Challenges of setting up SMFEs in Africa
- Category: News
- Author: Fabrice Feyton
- Published: June 21, 2020
- Views: 9
Africa is caught up in a complex development situation in which it is facing numerous challenges essentially stemming from the desperate need to develop African people and get them out of the claws of abject poverty. These challenges are being faced by nearly all enterprises.
Small and medium forest enterprises (SMFEs) are indispensable institutions to an economy to develop a competitive environment and achieving a healthy economical atmosphere. The following are challenges that are limiting people to engage in SFMEs in Africa even though it is a good tool for poverty reduction.
1. Financing their business
Few financial services for SFMEs are available in Africa. Government regulatory, financial, trade, and fiscal policies all tend to favor wealthier groups. Subsidies and other benefits as tax cuts are usually provided to large scale enterprises and exclude small and medium enterprises. Policies to subsidize the poor and the creation of value chains in favor of the poor are necessary. These should be value chains where empowerment, and decision-making by poor communities are links of a chain aimed to improve their livelihoods.
2. Collateral for loans
Collateral is a security pledged for repayment of loans. Forests are not often acceptable collateral for a loan which constrains access to finance and other investments from the private sector. Land cannot be used as collateral without clear land tenure. Lending policies favor short-term loans with low risks, but a lack of information contributes to an inflated perception of risk in forestry; and Interest rates are often higher than growth in the value of forests when timber is the only marketed out.
3. Competition with other farms
Competition in food and agricultural markets is of increasing concern worldwide and these concerns also apply to developing countries. Addressing competition in food and agricultural markets is complex and can affect the functioning of these markets in variety of ways. Consumers and farmers are impacted directly by a lack of completion that, by extension, impacts on food security outcomes including access, availability, price transmission and price volatility
When markets are characterized by a lack of competition, the outcome of government policies aimed at promoting food security may not result in the anticipated effects.
4. Marketing challenges
Marketing deals with many things including satisfying clients needs. This business operation can not be taken lightly as it needs budget like other operations. Lack of marketing strategies and budget affects sales of products. Marketing promotes the buying and selling of forest products. Since marketing is so crucial for forest industries, a good marketing strategy results to business success and a bad marketing will seem to always results to failure. Lack of marketing skills and resources as well as expensive costs involved limit setting up SFMEs in Africa.
5. Perception about regulatory framework
Over-regulation by governmental agencies and institutions creates paper work and high costs that small enterprises cannot afford, these measures favor products and practices more suited to larger operations. This forces many small enterprises to operate illegally, even when they manage their forests better than larger “legal” operations.
6. Tenure and resource access are complex
SMFEs based on natural forests (less so for plantation forests) involve extensive areas of land over which the tenure and resource rights may be poorly defined or disputed.
7. Ecological sustainability requires complex technical expertise
Small and Medium Enterprises it is difficult for them to expand, because they are not capable to use or to buy high technology like machines to use in order to manage our ecosystem sustainably because their capital is low ,so this becomes a challenge for them, also there is another challenge of using that technology is this , it requires highly skilled labor to apply that technology by the time they do not get trainings of how to use it. so, this is a problem needs to be solved, where government can help SMEs by providing them with machines that they can pay slowly in order to expand their business.
8. Commercial profitability is dependent on complex markets
There no big differences between complex market and market diversity that’s to that we are dealing with the issues of market diversity in small medium forest enterprise. Natural forest product sales require the ability to find markets for multiple species (both timber and NTFPs) whose prices depend on species, quality grading and known processing information. That’s a real challenge as it could not be easy because SMFEs will need to found a market for each type of forest product, to understand how that situation should be too challenging.
9. Patterns of consumption are complex:
The direct and indirect pressures both result in environmental impacts, in particular, global warming, biodiversity degradation, soil sealing and air and water pollution. Thus, many goods are relatively cheap even though they cause major harm to the environment, ecosystems or human health. People who live in urban areas have very different consumption patterns than residents in rural areas, then with economic development the difference in consumption declined as the rural populations ate better diets. Urban populations not only consume more food, but they also consume more durable goods. The growth in urban areas comes from both the increase in migration to the cities and the fertility of urban population. The only way urban areas maintained their existence until recently was by the continual in-migration of rural people.
10. Limited access to business and financial services
Despite various measures of support from the Governments mostly small, gain access to credit. SMFEs that important obstacles to their financial access are lack of information and advice from financial institutions, complexity and cumbersome processes in loan applications and inadequate collateral. Financial institutions identify the main obstacles for SMFE lending as follows:
- Inadequate collateral,
- Lack of business experience,
- Lack of sound business plans,
- Non-performing loan history, and
- High transaction per loan application.
African banks have traditionally had collateral-based lending practices and lack the know-how to differentiate SMFEs’ risk.
These exacerbate the financial gaps and hinder access for SMEs. SMFEs characteristics associated with better access to finance are those that reflect good performance and the value of the firms and seen as a problem to the smallest ones.
11. Lack of support to enhance their competitiveness
Recent experience has shown that some governments have been able to engender a climate where SME innovation can flourish, creating a more dynamic economy and greater employment opportunities. In fact, the national climate for private sector innovation has an impact on businesses of all size but public policies and attitudes that constrain creativity, competition, risk- taking and appropriate financial returns on successful ventures can particularly affect small and medium-sized enterprises.
12. Limited access to markets
Small and medium forest enterprises may develop markets both, at the local and the global level. It depends on opportunities, comparative advantages, and national policies in place. Local market demands should be paid attention to, going global is not always positive for small and medium enterprises, the same applies for certification. This limitation to go global limit profits to local markets only. This affects overall earnings as on local markets there is high competition which tend to increases the needs for better marketing. The limited markets and certification to have access on global markets limits setting up SFMEs in Africa at a large extent.