Business a.m.

Digitalizi­ng African MSMEs to build resilient economies

- 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/

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

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