Addressing MSME Digitalization Challenges in the AfCFTA Era

The United Nations Economic Commission for Africa (UNECA) has published a comprehensive report exploring digitalization strategies to empower micro, small, and medium-sized enterprises (MSMEs) in intra-African trade, allowing them to strategically position themselves within regional and global value chains under the Africa Continental Free Trade Area (AfCFTA) implementation.

The AfCFTA, supported by 54 AU member states, aspires to create a liberalized single market for African goods and services, transforming public and private sectors.

While large corporations are well-positioned to leverage the opportunities offered by the AfCFTA, MSMEs, which constitute at least 90% of businesses and 60% of jobs in Africa, face several challenges in actively participating in the initiative. MSME digitalization has not yet reached the scale required to significantly impact their involvement in the AfCFTA. The report identifies numerous factors affecting MSME digitalization, including technology and infrastructure, internet usage, digital platforms, and innovation and tech hubs.

The technology and infrastructure environment reveals a stark contrast between electricity consumption in Africa compared to other regions. One IFC report highlights that Spain (population – 47 million) consumes more electricity than the entire continent of Africa (population – 1.2 billion), and 60% of Africans have no access to a public power supply. These disparities hamper the overall performance and productivity of MSMEs.

Mobile broadband coverage is another area of concern, with 78% of African populations covered by 3G signals and 54% having access to 4G networks. However, the penetration rate of mobile internet is only 28%. The high cost of mobile devices, poor affordability, and digital illiteracy serve as significant barriers to an increased usage of mobile broadband in Africa.

Digital Platforms, Tech Hubs, and Non-Tariff Barriers

Digital platforms, such as Jumia, which boasts 50,000 MSMEs vendors on its platform supported by 100,000 sales agents, demonstrate the potential to bring together large numbers of MSMEs in Africa. Yet, Africa’s platforms struggle with underdeveloped payment systems, lack of trusted interoperable networks, and inadequate logistics environment.

Tech hubs are emerging as essential components of Africa’s digital ecosystems but face limitations in onboarding traditional MSMEs at scale and achieving long-term success for startups. Furthermore, the participation of MSMEs in the AfCFTA is hindered by;

  • the prevalence of non-tariff barriers (NTBs) and non-tariff measures (NTMs) in most countries, 
  • restrictions to cross-border trade, and 
  • the absence of digital cross-border processes related to logistics, payments, and regulations.

Southern Africa’s MSME Environment

A study conducted by the ECA subregional office for Southern Africa (SRO-SA) and the ECA Digital Center of Excellence (DCE) focused on SRO-SA member states (Angola, Botswana, Eswatini, Lesotho, Malawi, Mauritius, Mozambique, Namibia, South Africa, Zambia, and Zimbabwe) found that national MSME policy documents in Southern Africa lack clear digitalization strategies and are not regularly updated.

MSMEs in the region face challenges related to market access, funding, regulatory practices, physical and digital infrastructure capacities, and cross-border trade barriers. Only Mauritius and, to some extent, South Africa, have successfully addressed these constraints. The report emphasizes the need for significant capacity development, institutional support, digitalization upgrades, and the removal of barriers to business across borders to enable MSME participation in the AfCFTA. It also calls for addressing the disparity between better-performing and non-performing countries in developing their national digital ecosystems.

The publication recommends a collaborative approach involving governments, private sectors, continental bodies, development partners, and MSME business associations to achieve these goals. By working together and addressing the digitalization gaps and infrastructure constraints, the potential of MSMEs can be unlocked, allowing them to participate actively and benefit from the opportunities offered by the AfCFTA initiative. This collaborative effort will not only enhance MSMEs’ competitiveness in the intra-African trade landscape but also contribute to the overall socioeconomic development of the African continent.

Read the full report here.

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