How African SMEs can build resilience against political instability
Elections in Africa are mostly highly contested and are often portrayed as do or die. Powerful long serving presidents are desperately trying to cling to power while at the same time frustrated opposition pull all stops to dispose off their political nemesis.
There is an African proverb that says that when the elephants fight; it’s the grass that suffers. In all political contests in Africa; SMEs and local entrepreneurs bear the brunt as their enterprises experience business downturn before, during and after their respective election cycle.
On the contrary foreign investors both in stock exchange and multinationals can always conveniently transfer resources away from politically unstable countries to elsewhere since they have the resources to do so. For instance; in Kenya the Nairobi security exchange index experienced a 9% fall following the nullification of the 8th August presidential election.
Given that elections are predictable and political instability the norm; African SMEs must develop and adopt suitable strategies to cope with this phenomenon.
For instance SMEs can diversify their business portfolio. Diversification basically means that SMEs must actively invest their disposable/Retained income however little to different industry other than the one they are in. For example a small trader in Gikomba market in Kenya or Soweto Market in Katondo Zambia can invest some of their money in purchasing government security such as Treasury bills and bonds. Similarly a small scale farmer can lease part of their land or build a small iron sheet or mud house and receive rent.
The whole idea is to ensure that you don’t put all your eggs in one basket so that when there is an economic recession caused by electioneering cycle you can still get some income since not all economic sectors are negatively affected.
Another option that SMEs have is taking up insurance policies against their big ticket assets. Most SMEs would tell you they live by faith and that they don’t have money for insurance. Yes, paying insurance premium may be expensive but given the political environment we have in Africa it would be prudent that SMEs consider taking up even basic insurance policies such as Fire, Burglary, Terrorism and the likes. Remember if you think education is expensive try ignorance.
Finally SMEs must explore New Markets that are beyond their national borders. SMEs must strive to export their products to other African countries so that at least a third of their income is foreign based which would mean that even if there was political instability in their home country they would still be able to sell and get income.
These strategies are not exhaustive are meant to be adopted slowly over a long period of time given that resources are scarce for SMEs; but if implemented well they have the potential of transforming and stabilizing local African business environment.
https://viffaconsult.co.ke/how-african-smes-can-build-resilience-against-political-instability/