SMEs play critical role against economic inequality in emerging markets
By Soromfe Uzomah, Head, Strategic Partnerships at Microsoft 4Afrika
One of the great challenges of the 21st Century is the need to reduce poverty levels and economic inequality globally. Economic growth is the most powerful tool for reducing poverty and improving the quality of life in developing countries.
The latest World Bank’s Poverty and Inequality Report finds that, “More equal countries tend to have healthier people, be more economically efficient, and have greater social stability than highly unequal countries. And countries that invest smartly in reducing inequality today are likely to see more sustained economic growth than those that don’t invest. Less inequality can benefit the vast majority of the world’s population.”
However, emerging markets are often defined by marked levels of economic inequality. And while governments have a responsibility to try to close the income gap, Small and Medium Enterprises (SMEs) can have a profound impact in ensuring economic growth.
SMEs represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies, and these numbers rise significantly if we include informal SMEs. It’s estimated that 600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SME development a high priority for many governments. In emerging markets, most formal jobs are generated by SMEs, which create 7 out of 10 jobs.
The Organisation for Economic Cooperation and Development (OECD) states that SMEs are essential for delivering more inclusive globalisation and growth, while the World Bank notes that SMEs play a major role in most economies, particularly in developing countries, by generating employment, adding value, making moderate to significant impacts to the GDP growths of economies, and driving innovation. It has been identified that SMEs are of overwhelming importance for developing countries, because they account for more than 90% of all firms outside the agriculture sector.
Despite their significance, many SMEs across the world, but particularly in emerging markets, struggle with the same challenges – lack of access to affordable finance, trade and investment barriers, and lack of access to global markets. Poor physical and ICT infrastructure often prevent SMEs from operating efficiently or accessing international markets at competitive costs.
Digitisation have the potential to offer SMEs new opportunities to participate in the global economy, but many are lagging in digital transformation and access to the internet remains unattainable for many in the region.
We’ve found that investing into strategic partnerships can provide much-needed assistance for SME’s. In Nigeria, for instance, Microsoft has partnered with First Bank of Nigeria, Vodacom Business Nigeria and MTN Nigeria, to provide their SME customers with access to technology, skills development resources, business networks and an educational platform. The bank is building the capacity of local SMEs and accelerating their digital transformation by providing them with exclusive and tailored non-financial solutions, giving them access to technology at discounted rates and in local currency, while providing access to business networks and education.
In Kenya, Microsoft has partnered with Jumia to host an official store page on the Jumia online mall. This provides SMEs with the opportunity to buy and use genuine Microsoft products and solutions with payments in local currency, helping to solve payment-currency challenges – and the intention is to grow this into other markets including Egypt, Ghana and Côte D’Ivoire. Innovative partnerships like these can really have a direct impact on SMEs and the challenges they face.
Digital skills are essential for any organisation to grow, and we want to encourage technology adoption and skills development in every organisation. The Biz4Afrika Online platform, for example, is helping SMEs to access to technology, information, skills and markets. It’s helped bring 1.7 million SMEs online, and more than 500,000 SMEs in Africa are actively consuming cloud services today.
And it’s not only strategic partnerships with corporate entities that can shift the needle. Public-private partnerships play an important role. In Morocco, the partnership with Algo Consulting has developed Wraqi, an online administration solution using machine learning, IoT and blockchain to improve citizen-government relations. The solution allows users to create an account with a signature repository, which government entities can use to identify, authenticate and authorize citizens remotely using electronic signatures and multi-factor authentication, which is likely to accelerate, but also facilitate, access to services.
It is apparent that sustained, fast growth in the Asian economies is related to robust infrastructure, legislation and ease of doing business in those countries, particularly in relation to the SME sector. Conversely, where these elements are not in place, countries experience slower growth. Enabling environments for SMEs will impact the future of many emerging market economies and allow smaller businesses to respond nimbly to the needs of those economies.
If we are genuine in our desire to see the economies of the African continent grow and strengthen, then we must work with intent to help SMEs overcome the challenges they face. In doing so, levels of inequality and income disparity can be reduced.