Role of business incubators in sustaining SME growth

Small and Medium Enterprises (SMEs) constitute a large portion of registered companies in Ghana, accounting for around 90% of all registered businesses. In Africa, they contribute an average of 45% to GDP, and in Ghana, this figure is close to 70%.

Their impact on socio-economic growth is significant as they employ the largest labor force, directly affecting livelihood and living standards. SMEs are integral to the value chain of corporate organizations, driving the real sectors of the economy such as manufacturing, mining services, agriculture processing, and general trading.

Despite their critical role in economic growth, SMEs in Africa face numerous challenges in achieving sustainability. These challenges include skills and capacity constraints, limited financial resources, restricted market access, insufficient business support, regulatory and bureaucratic hurdles, and a tough business environment.

Limited financial resources hinder the expansion and growth of SMEs, preventing them from making strategic investments in innovation and operational efficiency. Inadequate market information can obstruct SMEs from meeting the increasing consumer demand for sustainable products and services, affecting their growth and resilience. Furthermore, SMEs often struggle to keep up with changing regulations and policy directives, creating uncertainty.

The lack of innovation and capacity to invest in sustainable practices and technology has been a longstanding challenge, and low technological adoption has hindered the growth of high-potential SMEs.

Given the importance of SMEs to economic growth, deliberate efforts are required to help them grow and succeed. Globally, business incubators have been recognized as key interventions.

Recently, incubators have shifted their focus to business acceleration support, guiding SMEs from the ideation stage to becoming mature businesses through skills and business training, mentorship, advisory support, and financing opportunities. This support enables SMEs to invest in innovations, improve operational efficiency, expand their businesses, and increase productivity.

Incubators design business support programs for SMEs in three broad areas: business and skills training, access to market opportunities and information, and access to finance.

These programs aim to build SMEs’ capacity to make sound business decisions, promote regulatory compliance, provide financing options, and empower them with the right information to access both local and international markets. Such interventions are tailored based on needs assessments of specific business sectors to maximize impact.

Strong business mindsets are crucial for any business’s success, influenced by the entrepreneurs’ ability to understand and respond to market dynamics. Capacity-building training equips entrepreneurs with the necessary skills to navigate their business environments and sectors.

Understanding their business and market is essential for moving ideas to real business solutions targeting specific markets. Incubators, through their extensive networking capabilities and partnerships, create market opportunities for businesses to connect seamlessly within their ecosystems.

Third-generation business incubation has further advanced this by introducing SMEs to marketplace platforms with opportunities and information extending beyond the local economy. These interventions enable SMEs to operate locally while reaching global markets, enhancing productivity and growth towards sustainability.

Business incubators also collaborate with international development organizations to run programs that disburse funds to SMEs. Additionally, they mobilize funds to support SMEs by offering grants and concessionary debt instruments below market rates.

Incubators play a lead role in public policy education, promoting regulatory compliance through thought leadership programs, policy dialogues, and stakeholder engagements.

These programs facilitate critical inputs to policy-making, ensuring strong representation to policymakers and governments.

Incubators partner across the value chain, engaging industry experts to provide advisory services, mentorship, and coaching. They offer networking opportunities, temporary working spaces, and business support to help SMEs manage operational costs and remain competitive.

Through business challenge programs, incubators provide technical support to refine business models, making them market- and investment-ready. Financial programs offered by incubators, such as grants or low-interest loans, enable SMEs to invest in innovation and expand operations.

To achieve sustainable impact, business incubators must be adaptable and responsive to SMEs’ needs. This involves forming impactful partnerships with stakeholders like government, development partners, professional associations, academia, and financial institutions.

These partnerships are crucial for influencing SME growth and sustainability through policies or market development.

Effective collaborations require business incubators to maintain transparency with third parties, guided by robust corporate governance structures to mitigate risks and ensure regulatory compliance. Aligning strategic goals with global, regional, and national objectives, such as the UN Principles for Responsible Banking, UN SDGs, Africa Union’s Agenda 2063, and Ghana’s Nationally Determined Contributions (NDCs), is essential. Business incubators must remain agile, invest in the right technology and innovation, and adapt to new trends to continue supporting SMEs effectively.