ICT

Affording ICT

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With SMMEs contributing roughly 60% to South Africa’s GDP, empowering them through ICT enabled technologies can see this vital economic sector reach a fuller potential.

The latest research conducted by the South African National Treasury indicates that South Africa has approximately 2.8 million small, medium and micro enterprises (SMMEs), which contribute 52%-57% of the GDP. This is beside the 60% of jobs created and a contribution of more than 40% to the country’s total remuneration.

Information and Communication Technology (ICT) plays a vital part in the start-up of businesses of all shapes and sizes, and the SMME sector is no exception. But how affordable is ICT solutions to our SMMEs in South Africa? Opportunity spoke to Research ICT Africa (RIA) researcher Mariama Deen-Swarray about South African SMMEs and ICT.

According to Deen-Swarray, the SMME sector, which also includes the informal sector on the African context, is considered a sector that can contribute to economic development through employment creation and therefore poverty reduction in developing economies. “This is one of the largest and growing sectors in the developing world and one which has become a safe haven for many. This has made the sector a focus of many government policies to stimulate their growth and sustainability.

“ICTs are enablers that can assist in this process by ensuring efficiency, productivity and profitability among businesses in this economic sector. Through the employment of ICTs, businesses can reduce transaction costs, thereby increasing efficiency and market access. Sourcing new products and markets, as well as marketing and advertising existing products, can be facilitated and made easier through ICTs,” she says.

In term of the relevance of ICT to SMMEs, she says most small businesses find it difficult to access start-up loans and venture capital from the formal financial sector, mainly due to the nature of their businesses and the inability to provide adequate collateral often required by banks. Conversely, ICTs, especially through mobile money technology, can provide an avenue through which small businesses can build transaction histories that will allow them to access the finances needed to establish their businesses she says. In addition, she says that through ICTs and mobile internet in particular, small businesses are able to carry out cost-effective product and market research necessary to put together a business plan.

The cost of broadband data

Deen-Swarray highlights that currently, the cost of broadband data in most African countries is still very expensive for most businesses in this sector to benefit from it. ICTs can only be useful and play a transformative role if they are easily accessible and affordable according to her. She says without affordable access to broadband, the use of ICTs will be sub-optimal and their potential benefits will not realised.

Looking at what both the public and private sectors can do to assist in making ICT more affordable to SMMEs, Deen-Swarray starts by saying the private sector can provide means through which cost of doing business can be reduced. This she says can be achieved through the development of cost-effective and innovative business applications using appropriate platforms and devices that can be easily accessed by SMMEs.

“For the private sector to undertake such initiatives successfully, it needs to be able to operate within a conducive policy and regulatory environment. This is where the public sector comes in, by creating an enabling environment through which such initiatives can thrive. Policy and regulatory measures to improve market entry in telecommunications, LTE spectrum allocation, and open access to essential facilities, are just a few issues that need to be addressed in order to make broadband data more affordable,” she says.

Both the public and private sectors face their own set of challenges in making ICT more affordable to SMMEs. According to Deen-Swarray, policy uncertainty in the ICT sector and ineffective regulation of the sector has contributed to, and remains the biggest challenge in the country’s ability to provide affordable access to services in the sector. She says reform efforts undertaken in the sector in the 1990s was undermined by lack of effective policy implementation and flexibility. More recently, she says, the country’s ICT sector has suffered from leadership discontinuity at executive level with no less than six ministers of communications serving since 2009.

“The split of the Department of Communications in May 2014 into the Department of Communications (responsible for legislation and other policy initiatives) and the Department of Telecommunications and Postal Services (responsible for ICASA and other regulatory bodies) has also disrupted initiatives to extend broadband to all parts of the country as stipulated in the country’s National Development Plan,” according to her.

Telecommunications

In terms of infrastructure, she says “South Africa is one of the largest and most advanced telecommunications market in Africa, yet whilst it was an early adopter of leading-edge technologies – mostly for high-end users (individuals and corporations), the majority of the population, including most small and micro enterprises reflect a much slower ICT adoption pattern. Though international internet bandwidth is now available from a number of suppliers and there has been a drop in prices since the end of Telkom’s monopoly of international bandwidth access, research has shown that existing internet bandwidth is not sufficient for businesses to perform their activities effectively or embark on new business ventures.

“For instance, quality of service data show that the national average download/upload speed is 4.6Mbps, which is significantly lower than the global average of 15.7Mbps (Ookla). Also, while broadband data prices have declined in most African countries, they have been constant in South Africa since 2014.”

Big data is another buzz word in the ICT arena, but can SMMEs benefit from this trend? As Deen-Swarray explains, big data is part of Novel digital technology and is seen as transformer of the ICT industry and the way companies operate. She points out that it is creating new opportunities for entrepreneurs to operate in the digital space, allowing them to establish and launch new businesses and optimise their operations. She says though there are potential opportunities provided by such technology, how optimally the sector can utilise this technology is dependent on how relevant it is for their business. “SMMEs may not have the capacity that will allow them to directly benefit from big data mainly in terms of analysis, however, having access to such data can allow small businesses to develop ideas and become more innovative in the business and services they embark on,” she says.

Deen-Swarray further highlights that with broadband infrastructure, it is expected that access to the internet will become more affordable and of better quality. According to her, accessing necessary information online within the shortest possible time is essential. With widespread access to broadband internet and especially mobile internet, businesses in this sector, and in particular informal businesses, will have the opportunity to access local and international markets and access relevant information with ease she says. Businesses can use this to develop their business plan and equip themselves with the necessary skills, technique and approach to expanding their businesses further.

When asked which sectors are most reliant on ICT, Deen-Swarray says, “ICTs should be viewed as enablers that can enhance the growth and productivity of businesses. ICTs are important in every sector, however the extent of use and the type of ICT applications and systems employed may differ from sector to sector. While some sectors may require basic communication services, SMMEs in the manufacturing sector for example may employ more advanced inventory management software. The transport, storage and communications sector as well as the financial intermediation, insurance, real estate and business services sectors may also require and rely on more advanced ICT applications and services to enhance their business activities.”

Sustainable economic growth

Looking at ways in which the public and private sectors can take hands to make ICT more affordable to South African SMMEs, she says sustainable economic growth can mainly be driven by the private sector, with the public sector providing an enabling policy and regulatory environment for this to occur. “Therefore dialogue and co-operation between the sectors is needed to ensure that appropriate measures are taken to ensure that ICT becomes more affordable for SMMEs. Government should embark on development of a conducive policy and regulatory ICT environment that will enhance a competitive market structure, increase investment in infrastructure, and strengthen institutional arrangements to allow for effective regulation of the sector and provide a level playing field for service providers,” she says.

In terms of what the private sector can do to further assist in making ICT more affordable, Deen-Swarray says it can provide innovative business applications that can be easily employed through mobile phones, which are currently the most widespread ICTs used in the SME sector. She says these applications should be cost-effective (for instance, freely available to download and optimised to use little data bandwidth) so as to meet the budgets of businesses in the sector, and even more so for the informal businesses within the sector.

“While cost has been identified by SMMEs as the main obstacle to greater access and use of ICTs, issues such as lack of the appropriate technical skills can also limit the extent to which ICTs can be optimally used by businesses in the SMME sector. In the drive towards ensuring affordable access to ICTs, skills development and demand stimulation should also not be overlooked,” Deen-Swarray concludes.

Nilo Abrahams

 

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