Technology is improving the performance of African SMEs but less than 7% of them use it

Without a shadow of a doubt, the growing adoption of technology has revolutionized the activities of small and medium-sized enterprises (SMEs) in Africa. The advent of the pandemic and increasing mobile penetration and internet access have left small businesses on the continent with no option but to embrace digital alternatives.

For one, SMEs in Africa—about 44 million in number—play a significant role in steering the continent’s socioeconomic development and growth, providing an estimated 80 per cent of jobs across Africa. According to experts, one of the best ways to unlock the potential of African SMEs is through the power of emerging technologies.

However, it appears that many microenterprises on the continent have yet to catch the tech bug.

According to a new report by the International Finance Corporation (IFC) and World Bank, less than 7% of African microenterprises use digital technologies (smartphones and computers) for their businesses, while 71% see no need for them.

About 3,325 microenterprises in seven countries — Ghana, Kenya, Mozambique, Nigeria, Senegal, South Africa, and Tanzania — were surveyed for the report.

Interestingly, the survey findings make a compelling case for increasing the use of digital technologies. “Microenterprises who used smartphones and computers reported 2.8 times higher rates of productivity, 6.0 times higher sales levels, and 1.9 times the number of employees than non-users,” the report said.

The survey also exposed a significant gender gap in using digital technologies in African workplaces. It revealed that men at small businesses were 3.3 times more likely to use computers than women and 2.4 times more likely to use the Internet to find suppliers. By comparison, the gender gap exceeds the generational gap in digital tech use, with younger employees 1.6 times more likely to use a smartphone than older colleagues.

Read also: Meet Duke Ekezie-Joseph, Kippa’s president on a mission to improve African SMEs

Why are African SMEs not embracing technology?

According to the report, about 71% of respondents reported ‘no need’ for digital technologies, while 35% per cent said these technologies were too expensive for them. Conversely, about 35% said they didn’t know how to use the technologies.

The question is, why are African SMEs not embracing internet-enabled technologies? The report attributed a number of reasons, including lack of access to high-speed internet, lack of access to microfinancing, lack of proper infrastructure, and finally, a significant gender gap.

Read also: Despite labour shortages, more than 50% of businesses in Nigeria plan local expansion – survey

Internet connectivity remains an issue

About 20% of the respondents cited lack of availability as a reason for not using digital technologies. Only 40% of the population in Africa has access to the internet, according to the International Telecommunications Union (ITU). The IFC-World Bank report, however, noted that while access remains a problem, it may not be the overriding cause of the low use rates.

“For instance, the mobile and high-speed internet use rate among the general population, at 22 percent of country populations averaged across Sub-Saharan Africa, is more than three times that of microenterprises. The availability of high-speed internet has steadily risen in Sub-Saharan Africa, from an average of 25 percent in 2010 to 84 percent by 2021,” it stated.

But the increase in internet coverage has not yet resulted in a comparable uptick in connectivity, the report added. As of 2021, 74% of Africans living in areas with high-speed mobile internet were still disconnected.

About 200 million people live in areas without mobile broadband coverage in Nigeria and other Sub-Saharan African countries, according to ‘The State of Mobile Internet Connectivity 2022’ report [pdf] by GSMA. A report says that for Africa to reach quality internet access by 2030, the continent must cough up an investment of $100 billion.

Read also: Why the world’s cheapest and most expensive broadband are both in Africa

Other obstacles to the adoption of tech by African SMEs

Another obstacle highlighted in the report is the lack of access to microfinancing, as only 3% of firms surveyed had previously received a loan. Those firms who had received a loan were 18 percentage points more likely to use a smartphone. According to this paper, African SMEs face two significant financing challenges: accessibility and affordability. While accessibility refers to the ability of SMEs to access finance, affordability refers to the cost of capital or how much it costs for a firm to take out a loan or receive an investment. Experts have since made a case for blended finance as an alternative to providing SMEs with access to the capital needed to grow.

Also, there is a problem with infrastructure. According to the IFC-World Bank report, 44% of the firms surveyed—and 69% of agribusinesses—had no access to electricity. Over 640 million Africans have no access to energy, corresponding to an electricity access rate for African countries at just over 40%, according to the African Development Bank. The World Bank noted that tackling Africa’s energy access crisis requires four bold approaches: making utilities financially viable, integrating national utilities and grids, opening up electrification efforts to private sector investments and innovations, and significant commitment from political leaders.