MSMEs (Micro, Small, and Medium Enterprises) in Africa
Micro, small, and medium enterprises (also known as MSME’s) are the vast array of startups which characterise our economies. They range from small one-man operations on the roadside or a barber’s chair or the influencer behind a computer, to larger more affluent businesses with numerous employees, robust systems, and structures. Regardless of their size and structure they play a critical role in the development of all economies and notably so in Africa. Research has shown that start-ups in Africa can employ up to 60% of the labour force Sub-Saharan economies. These entities also contribute at least 50% of the tax bill of their respective countries. This is despite more than half of them remaining as informal i.e., being unregistered entities without any ‘government granted’ right to operate.
With high unemployment levels ranging from 25% to 60% (depending on the country), entrepreneurship and small business development seems like the most sustainable way out for many Africans. Entrepreneurship brings the promise of significance not just for young people but also for women on the continent who have over the years been marginalized from formal employment structures. Starting and running their own business seems like a meaningful way to not just provide much-needed income, but to bring the positive focus and productivity that is required from members of any society.
What is the Status Quo for Digital Access?
However, as we consider the significant role that start-ups and their founders can play in moving African societies forward, we also need to consider how well equipped these start-up founders are for leadership in the 21st century. In a recent study by SIVIO Institute covering three countries Kenya, Malawi and Zambia, we discovered that MSMEs in these countries do not have the capacity that is required for a digital age that other economies have advanced into.
We discovered that MSME’s in Kenya were most well equipped with tools that allow access to digital space i.e., computers, mobile devices, and access to the internet. Up to 56% of them have access to some form of mobile device and a mobile banking facility. Malawi and Zambia have 28% and 33% respectively with access to mobile banking. We also discovered that between 30% and 60% of MSMEs have access to the Internet in all these countries. However, even though most have access to a mobile phone, very few have access to a computer. Access to computers ranges from between 16% in Malawi and 54% in Kenya.
The access to mobile phones had a corresponding high access to social media platforms such as Facebook and WhatsApp. But MSMEs in these countries had low access to E-commerce platforms, and rarely used online/digital payment gateways or other digital products and services that MSMEs in a digital age are expected to be using. It’s cheaper and easier to access a mobile phone, and it’s easy to access the internet even with a mobile device, but cost becomes a hindrance in efforts to access larger devices used for more complex transactions online.
What Does This Mean for African Start-ups and Their Service Providers?
Given the gaps (which are also opportunities) what should be done to raise the capacity of small businesses in Africa so they can actively contribute to the digital landscape seeing as it is a green field of potential? In this recent survey by SIVIO Institute, one key finding we uncovered, is that we cannot downplay the role that knowledge dissemination and capacity building play, especially for African start-ups. MSMEs in Africa have vastly different demographics composed of
- young tech-savvy
- young with little or no previous access to digital ecosystems (digitally illiterate)
- Young, old and somewhat informed about digital practices and products
- older tech-savvy
- older digitally illiterate
- multilingual including English language
- single language speakers (speaking mother language only)
In all the above groups, all may have come across a mobile phone, but few have ventured further than a few social media or banking applications. It is important therefore that as we push for industrial progress, we do not forget that these groups have real needs that require tailored focus for success.
Our data further showed that although all the countries (Kenya, Malawi and Zambia) have significant levels of access to digital products, and services, very few MSMEs use those tools, products, and services. For example, in Kenya, our index determined that 50% of MSMEs have access to digital tools but only 22% were actively using those products and services. In Zambia, 54% of MSME’s have access to digital tools yet only 24% use those tools actively and in Malawi up to 40% have access to digital tools but only 14% actively use those products and services. The great question therefore is not necessarily whether they have access or not, but it points to incomplete use of the tools MSMEs already have.
The Fourth Industrial Revolution and MSMEs in Africa
The optimism for business in Africa is well-placed. However, each opportunity has its own hurdles. In our survey, we concluded that some of the hurdles we need to overcome to build capacity and encourage better access is to continue to push for tools such as devices, better access to the internet and more reliable access to electricity. But we should not neglect to build the capacity of MSMEs for the products we put into their hands.
- We need to plan for this capacity building in our training programs as governments, incubators, and accelerators. We need to understand that the digital space requires investments like any normal investment space. In this opportunity is the inherent need to educate on cybercrime, cyber security and how youth and women can safeguard their identities and productive assets online.
- Language barriers need to be considered by Mobile Network Operators, Fintech operators and product developers in their efforts to create new applications targeting small businesses. One consideration could be the translation of useful and friendly applications into select languages. Another would be to invest more in growing a community of developers from amongst the potential buyers who not only speak African languages but understand the contextual needs of Africans and can build best fit products.
- Historically, incubation hubs and accelerators have helped improve the basic skills of start-up founders by focusing on developing and crafting a value proposition, identifying opportunities, building relationships and partnerships, sourcing funding for the enterprise and maybe even pitching to potential investors. Our training focus should not neglect these important aspects, but it should also consider the important role that any small business can play in the digital economy, giving them the skills they need to navigate that space safely and productively.
You can discover more of our findings on MSMEs in Africa in our Survey Report – An Assessment of Digital Financial Inclusion of MSMEs in Kenya, Malawi and Zambia.