Promoting Cooperatives for Sustainable and Inclusive SME Development

Small and medium scale enterprises, widely regarded as the backbone of many African economies, have the potential to be a key source of economic growth. The past two years have presented unprecedented challenges for SMEs and MSMEs in sub-Saharan Africa. Lockdowns, and shifts in consumer demand in response to the COVID-19 pandemic have severely tested the limits of many MSMEs. Additionally, lack of skills, labor, capital, technological equipment, and knowledge of digital technologies have placed MSMEs at a considerable disadvantage. The current globalized business landscape is characterized by new financing patterns, increased customer expectations and rapidly evolving digital technologies. In order to survive and remain competitive, MSMEs need to be able to scale up, accelerate innovation, enhance their capacity in managerial know-how, broaden and deepen their skill sets, and enhance productivity.

Although cooperatives may hold the key to harnessing the potential and resilience of SMEs in Sub-Saharan Africa, this area has not been explored extensively. A cooperative is a legally incorporated corporation that is owned by an association of member-owners with common interests. Cooperatives are a democratic business model that operate on a “one member, one vote” principle. The seven principles that cooperatives subscribe to are: voluntary and open membership, democratic member control, member economic participation, autonomy and independence, educational training and independence, cooperation among cooperatives, and concern for the community.

According to an ILO (2014) report, cooperative enterprises have one billion members worldwide, and they help to secure the livelihoods of an estimated three billion people and provide more than 100 million jobs. Cooperatives operate differently from other businesses. The ownership of a cooperative is shared among the members who use its goods and services. Cooperatives make decisions democratically and shareholders cannot have a majority vote. Profits are distributed in whole or in part, as patronage dividends to all members. Indeed, the cooperative way of doing business provides a wide range of opportunities to address the economic, social, and cultural needs and aspirations of people globally. They can be found in all economic sectors and in different forms. Cooperatives in some parts of the world are still in the process of learning ways to implement the cooperative principle, while those in other places have a long tradition of cooperative ventures.

In Kenya, the cooperative movement saw the number of cooperatives grow by 30% from 19,951 to 25,984 between 2017 and 2021 (Kenya Economic Survey, 2022). They impact about 63% of the population directly and indirectly and contribute over 30% to GDP (National Cooperative Development Policy, 2019).

The cooperative business model is useful in creating and maintaining sustainable enterprises, offering jobs that not only provide income but also pave the way for broader social and economic advancement, as well as empowering individuals, families, and communities. In particular, the cooperative model enables skilled people that lack capital to pool resources to create employment and contribute to economic development. In terms of production, small businesses, which are operating on a suboptimal scale, can increase their production if the cooperative develops additional markets.

Cooperatives can also increase the bargaining power of the individual SMEs by strengthening their position in the dynamic environment in which they operate. Due to this collective bargaining power, flexibility and knowledge of local and international markets, SMEs can be in a more favorable position to survive. The benefit of collective action contributes to lower purchasing prices and operating costs. Participating businesses can also increase their marketing capacity by grouping their production outputs. Larger contracts can be negotiated and SMEs can even enter export markets. Furthermore, cooperatives can provide SMEs with supply chain infrastructure and improve their access to different markets.

Governments, donors, and business communities are more inclined to use the cooperative as an instrument for channeling aid to the small business sector. This will not only contribute to the survival of the small business sector, but it can also position the small business sector in a way that it can contribute considerably to economic development. MSMEs can participate in the cooperative sector to help build their community. In many rural communities, cooperatives play an important role as the economic engine for creating jobs and increasing rural incomes. Independent small business owners are discovering the power of cooperation across the globe.

It is important for the post-pandemic sustainable development framework in Africa to recognize the critical role of cooperatives in the successful achievement of SDG goals. Cooperatives foster democratic knowledge and practices and social inclusion. They have also shown resilience in the face of economic and financial crises. Cooperatives are therefore well-placed to contribute to sustainable development’s triple bottom line of economic, social, and environmental objectives.

About the SME Conference & Expo 2022

This year, we will be hosting the 10th Edition of the Annual SME Conference and Expo at the Strathmore University Auditorium.

The conference will be held on the 17th and 18th November 2022 at the Strathmore University Auditorium.

The theme is: Promoting Cooperatives for Sustainable and Inclusive SME Development.

The conference aims to bring together more than 600 MSMEs from various sectors such as manufacturing, retail, hospitality, education, tourism, healthcare, construction, and agribusiness, among others.  It will also offer a platform for participants to discuss challenges that provide great opportunities for MSMEs to realize the full potential of enterprise cooperatives for sustainable and inclusive growth. The conference also aims to discuss business agility in uncertain times as well as co-creating solutions for the growth of SMEs in Africa.

Register here to attend.

Article by Shailja Sharma, SBS Faculty Member and Leadership and Career Coach

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