Africa is on the precipice of rapid economic expansion, this expansion will be through the emergence of stronger small business enterprises that will help lift millions out of poverty and create a large, much needed middle class shares Deepankar Rustagi CEO of VConnect at Africa Tech Summit London.
What constitutes an SME in Africa or nearly everywhere else in the world is mired in some confusion.While whether it is defined by the number of employees the business has, or by its annual turnover, what is clear is the importance of the sector to the national economy of the Country or Continent.
According to World Bank estimates, “600 million jobs will be needed in the next 15 years to absorb the growing global workforce, mainly in Asia and Sub-Saharan Africa”.
SMEs already are the largest employers of labour, employing more than 50 percent of jobs, and contributing to more than 35 percent of Gross Domestic Product (GDP) in many emerging markets.
SMEs account for over 84% of Nigeria’s current labour force, employing an estimated 57 million people and contributing to about 48% of the National GDP.
These numbers are similar to what obtains in similar emerging markets. In Rwanda, 98% of businesses are SMEs, while in the Philippines, SMEs account for 99.6% of registered businesses, contributing to 32% of the country’s GDP. India equally has interesting SME statistics, 45% of its GDP is accrued from SMEs.
Looking at the numbers, one would infer that the sector isn’t doing so bad as an employer of labour and a means of economic empowerment for citizens, yet most SMEs struggle with a plethora of issues which often results in their demise soon after their establishment. The challenges range from access to funds, skilled labour, government policies and inadequate managerial skills.
These challenges result in a higher failure rate of SMEs as SARS South Africa found out. 75% of SMEs in Africa do not survive past the second year, it gets even worse as the years pass, 95% of these businesses fail before the fifth year of establishment.
While these issues are challenging SMEs can not all be solved in one fell swoop, a long term solution, I believe, would be to enable most of these businesses to witness greater growth and longevity with a network that provides access to customers not restricted simply to their neighborhood.
Technology has democratised access to wider market that was beyond the budget of SMEs before now. An advantage SMEs have over big brands is that tech like social media, often requires flexibility and nimbleness, which plays into the hands of SMEs. This way, SMEs can look beyond simply making more sales- which is important- but work to creating a brand that becomes identifiable. Brands do not have to be large companies employing a large number of people and selling a product almost everyone uses, rather they can offer the best service in a niche market.
Where SMEs miss the mark is trying to pursue whatever venture will bring the quickest return, so they end up being Jacks-of-all-trades, rather than focusing on a niche market, building a brand and quality product that can then be exported.
Therefore, it is critical for SMEs to be online. What they need most importantly is that the journey to being online is as seamless as possible. As an emerging economy plagued with infrastructural challenges, especially that of inadequate electricity, African small businesses- particularly in Sub-saharan Africa which is worst hit by the energy crisis- have to be able to cut costs of service delivery by being online, thus reducing the reliance on physical infrastructure.
SMEs need to leverage on the large number of people online. There is so much to do online, not just to sell more or get more customers, but simply as a way of being on the mind of customers.
What has happened with the growth of internet penetration in Africa is that majority of the decision making about buying a product or service happens online. Customers check online for the nearest place to get what they are looking for, they don’t stop there, they also check reviews to make sure they are getting value for their money. SMEs in Africa need to be part of this decision making process.
SMEs in developed economies have the advantage of getting connected through properly structured business networks, These connections are provided by portals like Yelp, Angie’s list, Thumbtack and others. However, these kind of connections are not available for African businesses, making it crucial for these business to make such connections online.
These connections for business engagement between small businesses are happening. In Sub-Saharan Africa, VConnect is empowering SME’s by offering a technology option for small businesses to gain access to the market. The business discovery website helps small businesses get found and generate leads online. This is very useful for the millions looking for a service, but even better for business owners. Tools like a business dashboard help registered businesses receive and reply to enquiries, therefore maximizing customer interaction and management. This has made the much needed connections possible for SMEs.
The ability to not only be found online, but also be able to offer their services online, greatly reduces the financial burden on business owners.
While it is common for bigger corporations to do extensive market research when starting new ventures, the situation isn’t the same for SMEs. What often happens is that most SMEs hop the train of whatever business is “hot” at the moment without an insight into how saturated that market is.
African businesses have found success by understanding the importance of customising solutions for the local market with simplicity, what they ensured is that they have a product that addresses the problem of availability and pricing and have presented an effective solution to a local problem.. What the model offers them is a simple way of getting their physical address listed and linked on Google Maps, also these businesses can be found using keywords related to the services they provide. In the last 5 Years Vconnect has brought over 1.5 Million in the online space, imagine the possibilities of 15 million more businesses online.
Similarly, M-Pesa helps over 17m Kenyans transfer cash using their phones, eliminating the need to use the more cumbersome the traditional banks and granting loans to citizens across the country.
Both these things- technological options to get better access to the market, increased and timely funding- will be the catalyst that push SMEs to not just help sustain business owners, but to create a vibrant African economy.