How Local Governments Can Support Micro-Businesses and Start-Ups

Start-ups and Micro-businesses drive innovation and quality control and provide employment. The intervention of local governments can create conditions where such small businesses can thrive, says Ayodotun Stephen Ibidunni.

Micro, small and medium businesses are the catalysts for growth in most global urban economies and account for over sixty percent of employment in many countries. One of the benefits that results from micro-business and start-up activities is that they enhance competition, which puts all industry players on check and ensures quality assurance, fosters innovation, and serves as a platform for engaging youths and physically challenged persons in the active business sector.

Challenges Micro-businesses and Start-ups Are Facing

Notwithstanding, in most global urban economies, especially within developing countries, the growth of micro businesses and start-ups is impeded and their survival is often threatened. The factors responsible for this unfortunate situation include poor government funding and policy support, the high level of competition from larger firms, inadequate access to credit facilities, and lack of exposure of the entrepreneur themselves.

The informal economy is critical to micro-businesses and start-ups, especially in developing economies, because most of these entrepreneurial initiatives operate within the informal sector. The popular computer village and Alaba International market in Lagos, Nigeria, for instance consists of clusters of mostly micro-businesses which generate massive economic engagement opportunities and revenues for the government of Lagos state every month. Micro-businesses are faced with many challenges, among others multiple taxation and inconsistent power supply—issues which must be addressed through good local governance in order to facilitate the thriving of micro-businesses.

Local Governance Interventionist Roles

Because of their close links with the local environment, local governments are uniquely positioned to help overcome some of the challenges faced by micro-businesses and start-ups in order to help facilitate their healthy growth and survival. They can do so in a multitude of ways:

1. Create innovation hubs: creating multiple clustered locations of young creative minds that are dedicated to cultivating new ideas can serve as a major facilitation for start-up entrepreneurs to synergize and thrive.
2. Encourage micro-businesses and start-up entrepreneurs to invest in research and development (R&D). R&D is a major growth strategy for micro-businesses and start-up entrepreneurs. Unfortunately, the R&D culture and investment in most developing countries is minimal, mainly due to the huge cost involved in R&D. Local government can intervene here by giving grants to micro-businesses and start-up entrepreneurs to invest in R&D.
3. Create funding opportunities: Local governance intervention can help forego bureaucracy and high interest rates for micro-businesses and start-ups, and assist entrepreneurs in getting access to funding, thereby making otherwise impossible business ventures possible.
4. Facilitate capacity building training and networking programmes: supporting entrepreneurs through training that will help them cultivate competencies and capacities is an essential intervention for their businesses. Such fora can also establish networking opportunities.
5. Facilitate the provision of basic infrastructure: even when it is not in the capacity of local governments to set up infrastructure, they can act as mediators between federal or state/provincial governments and entrepreneurs to ensure that basic infrastructure, like power and good road networks are available to support business survival.

Micro-businesses and Start-ups Are Promoting Innovation

Many innovations are springing up from all over Africa and the world to prove the significance of micro-businesses and start-ups to the global economy and to the efforts towards a just and sustainable world. In Egypt, Khaled Shady led his team to develop Mubser, a navigational tool that can help visually impaired people to move and navigate around obstacles. In South Africa, Neil du Preez has designed and produced Mellowcabs, a type of high-tech electric pedicab from recycled materials. Nigeria also has its share of success stories, among them Paystack and Wilson’s Juice Company that have successfully established themselves in their respective industries.

i. Paystack

Paystack is a technology company that is focused on solving payment problems for businesses all across Africa. The company was founded in 2015 by software developers Shola Akinlade and Ezra Olubi. Paystack became the first Nigerian company to be accepted into the Y Combinator, a tech start-up accelerator that incubated Dropbox and Airbnb. In 2016, the company successfully raised US$1.3 million from local and international investors to facilitate its business growth. Paystack has progressively increased its business acumen from 2017 when it began to process over 1 billion Naira (approximately $3 million) in a single month to processing 10 billion Naira (approximately US$27.5 million) in a single month in 2018.

ii. Wilson’s Juice Company

Wilson’s Juice Co. was co-founded by brothers Seun and Seyi Abolaji. The company started out selling cups of lemonade at the when the co-founders were in college, and now distributes juice to over 650 locations in 18 states of Africa’s second-largest economy. Amongst the compelling competitive advantages of Wilson’s is that it offers an indigenous African beverage that is free from additives and hence provides a much sought-after healthy alternative to the artificially coloured and sweetened drinks on the market. The popularity of the brand has grown further through its cooperation with many modern retail chain outlets in Nigeria. Wilson’s operates in an over US$5 billion beverage industry, growing by 10 per cent per year. Currently, Wilson’s directly employs over 40 (and indirectly over 200) young Nigerians. Wilson’s aspiration is to be Nigeria’s leading natural beverage company.

Conclusion

Fundamentally, local governance is essential to the thriving and growth of micro-businesses and start-ups through the creation of conducive environments, capacities, and networks. At the same time, micro-business owners and start-up champions can learn resilience and growth-driven strategies and capabilities that can be achieved with their firms in urban economies.