Small and Medium Enterprises (SMEs) are the backbone of most African economies. Reports show that they generated approximately 80% of employment in sub-Saharan Africa in 2024. Despite their significance, SMEs face persistent obstacles, including restricted access to capital, regulatory complexities, and operational weaknesses. A valuable yet underutilised tool to address these challenges is corporate governance.

Now let’s examine why African SMEs need viable governance frameworks and outline practical and implementable measures.

The Value of Governance for SMEs

For SMEs, governance typically involves structured roles, transparent financial reporting, and clear decision-making protocols. This improves internal efficiency by reducing redundancies and clarifying authority, enabling SMEs to allocate resources effectively. Unlike large corporations with dedicated compliance teams, most African SMEs operate informally, often with owners managing all or several functions. This informality can lead to disorganised records, mismanagement, or disputes, undermining growth potential.

It is also worth noting that African SMEs encounter specific barriers that governance can address. For one, access to finance is a primary concern. In 2024, the AfDB reported that 60% of SMEs in Africa were denied credit due to inadequate documentation or perceived risks. Specifically, a business may generate consistent revenue yet fail to secure loans or attract investors due to disorganised financial records and a lack of transparency.

Regulatory compliance remains a significant challenge for SMEs. In Nigeria, for example, the revised Corporate Governance Code introduces specific requirements for SMEs, including the need to maintain auditable financial records and define clear leadership roles. As a result, non-compliance can lead to exclusion from public procurement opportunities or attract regulatory penalties.

In addition, succession planning adds another layer of complexity. Family-owned SMEs, which account for more than 50% of African businesses, face heightened vulnerability. A large number of these businesses lack formal succession plans. This gap contributes to the dissolution of a large number of such companies after a leadership transition. A strong governance framework directly addresses this issue by documenting clear succession protocols and safeguarding business continuity.

Why the Urgency in 2025?

Several evolving developments are making strong governance increasingly important for SMEs. With the African Continental Free Trade Area (AfCFTA) now fully operational, SMEs have greater access to a broader market across the continent. However, to take full advantage of these opportunities, businesses must meet cross-border standards and expectations. Having a clear governance framework in place helps SMEs navigate regulatory requirements, build credibility with international partners, and position themselves for long-term growth.

Likewise, investor preferences have increasingly shifted toward accountability, with a growing emphasis on governance practices such as ethical labour policies. This trend has led to a surge in impact investments targeting African SMEs demonstrating strong governance frameworks. For example, the International Finance Corporation (IFC) invested a record $14.2 billion in Africa during the 2024 fiscal year, supporting sectors like clean energy, manufacturing, digital connectivity, small business, trade, and agriculture. Additionally, initiatives like Uncap’s €30 million fund aim to provide non-dilutive, revenue-based financing to early-stage African SMEs, particularly those focusing on agriculture, trade, logistics, climate resilience, and financial inclusion.

Digitalisation also demands structure. Furthermore, the growing adoption of digital technologies reinforces the need for sound governance. SMEs that rely on mobile payment systems, online marketplaces, or digital platforms must establish clear policies to prevent fraud, data breaches, and cyber threats. As noted in a previous article, businesses without governance oversight are far more susceptible to digital risks and operational disruptions. The AfDB documented that 40% of SMEs in 2024 incurred losses from cybersecurity failures due to missing governance policies (AfDB, 2024). These dynamics make governance indispensable.

Practical Measures for SMEs

SMEs can implement governance through targeted actions, tailored to limited resources:

• Practical Measures for SMEs: SMEs can strengthen governance by implementing focused, manageable steps that suit their scale and resources:
  Establish Role Clarity: Define and document the responsibilities of owners, managers, and employees. For family-run businesses, it is especially important to separate business duties from personal relationships to reduce internal conflicts.
• Implement Financial Oversight: Use simple accounting tools to maintain accurate records of income and expenses. Regular financial reviews help identify discrepancies early and support better financial planning.
• Engage External Advisors: Form an informal advisory group made up of local professionals or mentors. Even quarterly or bi-annual meetings can offer strategic guidance and introduce fresh perspectives.
• Develop Risk Protocols: Identify potential threats, such as disruptions in the supply chain or digital vulnerabilities, and outline clear response plans. This proactive approach helps protect operations and ensures business continuity.
• Conduct Training: Offer basic governance and compliance training for staff. Even short, low-cost workshops can improve awareness and build a culture of accountability across the organisation.

For African SMEs, corporate governance is not a best practice, it is a strategic necessity. It provides the structure and discipline needed to navigate funding challenges, regulatory demands, and operational risks. By strengthening oversight, clarifying responsibilities, engaging expert support, and investing in leadership development, SMEs can position themselves for long-term stability and growth. Building strong governance today lays the foundation for a more resilient and successful tomorrow.

How the Society for Corporate Governance Nigeria Can Help

Today, the challenges faced by businesses often go beyond daily operations. Issues such as limited access to finance, complex regulatory requirements, leadership transitions, and exposure to digital risks frequently point to weak or underdeveloped governance systems.

At SCGN, we help organisations of all sizes strengthen the structures that support effective leadership, accountability, and sustainable growth. We identify gaps, clarify roles, and support the development of governance frameworks that improve oversight and decision-making.

Whether you are leading an SME or a large enterprise, strong governance provides a foundation for long-term success. It helps attract investment, manage risk, and build trust with stakeholders. To learn more about how we can support your organisation, visit our website.

In line with the growing importance of governance, the Society for Corporate Governance Nigeria (SCGN) is hosting the 4th Corporate Governance Roundtable for Startups and SMEs on June 26, 2025. Themed “Beyond Founders: Building Institutions, Boards, and Ethical Cultures,” this event will examine the role of corporate governance in building resilient, investment-ready businesses. This event highlights the growing importance of corporate governance in building resilient and investment-ready businesses. It brings together business leaders, investors, regulators, and entrepreneurs.

Attendees will gain insights on how to build effective boards, foster ethical cultures, and shift from founder led models to structured institutions. The roundtable reflects a broader movement in Africa that views governance not just as compliance but as a tool for long term success and sustainable growth. Register here