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For the African continent, the SME sector is critical: according to World Bank data, SMEs contribute up to 60% of all employment and as much as 40% of all GDP in emerging economies.
In fact, SMEs are expected to create four out of every five new jobs over the next 15 years, and will play a leading role in creating the estimated 600 million new jobs required to absorb the growing emerging market workforce.
This is especially important in light of International Monetary Fund figures: by 2035, the number of Africans joining the working age population will exceed that of the rest of the world combined.
In South Africa, despite the prominence of the SME sector in government plans to ease the burden of unemployment and stimulate economic growth, recent statistics suggest the SME sector must be revitalised.
A research study by the Small Business Institute found that there are only a quarter of a million formal SMEs in the country, with millions of smaller survivalist businesses that don't create additional employment opportunities.
Part of this can be ascribed to the country’s more established infrastructure: there are many established businesses servicing industries that are not prevalent in East and West Africa, making it more attractive for risk-averse local innovators to first spend time in the corporate sector until there’s a clear path to entrepreneurial success.
A study by the Central Bank of Kenya in 2017 found that SMEs account for 98% of all businesses in Kenya and create 30% of all jobs. Kenya's GDP growth – which reached 6.4% in 2017 – is strongly driven by SMEs which contributed 3% of that growth.
However, regulatory challenges and lack of access to finance – the most common obstacle to SME growth in all African regions – holds back the sector's ability to contribute an even greater share of GDP, job creation and economic upliftment.
According to the Small and Medium Enterprises Development Agency of Nigeria's last broad survey, there are more than 70 000 SMEs in the country. However, pervasive challenges around funding, poor infrastructure, restrictive policies and obsolete technology is holding back the growth of this sector in Africa's largest economy.
What lies in store for this critical sector in the year ahead?
Several key trends will support an uptick in the SME sector across Africa by enabling improved entrepreneurial activity and unlocking greater opportunity for innovation.
Trend 1 – Cloud
Across the African continent, cloud infrastructure is becoming more prevalent and more powerful. According to the Cloud Africa 2018 report by World Wide Worx, use of cloud services among medium and large organisations has doubled, from 50% uptake in 2013 to pervasive use today.
The report also found that business efficiency and scalability (for East and West Africa) and speed of deployment (South Africa) were the main drivers of this uptake.
A new generation of African entrepreneurs that are constantly looking to leverage new tech for product and service improvements will start building businesses on cloud services from day one.
In part, this will be driven by cost efficiencies: by doing away with the need for expensive on-premise infrastructure and the technical teams needed to maintain it, cloud lowers the cost of doing business considerably without impeding innovation or competitiveness.
Trend 2 – Automation
The accelerating pace of business has put pressure on organisations to speed up time-to-market. The use of templates – business best practices built on a global repository of learnings and experience of what processes businesses need to operate optimally – has subsequently become more prevalent.
Templates cut down the time it takes to get back-office operations up and running smoothly while still allowing for future customisations once the business has matured.
In addition, the cost – both in time and revenue terms – of engaging in repetitive administrative tasks has become too steep to bear for most competitive SMEs.
The use of machine learning and artificial intelligence (AI) enables SMEs to automate many of the back-office operations needed for the smooth running of a business. By automating some of the customer-facing elements that are not core to their offering, SMEs also stand to pass on some of these efficiencies to their customers for an improved customer experience – which is fast emerging as the main driver of competitiveness.
And while these tools were once the reserve of large, well-funded enterprises, global vendors are increasingly prioritising the SME sector by introducing products and solutions purpose-built for SMEs. In fact, eight out of every 10 global SAP customers are in the SME sector.
Trend 3 – Customer experience
As alluded to in the previous trend, customer experience is fast becoming a key business driver for businesses of all sizes. In fact, McKinsey predicts that customer experience will be the number one point of differentiation for businesses by 2020.
As more people engage with businesses via digital channels, ensuring a positive and consistent customer experience will become critical to an SME’s success. Having a strong digital presence on platforms such as LinkedIn and the company website gives stakeholders a reference point for what an SME does and how it distinguishes itself.
Such a presence further provides a shop window into the SME: by telling the story of what makes their business unique, SMEs can create interest among customers and establish trust among internal and external stakeholders.
By adding a powerful customer relationship management (CRM) solution, SMEs can gain deep customer and social insights that can be used to deliver individualised customer experiences across all channels. In addition, service levels can increase by providing service representatives with customer visibility to empower them with improved problem-solving and issue-resolution capabilities.
Trend 4 – Enterprise-level entrepreneurship
Entrepreneurship is not the reserve of start-ups and SMEs. Large enterprises are learning from their smaller counterparts by prioritising entrepreneurship to improve their own innovation capabilities and stave off the challenge posed by smaller, more nimble upstarts.
Large organisations cannot survive without an entrepreneurial spirit – every business must continuously innovate to get better products to more people faster. Successful businesses are the ones with the agility to go where customers are migrating to and introduce tailored products and services that meet changing customer needs.
With the growing maturity and pervasiveness of cloud services, automation capabilities and customer experience -improving technology solutions, African SMEs face an exciting year ahead. Those that invest time and energy in exploring the possibilities of technology will have a natural advantage over slower-moving peers.
By working with companies that have supported SMEs globally and built up a repository of learnings and best practice, SMEs can also avoid costly and time-wasting mistakes and take a quicker route to success. The future looks bright for this critical sector in 2019.
Jade Michael is Head of SAP Business One & SAP Business ByDesign – Africa at SAP Africa.
