Driving resilient economies through digitisation of SMEs

Gerald Maithya, Startups Lead, Africa Transformation Office. [File, Standard]

Small and medium-sized enterprises (SMEs) are critical to Africa's inclusive socio-economic growth. These businesses help to anchor countries' economies and contribute to inclusive socio-economic growth.

SMEs account for 40 per cent of GDP in emerging economies and create at least 90 per cent of new jobs. This is especially true in Africa, where more than 60 per cent of the population is under the age of 25.

SMEs account for approximately 80 per cent of jobs in Africa, with the African Union Development Agency noting that SMEs employ up to 90 per cent of the population in African countries such as Uganda, Ethiopia, and Kenya.

According to the Central Bank of Kenya's (CBK) recent National Economic Survey report, SMEs account for 98 per cent of all businesses in Kenya, create 30 per cent of jobs annually and contribute three per cent of GDP.

Aside from employing people, SMEs provide goods and services and serve as an important link in the manufacturing value chain, generating economic activity along the way.

Many manufactured products reach consumers via SMEs, typically through a network of small independent retail stores such as dukas and kiosks in Kenya, ojas in Nigeria, hanouts in Morocco, or spaza shops in South Africa.

As a result, SMEs are the backbone of most economies. Countries' economies can be strengthened by enabling SMEs to grow and compete in the value chain.

Despite the important role that SMEs play in African economies, there are several obstacles to their survival and success. In fact, despite having the highest entrepreneurship rate in the world, research shows that up to 80 per cent of African SMEs fail within the first five years.

Access to infrastructure and connectivity, business enablement tools, finance, and digital skills are all potential roadblocks for SMEs. The most significant barrier that most SMEs face is obtaining financing and affordable lending.

These businesses frequently lack appropriate information such as credit history, financial statements, and other required data points, while traditional credit-scoring models used by many financial institutions discriminate against SMEs.

Without access to working capital, SMEs are unable to invest in and grow their businesses.

There is a need to enable tools that SMEs can use to collect and manage transactional data that can be used to provide valuable business insights to guide SME decision-making and that can be leveraged to create financial reports.

Digitisation can assist businesses in developing a financial and transactional history that will allow them to obtain loans.

This information and well-organised data can help African SMEs gain access to and diversify their financing options.