Why African Businesses Struggle to Scale – and Why It Matters for the Continent’s Industrial Future

By Danilo Desiderio

Africa’s economic destiny is inextricably linked to its ability to build a thriving ecosystem of large, globally competitive enterprises. Yet, despite a vibrant landscape of micro and small businesses, the continent continues to face a critical challenge: the lack of scalable firms capable of driving industrialization, powering regional trade, and competing on the world stage.

A January 2025 article in The Economist highlights this gap, emphasizing that large companies serve as engines of productivity and prosperity. Unlike smaller firms, these enterprises have the capital, infrastructure, and organizational capacity to integrate complex inputs – talent, technology, innovation, and specialized equipment – into efficient production systems.

This synergy enables them to scale operations, boost labor productivity, and ultimately generate greater wealth per capita—an essential driver of improved living standards.

For Africa to realize its potential as a global trading hub, it must cultivate firms with the muscle to manage sophisticated supply chains, invest in cutting-edge technologies, and achieve economies of scale necessary for international competitiveness. Large firms not only negotiate better terms and absorb economic shocks more effectively, but they also attract foreign direct investment (FDI) and help integrate African economies into global value chains.

The Missing Link: From Micro to Macro

Yet, while millions of small businesses operate across the continent, few make the leap from local startups to regional or national powerhouses. The primary obstacle? Access to finance.

Traditional banking institutions often view micro and small enterprises (MSEs) as high-risk borrowers due to limited collateral, weak credit histories, and inconsistent financial records. When loans are available, interest rates are frequently prohibitive, stifling growth before it begins.

Meanwhile, alternative financing options like venture capital and private equity remain underdeveloped in many African markets, typically favoring tech-centric ventures over traditional sectors such as agriculture, manufacturing, and logistics.

This funding shortfall has been repeatedly flagged by global institutions. According to the World Trade Organization’s (WTO) 2023 Annual Report, Africa’s trade finance market covers less than 40 percent of total merchandise imports and exports – well below the global average of 60–80 percent.

A joint report published in October 2022 by the WTO and the International Finance Corporation (IFC) found that trade expansion in four West African economies- Côte d’Ivoire (Ivory Coast), Ghana, Nigeria, and Senegal – is severely constrained by costly and scarce access to finance.

At the 2024 Annual Meetings of the World Bank Group and International Monetary Fund in Marrakesh, Morocco, WTO Director-General Ngozi Okonjo-Iweala underscored the gravity of the situation: trade finance applications in Africa face rejection rates exceeding 40 percent, discouraging businesses from even seeking external support. As a result, many firms resort to self-financing- a strategy that rarely suffices for meaningful growth.

Breaking the Glass Ceiling: Pathways to Growth

Without adequate and affordable capital, promising MSEs remain stuck in a cycle of stagnation. They cannot afford the investments needed to boost output, improve product quality, or reduce costs – all prerequisites for scaling up and participating in regional or global trade.

This financial barrier acts as a glass ceiling, preventing Africa’s small enterprises from becoming the industry leaders of tomorrow.

To break through this barrier, a multi-pronged approach is required. Innovative financial tools – such as export credit insurance, invoice discounting, factoring, and working capital loans – must be expanded and tailored to the needs of growing businesses.

Equally important are efforts to strengthen financial literacy, enhance business development services, and create an enabling environment where a diverse range of financial products can flourish.

Ultimately, Africa’s future does not depend merely on having more businesses – it hinges on transforming existing ones into robust, scalable enterprises. Policymakers must prioritize building the conditions that allow today’s small firms to grow into tomorrow’s industrial champions.

Only then can the continent fully harness its trade potential and embark on a path of sustainable, inclusive economic transformation. The road to a dynamic, integrated African economy runs through the strategic empowerment of its homegrown businesses.

Danilo Desiderio serves as the CEO of Desiderio Consultants Ltd in Nairobi, Kenya, specializing in African customs, trade, and transport policies. He is a customs and trade expert at the World Bank and a senior associate to the Horn Economic and Social Policy Institute (HESPI).