New technologies for SME job creation

Inclusive Economy11 Sep 2014Stephen Haggard

Communications-based digital industries have a special model for surviving the familiar SME-killing challenges. Embracing technologies such as the cloud, virtualization, and instant cloning of service platforms, could digital enterprises become the primary engine for sustainable job creation in Sub-Saharan Africa?

Communications-based digital industries have a special model for surviving the familiar SME-killing challenges. To reach scale, build capacity and win market access – the essentials for sustainable employment – companies in this sector have options such as the cloud, virtualization, and instant cloning of service platforms. These are not available to players in manufacturing, distribution, or physical service delivery. Best of all, digital IP, once created and protected, can yield stable revenues. Could this be a boost to sustainable job creation in sub-saharan Africa, where IFC estimates SMEs account for 90% of all businesses?

Consider the Accra, Ghana based company DreamOval. Five years back, in the classic genesis of many African SMEs, founder Derrydean Dadzie won a single contract: deliver an NGO-funded health support program. The expected narrative would be: heroic struggle to deliver the deal on a squeezed margin, followed by a few hardscrabble years looking for follow-up jobs to pay the staff, and perhaps a handful of employees remaining in underpaid, insecure posts.

For DreamOval, things worked out differently. Dadzie was a digital native. He licensed some open-sourced software and coded a platform to deliver the health support by push-SMS. His team then recycled their code and offered it as a commercial platform. Local banks, political parties, health-care providers used it to jump into phone-based marketing. Now DreamOval supplies high-tech web services such as mobile payment– but remains firmly Ghanaian.

What DreamOval had by virtue of its digital roots – unlike SMEs in many African settings – was access to global technology and skills. It meant the engineering and people were world class from day one. There were also locked-in earnings: as a smart digital operator, Dadzie ensured long term revenues by establishing operating platforms where micro-charges at large scale added up to stable income. The competitive market in such services keeps the company nimble: no incentive to retreat to niches. Africa today contains many stories like this, and the mobile networks are throbbing with their ideas and transactions. I’ve been in the online business in the mature economies for many years, and I confess I find the African digital scene is the world’s most vibrant and inspiring – but will it create good jobs?

Digital SMEs alone cannot deliver the employment growth Africa needs. Even in successful DreamOval, things probably feel precarious for the job-holders, as they flit from one project to the next in a notoriously volatile industry where the next build probably needs skills you don’t yet have. Only a California-style infrastructure has the cultural and business assets to address that kind of issue: Silicon Valley’s critical mass of projects ensures most digital skillsets will find a buyer, and the high effectiveness of online networks and marketplaces for professionals helps individuals to get stability in the storm of the hire and fire.

But the phone and digital economy, built by the DreamOvals of Africa from Dakar to Johannesburg, is supporting the SME sector in another way – it is providing a vast trading platform – for information, commercial products, education, health, finance and more – and this changes the script for SMEs in all sectors.

I illustrate this through an advisory connection I have with Eneza Education in Nairobi, which supplies automated education services throughout Kenya such as testing, revision and teacher support. This used to be a job done with pencils, visits and books. Eneza does it by phone, working directly with parents, pupils and schools. Now in its third year of life, Eneza’s revenues are on track for US$250,000 and over 100 people are employed, including 75 sales agents. That’s an encouraging tale for a business by any standard. What is especially significant for the long term challenge of African SMEs, which usually collapse from problems in finance, management skills or technology, is that this fully Kenyan business has global investors participating in its financing rounds, its executives join accelerator programs in the USA, and its engineers are integrating the software onto the world’s best-in-class service interfaces.

And there is still more to this success story. Eneza’s mobile pupil support is having a good impact on learning in schools. Its revision application in which learning tips are directed where the students perform weakest gives targeted support on lesson content. Meanwhile the quiz performance reports read by teachers and education authorities have created real-time tracking of pupil attainment. Like all modern data-driven platforms, this Swahili-speaking classroom assistant in your pocket is not a replacement for the human intelligence of teachers or students. On the other hand, if like me, you believe that the way to create sustainable jobs in the long term is to support teachers to raise the quality of schooling – then you can add education in emerging economies to the benefits of the new digital models of the SMEs.

Digital SMEs are not a magic bullet that changes everything, but their workarounds give new solutions for employment creation. The policy instruments that boost them have been demonstrated in several African settings: international openness, good connectivity, and “incubators” where digital businesses receive a mixed diet of hard kicks and soft nurturing, to ensure the failures fail fast, and the winners grow quick.