[Column] Michael Mwangi: Accelerate digital transformation in the SME sector to boost growth of e-commerce
Digitisation of small businesses supports the overall growth of the economy, given the important role they play in the wider economic picture.
Micro and Small and Medium enterprises (MSMEs)make a substantial contribution to livelihoods and inclusive growth in Kenya. They account for 24% of the country’s gross domestic product (GDP), over 90% of private sector enterprises and 93% of the total labour force in the economy.
Due to their huge contribution to the national economy, there is need to support small enterprises improve their business competitiveness, business performance, and growth. Therefore, the government needs to enhance the implementation of e-commerce and Digital Economy (ECDE) programmes for the benefit of these small businesses.
Digitisation can help businesses in several areas essential to their development by helping them reduce operational costs, improve productivity, expand to new markets and customers, and use information to foster innovation. Digital payment solutions have greatly revolutionised business processes by reducing the paperwork, transaction costs, and labour costs.
The global growth in e-commerce has been fuelled by a rise in reliable, secure and affordable digital payment services, as well as strong social media adoption and diversification of marketing channels. SMEs are increasingly using social media to push their products and in response to this trend, with financial players such as I&M Bank today providing payment solutions that allows an SME to still collect payments by card without having to maintain a website.
The growth potential for e-commerce is also evidenced by the number and size of new players in the market who provide e-commerce solutions for both merchants and consumers. SMEs do not have to invest in developing expensive e-commerce sites as they can leverage on shopping carts provided by local and international players.
Despite digital transformation being a challenging process, it is a competitive advantage for organisations during business disruptions. For example, the COVID-19 pandemic, accelerated the digital transformation process and added urgency for Governments to respond to a widening gap in digital readiness. This has made ECDE programmes even more relevant. The Government of Kenya is in the process of putting in place an e-commerce strategy to propel growth in trade and businesses, which will enable the country to reap maximum benefits in the sector.
On one hand, Kenya has moved fast to embrace the latest communication technology, while on the other, it is yet to aggressively steer its markets towards adopting e-commerce. The United Nations Conference on Trade and Development (UNCTAD) ranks Kenya 88th out of 152 countries in its e-commerce Index of 2020.
A key barrier to the widespread growth of e-commerce, is limited access to low-cost digital payment solutions. Mobile transactions have been steadily on the rise. According to the Central Bank, Kenya has over 70 million registered mobile money accounts cashing out over Kes 600 billion in August 2022 - and climbing. With just over Kes 51 billion card payments in the same month, there is massive room for growth.
Players in the financial sector have been working closely with SMEs to increase their e-commerce business. I&M bank for example has 651 active merchants on its e-commerce platform, of which, 481 are in the SME category. The bank’s e-commerce platform gives SMEs the boost they need to accept online and mobile money payments as merchants. This system has not only enhanced e-commerce locally and in the region, but also opened more opportunities for small business owners to expand their operations.
Although SMEs are increasingly using the Internet for a variety of commercial purposes, on average they have a limited understanding of the full range of benefits of e-commerce.
This lack of awareness of the great potential of e-commerce is one crucial barrier to its adoption; together with inadequate investment in skills, and the relatively high initial investment costs involved in developing e-commerce strategies.
Digital skills and vocational training are required for effective SME digital implementation. Singapore for example provides training, workshops, and skills development for SMEs to make the most of digital technologies.
For SMEs to continue being the engine of inclusive growth, we need to refocus our SME development strategies to put digitisation at the center of economic reforms.