China and Africa Share Experience in Micro, Small and Medium Enterprises Financing & Infrastructure Development

Fidelis Utabeki Ugbo, an official with Nigeria’s National Planning Commission, was at a pig farm in Feixi County, Anhui Province in Central China. The farm, which sells 2,000 pigs and makes 3 million yuan each year, got a loan from Feixi Rural Commercial Bank a couple of years ago and with that was able to develop from a “mom-and-pop” little farm to a 50-acre one which hires 5 workers today.  

Ugbo talked to the farm owner as well as loan officers from the bank, to learn about how access to financing could help micro, small and medium enterprises grow. “What I see first-hand here is that for farmers better access to financing truly means better growth opportunities,” he said. “I think financial institutions in my country should realize this too and remove obstacles in micro, small and medium enterprises financing.”

Ugbo is one of the 10 participants from Africa who attended the “2012 China-Africa Experience Sharing Program” from Nov. 5 to 12. The ongoing program kicked off in 2008 and its annual events since then have focused on different themes – trade and foreign direct investment, infrastructure, agriculture, rural development reforms, special economic zones, industrial cluster development, etc.

This year’s event, co-hosted by China’s Ministry of Finance and the World Bank, centered on micro, small and medium enterprises financing and inclusive growth.

During the same week, Abdulrahman Ali, Director General, Ministry of Highway and Transportation of Sudan, was in Beijing with other 33 officials from 19 African countries, attending the “Development Cooperation Workshop on Infrastructure Development in Africa”.

On November 6 and 7, they, together with Chinese officials and experts from international organizations and private sector, discussed how to better support infrastructure development in Africa.

The workshop, jointly delivered by China’s Ministry of Commerce and the World Bank, was grounded upon China’s commitment to expand its infrastructure support to Africa to $20 billion over the next four years, as articulated by President Hu Jintao during the July Forum on China-Africa Cooperation Ministerial Meeting in Beijing.

The two events are both core part of the World Bank’s support to the Chinese Government’s south-south cooperation priority. “This is also a key element of the World Bank’s Country Partnership Strategy for China,” said Joyce Msuya, Coordinator for East Asia and Pacific Region, World Bank Institute.

Micro, Small and Medium Enterprises Financing

In China, micro, small and medium enterprises (MSME) make up over 95% of the total number of enterprises, contributing meaningfully to China’s GDP, job creation and innovation. Yet, like in most developing countries, a major challenge faced by them is lack of access to finance.

In Africa, only 23.1% of the enterprises have a loan or line of credit, compared to 46.1% of enterprises in non-African developing countries. Most MSMEs can barely meet the current conditions set by financial institutions to get a loan.

In recent years, China has worked on many fronts to improve financial support to MSMEs. Statistics from September 2012 showed that loans to micro-and-small enterprises grew by 20.7% year-on-year, according to Wu Xiaoling, Vice Chairman of the Financial and Economic Committee of China in her keynote speech at the workshop of “2012 China-Africa Experience Sharing Program”.   

There are also significant opportunities to improve MSME financing in Africa, said African participants. Most African economies have undertaken financial reforms including opening up domestic banking systems to foreign competition, liberalizing capital accounts and interest rates, and privatizing state-owned banks.

Africa’s financial markets have also proven to be sound and resilient in times of global financial crisis, creating space for further developments in the sector, they said.

"The funding gap for MSMEs in Sub-Saharan Africa alone is estimated to be in the range of $100 billion. So there is ample need and investment opportunities in the sector", said Martin Holtmann, Head of International Financial Corporation (IFC)'s Microfinance Group. He also presented an overview of IFC's engagement in establishing South-South partnerships to bridge this gap and create more adequate supply.

Participants continued to exchange ideas on successful MSME financing models, enabling policy and regulatory environments, collaboration between public and private sectors, and global partnership for financial inclusion.

After the workshop, a study tour to Anhui Province was organized for participants to investigate practical local modes and watch and listen to successful stories of MSME financing.

Infrastructure Development

Africa’s infrastructure, in general, lags far behind that of other developing regions. Take Ghana as an example, the country, whose coastline stretches as long as 758km, has only two main harbors.

But gaps in funding infrastructure projects in Ghana are increasingly big, said Collins Donkor, Director of Ghana Highway at the “Development Cooperation Workshop on Infrastructure Development in Africa”. In the first session of the workshop, over 15 African participants outlined the infrastructure landscape in their countries.  

"High costs of doing business arising from inadequate and inefficient infrastructure can prevent the economy from realizing its full potential regardless of the progress on other fronts,” said Eunice Njoki with Planning, Development and 2030 View Department of Kenya.  

As Chinese proverb goes, “To get rich, build roads first” – infrastructure indeed plays a key role in boosting economy, said Yu Yingfu, Deputy Director-General of the Department of Foreign Aid in China’s Commerce Ministry, in the workshop’s second session for sharing best practices and lessons from infrastructure projects in Africa.   

China has long committed to supporting infrastructure development in Africa, he addressed, by the end of 2011, China has provided assistance to 270 infrastructure projects in 51 African countries. He continued to cite good examples of China-supported infrastructure projects in Africa and highlight what drove the successes.

"Sub-Saharan Africa needs US$93 billion a year on infrastructure, of which only US$45 billion is already being met through existing sources,” said Mr. Richard Arkutu, Manager, Infrastructure & Nature Resources, Senegal, IFC. “Thus, supporting private sector investments and Public-and-Private Partnerships is critical.”

The workshop ended with a consensus among all participants that to develop infrastructure in Africa, more resources, both public and private, must be mobilized; cross-country and cross-region projects should be promoted; international collaboration to create synergy and maximize impacts needs to be strengthened.