Unlocking Growth: The Case for Investing in Africa’s SMEs

In 2012, two former McKinsey consultants, Jeremy Hodara and Sacha Poignonnec, together with Tunde Kehinde and Raphael Kofi Afaedor, founded Jumia in Nigeria, a pan-African e-commerce platform. The market response was phenomenal, and that same year, Jumia rapidly expanded into Côte d’Ivoire, Egypt, Kenya, Morocco, and South Africa.

By 2019, Jumia had evolved from a small-medium-sized enterprise (SME) into Africa’s leading e-commerce platform. It achieved a landmark milestone by listing on the New York Stock Exchange (NYSE). While its public status brought challenges, including a significant decline in stock price, Jumia remains a listed company and continues to operate across eleven African countries.

Jumia, alongside other success stories like Twiga Foods in Kenya and Flutterwave, a Nigerian fintech company, exemplifies the transformative potential of African SMEs. These enterprises generate impressive returns and create meaningful impacts on livelihoods. Their success underscores Africa's untapped potential and the developmental opportunities across numerous underexplored sectors.

Investing in African SMEs presents a compelling value proposition. SMEs drive economic growth, foster innovation, create employment, and generate measurable social and environmental impacts. With a rapidly growing and youthful population, Africa offers a vast and expanding market for consumer goods, services, and technology. Egypt, Kenya, Nigeria, and South Africa are the continent’s hubs for startups, incubators, and accelerators.

Many African SMEs operate in underserved sectors, such as agribusiness, fintech, healthcare, and renewable energy, where they address critical infrastructure and service gaps. Emerging industries like technology, green energy, and logistics provide attractive growth opportunities for investors. With sound risk management, investors can achieve substantial returns as these SMEs scale operations. Beyond financial gains, investors can contribute meaningfully to Africa's sustainable development.

Another key enabler is the increasing penetration of smartphones and internet connectivity. By leveraging digital tools, SMEs can scale their operations, reach new customers, and enhance efficiency—an appealing prospect for investors seeking growth.

African governments also recognize SMEs as catalysts for economic transformation, offering incentives like tax breaks and grants to attract investment. Initiatives such as the African Continental Free Trade Area (AfCFTA) are removing trade barriers, enabling SMEs to expand across borders and tap into larger markets. International funding programs, including those led by the World Bank, IFC, and USAID, provide co-investment opportunities to help de-risk and scale SME investments.

However, investing in African SMEs requires an understanding of the continent’s cultural and linguistic diversity and the localized and informal nature of its markets—where 83% of Africans work in the informal sector. Successful businesses must creatively address localization and manage fragmentation at scale, which enables them to forge strong ties with their customer base and foster brand loyalty.

Social impact also remains central to many investors' strategies. While short-term gains in sectors like fintech and e-commerce are attractive, prioritizing long-term investments in healthcare and education is crucial for fostering sustainable development. These sectors form the foundation for Africa’s transformation and the well-being of its people.