Micro, Small, and Medium-sized Enterprises (MSMEs) are important drivers of growth in economics across Sub Sahara Africa, accounting for ninety percent of all businesses in this market. The Coronavirus pandemic triggered an unprecedented health crisis, this was followed by worldwide market disruptions, forcing the African government to impose containment measures and other necessary restrictions to limit the spread of the virus. At the height of the pandemic, more than forty-two African countries had imposed partial or full lockdowns on movement and activities. The government-imposed lockdown and restrictions resulted in a decline in sales and revenue of MSMEs around the world and an increase in operating cost due to supply chain disruption. Small businesses that relied on physical space for operation saw a major downturn in their business activities as a result of the physical and social distancing that limited patronage and consumption. 

Small businesses are the catalyst of the economy since they drive growth and development across all sectors – from agriculture to ICT as well as job creation.  Small businesses create about eighty percent of jobs in Africa. According to the IMF’s Regional Economy Outlook for Sub-Saharan Africa, “Over the next 20 years, sub-Saharan Africa will become the main source of new entrants into the labor force.” MSMEs should be supported to create the jobs needed. In this regard, and for economic development purposes, MSMEs’ recovery is imperative.

Digitalization could help in the economic recovery of MSMEs.

Most MSMEs operated the traditional brick and mortar stores which were affected by the lockdown. For MSMEs to remain relevant and competitive in their various industries, they must seek an alternative way of doing business. This is where turning to digitalization comes in. Gartner defined digitalization as “the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; the process of moving to a digital business.” Digital tools like social media, mobile phones, and websites, can help provide an alternative way to carry on business operations during and after a lockdown.

 The ability to go digital became a matter of the utmost importance as it was seen all over the world especially in advanced nations. Many MSMEs who demonstrated their ability to change their business model survived, while many others could not stay afloat. Digitalization could help MSMEs increase their revenue and customer base, transact at a distance, and improve operational efficiencies.  Moreover, going digital can enhance MSMEs competitiveness. 

Digitalization can help increase revenue

Digitalization transforms the way business brings together customers, data, and processes. Physical sales of goods and services by a firm have been limited as a result of the Covid-19 lockdown which has reduced the revenue of organizations. However, digitalization can give MSMEs online outreach. This can provide MSMEs the opportunity to grow and increase their revenue. Operating on an e-commerce platform or an established website like Jumia, Konga, Alibaba, etc. can give MSMEs in Africa the opportunity to increase sales and revenue and access new markets both internationally and locally. A small business that embraces digitalization can expect to see an average revenue gain of twenty-six percent, according to a recent study.

Digitalization can increase customer base

With the full engagement of MSMEs in digitalization, it will enable them to explore new market and compete with bigger firms in the market. Digitalization has made available cost-effective solutions for firms in both urban and rural areas to connect easily and trade with customers around the world. Digitalization is leveling the playing field for MSMEs

Transaction at a distance

With technology, distance is not a barrier. Technology can bring small businesses closer to their customers. Since the Covid-19 control measures stipulated that physical distancing in public places should be observed strictly, a small business can leverage on technology to bypass those restrictions by using various digital platforms. Business can be transacted from the comfort and safety of their homes and payment made with having any physical contact with the client. 

Digitalization can improve operational efficiencies 

Operating efficiency is the yardstick that measures the efficiency of profits earned as a function of operating costs. Exposure to electronic commerce platforms can generate greater income for small businesses at a lower cost. Marketing can be done using various social media platforms which can be cost-efficient compared to other forms of adverts. Digitalization can improve customers’ experience; it can greatly improve the way small businesses attends to the demands of their customers. Since physical stores are not totally necessary, small businesses can channel their resources in other areas that can greatly improve their business profits. Digital platforms can more quickly process and streamline administrative tasks, giving SMEs back precious time and money to focus on doing, and growing business.

Limitations of Digitalization in Africa

Although digitalization can help MSMEs recover, some obstacles limit MSMEs’ ability to go and stay digital.

High Internet cost

The cost of the internet makes it difficult for many small businesses to get online and stay online. The Alliance for Affordable Internet (A4AI) new mobile broadband data shows uneven progress in affordability.  

African households spend more on 1GB of data based on their household income compared to other countries in Asia and South America. The purchase of 1GB of mobile broadband data can mean wildly different things to a small business budget. In Sri Lanka, for example, the cost of 1GB of data represents less than one quarter of 1% of the average monthly income, whereas in the Democratic Republic of the Congo, the same data package costs over a third of the average monthly income. The high cost of the internet is a barrier to digitalization because not many small businesses in Africa can afford it.

Poorly developed ICT infrastructure 

Africa’s infrastructure deficit is a major obstacle to its development agenda. Africa lags behind the rest of the world  in the reach and quality of its ICT penetration. Currently, Africa’s ICT systems are inadequate to fulfill the aspiration of full digitalization according to The South African Institute of International Affairs (SAIIA) report on Africa’s ICT Infrastructure.

African governments must take a deliberate step in improving the ICT infrastructure of the continent, to support the full digitalization of the continent.  

Poor electricity distribution 

Stable electricity is fundamental to digitalization. The electricity access rate in Africa is substantially low. The World Bank report on Electricity Access in Sub-Sahara Africa states that only forty-two percent of the population in Africa had access to electricity in 2016, far less than any other developing region. More than 600 million people in Africa live without electricity, including more than eighty percent of those residing in rural areas.

The lack of access to electricity imposes major constraints on the adoption of new technologies. When there is poor electricity supply, small businesses that cannot afford an alternative might not be able to charge their devices. The lack of charged devices can hinder micro and small businesses from using the internet to operate their businesses.

Way Forward

The recovery and survival of Africa’s micro and small businesses are crucial to developing the African economy. The COVID-19 pandemic did not help Africa’s poverty level. MSMEs play a vital role in driving growth and development, sustaining the economy, and creating employment. To help MSMEs recover, they must turn to digitalization. Going digital is not essential for tomorrow. It is necessary for recovery. 

When harnessed by MSMEs, digitalization can lead to an increase in revenue, an increase in customer base, and improved operational efficiency. African governments and development partners should work towards minimizing the limitations of digitalization in Africa so more small businesses can take advantage of technology. Poor infrastructure has contributed to the high cost of going digital for African MSMEs. Tackling these limitations could help increase the number of small businesses that are online. Digital is undoubtedly a sustainable way to go.