Small business is the engine of economic growth across the globe. In the US, for example, they make up 99.9% of all businesses, generating about 45.9% of all jobs in America. Considering the size of the US economy, your guess is as good as mine.

In Africa, the ratio is very much similar. According to the World Bank, 90% of African businesses are small businesses, and they contribute about 50% of the job creation.

Looking at this figure, without understanding the fundamental differences between small businesses in Africa versus small businesses in America, one would shout hallelujah to the greatness of African small businesses. Yes, in reality, they are great, from the perspective of the African economic story; poor, unstructured, dysfunctional-in some instances, consumption based and unproductive economies. Yes, you heard me right (hence, productivity is a measure of input (both God giving) versus output).

However, looking deeper into the data will help you understand the underlying problem with the dominant role, small business plays in the African economies.

All Men Are Created Equal But Not All Businesses

In the USA, according to the US census bureau, small businesses are defined as businesses with 500 or fewer employees but separated into two categories, namely services and manufacturing. For the service sector, it is defined as a business within the average revenue less than $7.5 million, while for the manufacturing, it's measured by 500 or fewer employees. Again, on average, sole proprietorship businesses in America make a personal income of about $55,858. This is not total revenue, but personal income average. 

For the African economy, a small business is defined in some countries as those with employees number between 0 and 9. But adopting the Nigerian government definition, small businesses are those with annual gross turnover below N25 million (less than $15,000). Looking at the world bank data cited earlier, the majority of whom are not even small businesses but micro enterprises with much lesser annual gros turnover of less than $1000, you can understand the big gap between the metrics and the problem associated with such system.

For instance, according to businessday newspaper, (27 Jul 2022) eighty percent of businesses under the Micro, Small and Medium Enterprises (MSME) in Africa fail within the first five years of their existence despite having the highest entrepreneurship rate in the world, a 2022 Nigeria MSME report has shown. In the Mastercard report, 26 sept 2023, according to the World Bank, SMEs account for 60% of jobs in Africa, yet they operate in a cash-based economy, and face a US$330 billion financing gap. No wonder Africa economic productivity is in such a mess. 

Therefore, for the African economy to witness a reasonable growth, the economic structure of micro small businesses must be restructured. For the purpose of this discussion, I want to focus on the manufacturing side.

Joint Venture and Private Label manufacturing- Panacea to Real Economic Growth

Africa is so rich with hard-working and innovative citizens, always performing beyond expectations when it comes to manufacturing with little means. Africans are also very self propelling (self-made) entrepreneurs often because of lack of government coordination. Therefore, we tend to always have/build our things by ourselves. But therein lies our problem. The self-reliant nature of African entrepreneurs has eaten so deep that collaboration is often seen as weakness. Therefore, rather than 10, 20, 50 entrepreneurs coming together to pull resources together and build one factory, one company to go into manufacturing, each one tends to establish a micro factory of his/ger own, thereby reducing the effectiveness of their ability to make meaningful impact in the ecosystem. 

Apart from coming together to jointly own and operate a factory and R&D, what other things can African entrepreneurs do to change this narrative and make greater impact? One major game changer would be the massive adoption of private label manufacturing. All over the world, private label manufacturing is what most small businesses adopt to launch their brands. They concentrate on the R&D and outsource their production to an established manufacturer with all the equipment, tools, and technical know-how and regulatory approvals. In turn, your finished products will have all the international acceptability you require to launch global. 

Think of these, in Nigeria, to establish a factory is equivalent to becoming a local government of your own. You need to provide your access road, power, security, water, and sanitation. Then, you have to battle with compliance issues, unknown tax collectors, and ombudsmen. But you can save yourself all this stress by contracting out your manufacturing to another local big manufacturer who is well equipped to handle it. Imagine having @masters foods make your noodles or fmn make your pasta; semolina etc. Some small businesses also need to set up as a private label manufacturer as against having your own products. Think of the cost sharing effect this model will have in your business. Instead of investing your capital in machinery, marketing, land acquisition or production site leasing, compliance and regulatory approvals documentation, you can either concentrate on, some regulatory approval, trade mark, marketing and distribution planning or you concentrate on machinery purchase, factory space, some regulatory requirements, power and infrastructure. 

These two models of either private label or cooperative/joint Ventures will not only change African economic stories from that of pity to greatness but will provide the necessary mastery over our own technological and economic destiny. 

As a startup, our company @ebeosi is driving this entire process across Africa. From linking entrepreneurs to a private label manufacturer for their loved brands to providing merger, joint venture manufacturing and distribution road map to many who call on us. African poor economic story gives us sleepless nights, so should it be to you also. Together we can win this century only if we start now.