Digitalizing African MSMEs to build resilient economies

By Caesar Keluro

Digitalization is crucial to the survival and the future of African MSMEs and our economy. It provides these benefits for MSMEs: improved profit margins, productivity, and customer loyalty and retention, along with cost reductions; it has the ability to offer new products and services, and global market access. Experts have confirmed that small businesses are being transformed by a basic level of digital engagement while those with an advanced level of digital engagement are delivering double digits growth.

Sadly, African MSMEs are held behind by these barriers to digitisation: cost, access, and lack of acquaintance. There is need for urgent policy effort to digitize our MSMEs through collaboration with industry players so we can deliver an effective digital ecosystem. One of the major initiatives by the Malaysian government under the PENJANA programme includes increasing the annual allowance to 40 per cent for capital expenditure spent on ICT equipment. This attractive tax incentive is encouraging MSMEs to invest in ICT equipment as part of their digitalization journey to thrive in today’s demanding business environment.

A borderless marketplace

We are in a borderless marketplace. MSMEs need equip themselves with relevant digital solutions and digital technologies to maximize their operational efficiency, expense and take advantage of regional and global opportunities. In the fast evolving and dynamic business landscape of today, we can use digital technology to integrate smallholders in a digitally driven agri-food system. This will enable smallholders to access reliable information, overcoming remoteness and exclusion cost-effectively.

Aided by digital technologies like smartphones, satellite imagery, geographic information systems, and artificial intelligence, these can help farmers identify pests and diseases, support irrigation scheduling and planning, and assist weather forecasts and alerts. Also, social media is helping farmers crowdsource market-related information.

Asian governments are leading the world with diverse digital interventions. These digital interventions are reshaping competition locally and globally with consequences for African MSMEs. Some of the immediate benefits of their digital interventions targeting MSMEs are: managing transactions at a distance; delivering goods efficiently; facilitating access to financial services; and also assisting with engaging with new and existing customers.

Yet, we know that the process of adopting new digital approaches to selling does not come without risks. With digitalization, we are faced with the following: cybersecurity and data privacy concerns; exposure to digital fraud; online misinformation; asymmetric market power and platform dominance; and finally, African digital divide and infrastructure-related issues. Addressing these challenges will demand policy makers to help MSMEs’ navigate the digitalization route with ecosystem partners. This can be helped by government agencies working together with digital platforms like Jumia and others to provide education and training for MSMEs, helping them to go digital and expand market reach not only in response to the COVID-19 crisis, but explore our evolving global digital future.

African policy makers must work with ecosystem players to help globalize African MSMEs through ICT and e-commerce integration and interoperability of ecommerce platforms; with this enabling the promotion of the internationalization of our MSMEs and embedding them into global value chains. Although the need to attract foreign exchange earnings is critical, findings reveal that “digital tools could lower export costs of an average MSME” with lots of time saving benefits.

Recalled that DHgate (online marketplace for Chinese goods) linked over 1.9 million MSMEs in China with 19 million enterprise buyers across 222 economies and regions around the world, this should be the fulcrum of designing our Africa digitalization strategies and continental-wide digital engagements. Building on that, with customer retention programmes to maintain strong links between foreign buyers and local sellers will transform Africa’s export strategies.

Key area of transformation is in the logistics space. The digitalization of business logistics could help African businesses maintain on-time product delivery and deliver cost-savings even as we must address our ICT, educational and power infrastructure challenges. It will be amazing to see the evolution of our digital commerce space into “super app” business model, featuring food delivery, payment processing, and shopping services like we have seen in the Asian world.

Regarding financials, with cross platform partners, we can transform our supply chain finance platforms, integrating MSMEs to share details of transactions and verify invoices instantly. We believe this process could allow MSMEs to sell validated invoices to banks, access payment immediately, and avoid the hassle of handling payment collection. The rise of dominate digital platforms and the hovering anti-trust hammer on them, means Africa regulators have to develop the technical competence to navigate digital ecosystem regulatory conundrum. We must be wary of platform dominance morphing into market power in certain sectors of the economy.

In all, keeping an eye on pricing and algorithms will be critical to the health of our digital commerce market. We should watch out for digital platforms pressuring on African startups by copying their features or copying any of their competitive edge. We should find ways to restrict the influence of large platforms affecting MSMEs through pricing (e.g., charging relatively steep service commissions) that cut into profits and drive some MSMEs out of the market. We should x-ray the influence of algorithms and its power to put some MSMEs at a disadvantage, this concern should be addressed by periodic assessment of algorithms and promotion of the need for digital platforms to include explanatory tools about their algorithms.

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Caesar Keluro is co-founder/CEO, Nanocentric Technologies Limited. He leads ‘Make In West Africa’, a regional Think-tank. He tweets https://twitter.com/KCaesar, https://www.linkedin.com/in/caesarkeluro/