, but achieving its full potential will depend on putting in place significant business environment reforms and trade facilitation measures.

In order for homegrown MSMEs to fully benefit from the agreement, they need to be equipped with the right tools and strategies to take advantage of the opportunities AfCFTA presents with a key entry point being in first optimizing local content within internationally funded projects so as to build local competitiveness.   Financial Institutions have the responsibility, given their standing, to prepare Tanzanian communities and locally owned SMEs, to be able to take advantage and participate in projects like the EACOP, its cross-cutting sectors, as well as other strategic projects and investments.

According to a 2023 report by the Stanbic Bank, Tanzania has one of the largest informal sectors as a percent of GDP of any country in Sub-Saharan Africa. The share of informal employment in total employment in Tanzania is 90.6 percent. Drivers of informality include onerous regulatory and tax burdens that unintentionally push businesses to stay small and under the radar. This negatively impacts the nation’s economic growth as these financially excluded businesses are unable to access or nurture formal sector value chains. It is then critical to blend finance with programs for SME building capacity like the Stanbic Bank Incubator initiative.

This can’t be achieved without strategic Public-Private Partnerships (PPPs) to make even greater strides. The private sector is a catalyst for the growth of any economy and it becomes even more resolute in that mission by partnering with the government and other economic growth actors.

Realizing the opportunity and leveraging the bank’s position as the leading investment bank, the incubator anchored its first intervention in local content, through its flagship ‘Supplier Development Program’ in partnership with the National Economic Empowerment Council (NEEC).

The initiative targeted a total of 500 SMEs in six regions namely; Dar es Salaam, Lindi, Shinyanga, Geita, Kagera, and Tanga impacted by the oil and gas and other cross-cutting sectors with necessary tools for active participation. The participating companies, within a specified timeline, were able to show competencies in bid/proposal preparation and management, and significantly improved the quality of their bids and submissions in addition to more effectively managing the contracts after award.

The intervention successfully enhanced the capabilities of small and medium enterprises (SMEs) interested in supplying the oil and gas sector. It professionalized these businesses by providing essential tools, facilitating tender and contract applications, and fostering sectoral linkages. Sustainable connections to markets and financial resources for trained SMEs were established, and the initiative organized networking events that provided access to subject matter experts.

Additionally, the initiative successfully consolidated investment-ready SMEs with viable business models, offering support for the implementation of their innovative strategies that enabled market entry, revenue growth, scalability, and job creation. Through the program, a total number of 12 tenders have been won so far with a total value of 20.72 Tanzania Billion Shillings and an ongoing pipeline.

This collaboration between the government, the bank, and the participating SMEs demonstrates the power of partnerships in driving meaningful change. Micro, small, and medium enterprises are a key component of Tanzania’s economy and contribute positively to the youth dividend. As we move forward, we envision even more PPPs around local content that will not only boost economic activity, and facilitate cross-border trade but also instill a sense of pride in the local business ecosystem.

Kai Mollel is the head of business incubator at Stanbic Bank Tanzania