Africa’s SMEs grapple with tech costs, skills dearth

Sibahle Malinga
By Sibahle Malinga
Johannesburg, 02 Apr 2024
Survey respondents cited the high cost of technology upgrades and renewals as key hindrances.
Survey respondents cited the high cost of technology upgrades and renewals as key hindrances.

Although small and medium enterprises (SMEs) in Africa are increasingly investing in digital technologies, their innovation journey is hindered by the high cost of technology upgrades, the lack of digital skills, and regulatory and compliance issues.

This is the key findings of a research report, titled “Levelling the SME playing field”, jointly commissioned by Vodacom Group, Vodafone Group and Safaricom.

It is the sixth research paper under the Africa.connected initiative, which aims to drive sustainable development by closing the digital divide in Africa’s key economic sectors through strategic partnerships.

The research is based on conversations with 400 SMEs across eight African countries − South Africa, Kenya, Egypt, Ethiopia, Mozambique, Tanzania, the Democratic Republic of the Congo and Lesotho − ranging in size from one to 200 employees.

The survey is run in partnership with World Wide Worx, a local research firm that focuses on trends in information technology and telecommunication.

According to the findings, digitalisation has been a game-changer for African SMEs, with the respondents highlighting the positive effect of technology on enhancing growth, efficiency, competitiveness and customer service.

Nearly 70% of surveyed SMEs invested in technology in the past 12 months to help boost growth and resilience – an indication that SMEs are embracing the positive impact of technology, reveals the survey.

While there are numerous opportunities that unlock the full potential of digitalisation for these businesses, addressing barriers − such as infrastructure, connectivity, the high cost of implementing technology, lack of adequate tech skills and developing best practice frameworks for better collaboration − remains key to business growth.

“SMEs play a pivotal role in both the global and African economy, contributing to job creation, innovation, economic growth and regional development,” says Shameel Joosub, Vodacom Group CEO.

“In fact, the World Bank reports that SMEs are responsible for more than 80% of Africa’s employment and 50% of the GDP.

“But SMEs in Africa face a number of distinct challenges, which include access to finance and markets, regulatory barriers, inadequate technology adoption and limited management capabilities. To address these stumbling blocks, strides must be made to promote financial inclusion, simplify regulation, enhance technological infrastructure and encourage innovation. The technology pieces of this puzzle – as our research shows – are incredibly important.”

When it comes to technology use and adoption, the research shows SMEs work relentlessly to secure finance to address the high costs of technology and the associated implementation. But the initial start-up costs are only the beginning of what will be required throughout their digital journey.

In the study, 58% of respondents cited the high cost of technology upgrades and renewals as key hindrances (39% in SA), with 32% citing difficulty in integrating new technologies with existing systems and regulatory confinements.

Limited internet connectivity and access affects 30% of respondents (17% in SA), while 14% grapple with lack of support and training for employees to use technology (39% in SA).

African SMEs are also hamstrung by unreliable electricity supply, notes Joosub.

Shameel Joosub, Vodacom Group CEO.
Shameel Joosub, Vodacom Group CEO.

SMEs that have integrated technology into their business are increasingly making use of e-commerce platforms, social media and digital payment solutions, such as e-wallets and micro-financing services. Innovative use of data analytics tools can further help SMEs to expand their reach, access valuable data insights and streamline operations, according to the report.

Unfortunately, the workforce is often resistant to digitisation, especially those working for SMEs with strong human relationships.

The lack of digital skills and knowledge, support and training for employees and executives around the values and use of specific tools and technologies compound this issue, states the survey.

Added to this, SMEs can no longer ignore the threat of cyber security concerns, as criminal attacks or breaches do not discriminate against business size, it points out.

To reap the many benefits that technology brings, laying the right foundations is key.

“This starts with investing in training for employees, either through online resources, hiring IT consultants, or partnering with local technology firms to equip teams with the skills and knowledge needed to manage the challenges of the digital landscape.”

Regulatory and compliance issues can be a significant hurdle, so it’s vital that regulators develop effective policies rooted in a deep understanding of the myriad constraints SMEs face and implement targeted programmes that empower these small ventures to succeed.

“While these businesses might be ‘small’, their impact is significant, which is why it is essential that regulatory bodies are willing to engage in discussions with SMEs regarding compliance requirements.

“Regulators should also assist smaller firms in navigating different regulatory frameworks. This is crucial when it comes to data and its utilisation. For SMEs, much like any other business regardless of size or industry, the ability to access the right data can provide a critical competitive-edge and enable them to better fulfil customer needs,” notes the survey.