If necessity is the mother of invention, then it is entrepreneurs with small businesses that best respond to gaps in the market, filling them with their innovation.
However, the next great idea from a home office or garage set-up will not take small businesses very far. In the current digital age with the rapid adoption of technology in every facet of our lives, consumers are seeking low to no-touch engagements with suppliers and service providers. It is critical then that small businesses embrace digital technologies to keep pace with the world in which they are operating, and to be sustainable job creators of the future.
SMEs are the key to regional economic growth and to creating employment opportunities, particularly for young people who comprise 60% of this continent’s population. If these enterprises do not successfully integrate digital processes and practices into their operations, they will fail.
Governments do not create jobs, they create enabling environments for businesses to thrive and grow and to be the source of employment opportunities. SMEs account for around 60% of all jobs in Africa and contribute on average a whopping 50% to the continent’s GDP. No country in this region can afford for the SME sector to lag and slow economic expansion down.
But if SMEs are the key to economic growth, then digitalisation is the key to the growth and sustainability of SMEs themselves. There remain, however, several barriers to the development of the sector in emerging markets including the uptake of digital technologies. Although globally, around 70% of SMEs have upped their adoption of digital technologies post-Covid-19, in Africa the same statistic does not apply.
Two of the key reasons for the demise of small businesses are a lack of access to markets and a lack of access to finance, with the latter being the most defining factor for success or failure. Without access to finance, companies cannot make capital investments into equipment and premises or purchase raw materials.
In the past, banks dominated the finance landscape via traditional debt financing when it came to SME scaling, but this model is rapidly being replaced by ones that better suit a region which comprises many businesses operating in the informal sector by previously disadvantaged owners who lack digital awareness.
Digitalisation is not just a process that needs to be applied through the operational aspects of an SME, it includes its use for accessing much-needed finance and payment solutions. In a sector which has lived by the adage that ‘cash is king’, digitalisation of financial processes has the advantage of generating data that institutions require to view an SME as a bona fide business with a potential to make more informed credit decisions, which in turn helps bring SMEs into the financial mainstream.
Formalising the SME sector benefits governments in many ways, with increased contributions to a country’s fiscus, creating a more conducive for SMEs by facilitating more opportunities for training around digitalisation is fast becoming non-negotiable.
An SME that is equipped to do business on a global stage, transacting via e-commerce platforms will grow and contribute to their immediate community and the economy is exactly what Africa requires to ensure the sustainable economic growth that it seeks.
The 2021 Mastercard MEA SME Confidence Index is high post-Covid, but with some reservations around the ability of some SMEs to access the means that will allow them to move online. The International Finance Corporation (FIC) estimates that a funding gap of some USD$5.2 trillion exists throughout developing countries and this finance needs to be unlocked.
Among SMEs themselves, 74% are optimistic about their future growth potential, based on remaining competitive through the adoption of digital technology, better data, access to credit and upskilling.
The diversity of needs amongst different countries, different market sectors and different cultures, requires a diversity of responses. Thanks to fintech solutions, SMEs now have access to alternative finance and funding models which are faster and more flexible than traditional ones and which will propel them into a more prosperous future for all.