The urgency of recalibrating state-small business synergy in Africa

The significance of small enterprises in African economies is widely recognised. These businesses are vital for economic progress in many African countries, as they create up to 80% of jobs, foster innovation, and enhance economic growth. A thriving small business sector in Africa leads to increased employment, expands the tax base, raises national revenue, and enables African governments to invest in social and economic infrastructure. However, the relationship between African states and small businesses has not been fully productive in unlocking the sector’s potential due to various challenges, including inadequate funding, lack of infrastructure, and insufficient policy support. With its vast natural resources, Africa can tap into small businesses to provide human capital, accelerate productivity, and reimagine its economic growth. There is therefore an urgent need to repair Africa’s state-small business relationships if it is to compete with the rest of the world effectively.

Today, think –tanks and political and business leaders are preoccupied with understanding how to help Africa’s economy grow so it can trade with the world on better terms. Africa is tackling the compounded challenges of climate change, pandemic impacts, digital transformations, youth unemployment, and geopolitical shifts. These disruptions offer an opportunity to rethink how African states and businesses interact to address these challenges. We argue in this article that African economies can strengthen resilience to risks caused by interconnected shocks across political, economic, energy, technological, and climate fronts if they effectively integrate the inclusion of small businesses in governance and improve their business conditions. The continent’s future depends on a transformative, inclusive, and sustainable approach to state-small business relations.

Moreover, we posit that Africa must urgently reimagine the state-small business relationship, moving from transactional interactions to transformational partnerships rooted in mutual trust, shared prosperity, and long-term development goals. We contend that a failure to evolve this relationship will stall progress toward Africa’s Agenda 2063, sustainable development, and economic resilience. However, rethinking this relationship requires a departure from the traditional mindset and an embrace of new approaches that address today’s complex development challenges in Africa. We propose several recommendations for reimagining African state-small-business relations to better prepare for uncertainty. As African states navigate these uncertain times, government-small business relationships must be rooted in shared prosperity, social legitimacy, and long-term development.

Towards developmental African states

Post-independence economic planning in Africa has often mimicked colonial development models, emphasising foreign direct investment (FDI), mega-infrastructure, and multinational corporate partnerships. While these channels have brought some growth, they have largely failed to stimulate broad-based prosperity. Instead, they have entrenched elite capture and dependency on extractive industries, leading to development enclaves rather than sustainable national systems. Africa must abandon the myth that wealth will naturally trickle down from a few large international corporations to the rest of the economy. Instead, development must emerge from vibrant local enterprises embedded within communities that understand context-specific challenges and possess the adaptive capacities necessary to address them.

The time is ripe for an ideological shift. Africapitalism, as a concept, posits that African businesses must assume co-responsibility in developing their societies. Profit and purpose should not be mutually exclusive but rather mutually reinforcing. African states must evolve into developmental states — not in the authoritarian mould, but in the democratic and participatory sense. They must cultivate institutional capacities that promote innovation, inclusion, and infrastructure development that is favourable for small businesses, promoting shared growth. Developmental states should partner with small businesses rather than just ‘police’ them. This dual transformation, a new private sector ethos and reconfigured state capacities, is the cornerstone of resilient development pathways. The binary of state versus small businesses is obsolete; collaborative governance is the future.

However, small businesses in Africa remain largely undercapitalised, underrepresented, and undervalued in policymaking circles. One of the challenges is the lack of coherent data systems to map, understand, and support these businesses. Governments often rely on outdated or incomplete datasets, which results in poorly tailored policy interventions. Without inclusive data ecosystems, these businesses are invisible to the state and excluded from national planning frameworks.

Moreover, one of the most debilitating features of state-small business relations in Africa is the lack of mutual trust. The state often views businesses as tax evaders, while businesses see the state as corrupt and inefficient. Bridging this chasm demands radical transparency, institutional reforms, and co-creation of policy spaces. Trust is built when the rules of engagement are predictable, inclusive, and enforceable. When regulatory frameworks are applied selectively or arbitrarily, businesses lose faith and either operate informally or exit. States, in turn, lose vital tax revenues and accountability leverage. Rebuilding this trust requires an integrity pact — in other words, a new social contract.

Rethinking state engagement

To redesign state-small-business relations in Africa during times of uncertainty, we recommend the following: African states must institutionalise state-business dialogue platforms. These regular, structured, and inclusive dialogue mechanisms should be established at national, subnational, and sectoral levels. These platforms must go beyond symbolic participation to enable real influence in policy formulation, implementation, and monitoring. Additionally, there is a need to build business data ecosystems in Africa. African states must invest in digital registries, business mapping, and data analytics to understand businesses’ nature, distribution, and needs. Such data will inform responsive policies, guide public procurement strategies, and identify innovation clusters worth supporting.

Moreover, there is no better time to localise procurement and value chains in African states than now. State contracts and procurement processes should deliberately favour local enterprises, especially those led by youth and women. This not only supports economic inclusion but also stimulates the development of local value chains, reduces import dependency, and creates jobs. While some countries like Kenya, South Africa, and Rwanda have attempted to implement this, its intended value is still far from realisation. Further, African countries can formalise the informal without destroying it. There must be deliberate efforts to integrate informal businesses into the formal economy and avoid heavy-handed tactics. States should offer incentives for gradual formalisation, such as access to credit, markets, training, and simplified compliance procedures. In addition, the African states must reimagine taxation for inclusion. Rather than focusing solely on expanding the tax base, governments must pursue equitable taxation that considers the capacities of small enterprises. Transparent reinvestment of tax revenues into community infrastructure and services will also strengthen fiscal legitimacy.

Furthermore, there is an opportunity for the education system to realign to cultivate ethical entrepreneurial leadership. Business schools, incubators, and professional associations in Africa must integrate ethics, citizenship, and sustainability into their curricula. Entrepreneurs should be empowered not just as wealth creators but as agents of societal transformation. Business owners must position themselves as partners in co-designing development strategies in Africa. States must co-develop national and regional development strategies with business actors. This participatory approach ensures contextual intelligence, ownership, and policy durability. It also allows for scenario planning, which is vital in navigating uncertainty.

Finally, the importance of leveraging technology for regulatory innovation must be underscored. Digital platforms can streamline business registration, compliance, and feedback loops. Artificial intelligence, blockchain, and mobile technologies offer tools for smart regulation that reduce corruption and enhance efficiency. A few examples of progress in this area can be observed in Rwanda and Kenya, which have emerged as beacons of state-business synergy by offering digital government services and investor support that attract local and foreign enterprises. Rwanda has developed digital platforms like IREMBO, which streamline citizen services, including business registration, licensing, and permits. Kenya’s Ajira Digital Programme provides digital skills to youth and connects them with freelance opportunities, illustrating how public-private collaborations can tackle unemployment.

Re-imagining the role of small businesses

While governments play a pivotal role in reimagining the relationship between the state and small business, it is also of paramount importance that the latter adopt proactive regenerative measures to fortify their standing within governance ecosystems. A significant strategy involves the organisation of small enterprises into formal structures, such as chambers of commerce, industry associations, cooperatives, and trade unions. When these businesses present a unified front, they can amplify their voice, engage meaningfully with policymakers, and shape public policies that are more responsive to their needs. Fragmentation diminishes influence, whereas collective organisation enhances both bargaining power and visibility.

Moreover, it is more efficient and strategic for states to engage in consultation and partnership with organised small business organisations rather than interacting with individual entrepreneurs. Therefore, small business associations must transcend economic advocacy to incorporate civic participation. They should remain politically aware — not necessarily partisan, but conscious of the ways in which political dynamics influence business environments. Fostering political literacy among employees and entrepreneurs contributes to the enhancement of collaborative governance and protects the long-term interests of the small business sector.

Furthermore, small businesses must also recognise their dual roles as both economic agents and civic participants. Their involvement in civic education, accountability processes, and policy monitoring can contribute to promoting a culture characterised by good governance. Small businesses’ Corporate Social Responsibility (CSR) in Africa must expand its scope to include civic education as a vital instrument for sustainable development. In this manner, politically educated and civically engaged business communities can emerge as foundational pillars of democratic resilience and economic transformation.

In conclusion, large corporations and international development organisations in Africa may benefit from assuming a catalytic role in helping small enterprises to organise and strengthen their engagement with the government. By supporting the establishment and capacity-building of small business associations, cooperatives, and local enterprise networks, these entities can significantly amplify the voices of small businesses during policy discussions. For instance, initiatives such as the Mastercard Foundation’s support for youth enterprise networks in Rwanda and GIZ’s facilitation of business chambers in Ghana exemplify how external actors can promote organised platforms for engagement. These efforts can not only enhance the visibility and influence of small businesses in policymaking but also play a vital role in building trust between the government and the small business sector, thereby establishing a foundation for a more inclusive and collaborative governance framework.

Africa’s development destiny will be determined by the choices that its leaders in both the public and private sector make today. For progress toward the Sustainable Development Goals, the imperative to reimagine state-small business relations is not a luxury but a necessity. We envision a continent where states are facilitators, not merely regulators; small businesses are citizens, not just profit-seekers; and development is inclusive, endogenous, and resilient. This vision is achievable if we summon the courage to collaborate, innovate, and govern in a different way.

Tags: Africa, Small Business, Small Enterprises