MSME Productivity: Lessons from Africa — EGROW Webinar

The Presentation

MSMEs are large employers across the developing world — accounting for 60 to 65 per cent of total employment in India — yet most are informal, low-wage micro enterprises that prioritise stability over growth. Improving their productivity is nonetheless essential, as it enables this vast employment base to generate higher incomes and sustainable jobs.

Productivity improvement is difficult for two reasons. Politically, many MSMEs seek protection from competition rather than growth. Analytically, with so many potential drivers — finance, technology, infrastructure, markets, management — there is no consensus on where to start.

Africa, where MSME development is at an earlier stage, offers a clearer view of the fundamental first steps. Thriving African MSMEs cluster in and around marketplaces, confirming that market access comes first. Next comes product improvement — a sellable product must precede efficiency. Then branding and new sales channels, followed by management capability as firms grow beyond the owner's direct oversight.

Randomised trials show management training improves productivity, though employment effects are limited. Infrastructure — power, water, space to expand — must accompany capability building. Finance comes last: credit extended before capability, as African experience shows, produces bankruptcies rather than growth.

Discussion: The European Transition Experience

Drawing on Bulgaria's post-hyperinflation transition, the discussion confirmed that most micro enterprises are survival-oriented rather than growth-oriented — research showed 85 per cent simply do not wish to grow.

Productivity is a complex function requiring internal effort by firms to absorb technology and organise better, with the search for high value-added products as the starting point. In Africa's development stage, however, greater responsibility rests with governments: facilitating technology transfer, opening access to large markets in Europe, Asia and North America, and investing in education.

A caution was noted — rising productivity in transition economies often meant shedding workers as automation replaced jobs.

Discussion: The African Development Perspective

African enterprises are smaller on average than anywhere else, with the highest share of micro enterprises — partly explaining low productivity. Exporting firms are more productive, and linkages with large enterprises and FDI offer channels for learning.

Africa's specific constraint is energy: it is the least electrified continent, and closing the power gap would itself raise productivity. Mentoring proves more effective than one-time training but must be sustained.

Inclusion matters — women, youth, seniors and persons with disability as entrepreneurs. Africa's 54 countries vary enormously, and small firms' staying small is often by design, not inability.

Conclusion

Three lessons emerge:

• Sequencing matters. MSME support programmes fail when finance comes before capability. The right order is market access, sellable products, branding, management skills, infrastructure — and finance last.
• Small is rational, not unambitious. Micro enterprises stay small not from lack of ambition but rational caution — unreliable power, weak infrastructure, informality and risk make expansion dangerous. Fix the environment and growth follows.
• Productivity and jobs together. More MSMEs is not the goal — more productive MSMEs is. Yet since productivity gains can reduce employment, the true policy challenge is achieving both.