application of the technology in trade is quite limited. There are several reasons why the application of ICTs may be low in Africa. As in many developing countries, the Internet in Africa is expensive, low quality and unreliable. Generally, the high costs, the poor quality of fixed line networks and the uncertainty over the telecommunication regulatory environment are the major impediments to growth57. Therefore, any effective use by SMMEs of an e-commerce solution requires off-line operation to minimize the need for using expensive, low quality bandwidth in African countries. In addition, computer usage and skills is low and is often affected by electric power outages, which is mostly concentrated in urban centres in most African countries. This is exacerbated by the lack of client firms and customers within the different countries who are capable of using the Internet to exchange goods and services as well as the nonconformity of the products and services SMMEs transact, have been identified as additional barriers to expand e-commerce e.g. those SMMEs involved in transport and construction see no significant benefit from e-trade as signified in the study. It is also observed that the use of computers and the Internet for business, let alone e-commerce is not widely understood by many SMMEs in African countries. Fur thermore, being part of global trade, e-commerce processes require knowledge of many complex systems including on-line promotion, international payments and shipping procedures that are beyond the current limited capacity of most SMMEs. Moreover, many entrepreneurs are now skeptical of using ICTs for trading purposes, due to the concerns on the issues of security and privacy.
This means that more knowledge needs to be imparted to SMMEs to encourage them to use ICTs in order to exploit business opportunities and to gain exposure and representation on the global market.
The other constraint for most SMMEs has been the source of finance for investment. The most important source of ICT investment is owners’ capital. According to the results of the study, most of the firms have been using their equity capital for any ICT related investment.
Retained earnings are the next most important source of finance for ICT investment. With a low per capita annual GDP in most African countries, very few individuals or SMMEs can
57 International Finance Corporation ‘Investment Opportunities in Wester n Africa ICT and Internet sectors, final report-Ghana’. October 2003.
afford to own a com puter along with the phone line, printer, specialized software and digital camera that are prerequisites for e-commerce. Therefore it is necessary to find mechanisms where SMMEs would be able to access finances for the initial cost of acquiring ICT facilities and the cost of running them.
Absence of online payment systems and absence of appropriate legal and regulatory frameworks for electronic commerce in most African countries are some of the main obstacles hindering enhancement in the use of ICTs for trade according to the survey findings. This confirms the need for a trustworthy environment in which to conduct e-commerce. Uncertainties concerning contracts, terms of delivery and guarantees are of importance for many firms. According to the survey, many firms felt that there was no legal and regulatory provision that authorizes the establishment of an online cross border business.
Lack of legal provision for recognizing electronic contract and the electronic transaction of goods and services as well as the recognition and validity of an electronic signature were identified as constraints hampering the development of online business. Challenges and Opportunities of the Ethiopian SMMEs in Box 7.1 ably summarise the situation faced by most SMMEs in Africa.
7.7 CONCLUDING REMARKS
Much of the hype of the new ICTs has been focused on its potential to wipe out geographical barriers and potentially create new markets for existing businesses and firms. In the late 1990s, the use of ICTs to foster commerce was thus initially seen as one of the key drivers of the so-called ICT revolution. Eight years into the new Millennium a more sober picture has emerged. E-commerce is certainly not a panacea although it has worked for quite a few companies.
This study was motivated as a result of an observation that the role of ICTs in supporting Small, Medium and Micro Enterprises (SMMEs) in developing countries had not been properly addressed in most of the policy studies. Most poor countries had very few large enterprises that could benefit from using ICT by becoming competitive on both national and international markets. As a matter of fact, most of the enterprises in these economies were SMMEs. This was particularly so when focus was placed in urban poor and rural areas. Thus, the study had indicated that targeting SMMEs in developing countries was one of the ways in which ICT could help alleviate poverty and help these countries achieve the Millennium Development Goals (MDGs).
The study findings indicate that there is high potential for ICTs in assisting small enterprise development. As the global economy becomes increasingly reliant on ICTs to receive, process and transmit information, SMMEs in developing countries should not be left behind lest they lose out on opportunities to integrate into the global supply chain for outsourcing businesses and increasing productivity.
The study has attempted to outline the different ways in which ICTs can benefit SMMEs in the areas of business productivity, efficiency (i.e. improve communication among different departments within the firm) and also linking SMMEs more easily and cheaply to external contacts, whether locally or globally which is the genesis of e-trade.
Despite the obvious and concrete benefits that ICTs can bring to SMMEs, in most developing countries SMMEs have been slow to adopt ICTs. At the same time, most governments have not mainstreamed ICTs into their SMME policies. The study findings reveal that this has mostly been exacerbated by a lot of challenges and constraints that respective governments need to address so that SMMEs, through the use of ICTs, can significantly contribute towards economic growth and development. Most prominent of these challenges and constraints are the issues of infrastructure development and the legal and regulatory framework in which these SMMEs operate. There is need to put in place relevant legal and regulatory structures that would enhance e-trade in African countries.
Box 7.1: Ethiopian SMMEs’ e-Trade Challenges and Opportunities
Most of the SMMEs in Africa face almost similar challenges and opportunities. To have an in-depth understanding of these challenges an example of SMMEs in Ethiopia’s manufacturing sector is presented.
This industry presented is a subsector of the manufacturing sector. Ethiopia is believed to possess huge livestock resources. However, this sector has not been well developed and properly exploited. Recently, there have been some initiatives by the governm ent to exploit some of the potentials of the sector with the establishment of the Leather Technology Institute as one such example. In addition, several private companies have also started to observe the huge potential of the sector and have started to be engaged in some business activities related to the livestock sector.
Due to the abundant availability of hides and skins, many companies have been established recently to exploit the abundant raw material available in the country. Most of these companies have been established with the purpose of processing and exporting leather products, and they have created employment opportunities for many jobless individuals. Most of these companies have tried to promote their activities aggressively and have participated in several trade fairs within and outside Ethiopia.
According to officials in these companies, an extended chain of actors characterize the conventional export channel. The traditional system is very expensive to sustain and is less competitive in the global market.
Selling online is by far cheaper for both the producer and the consumer. Internet sale makes business to consumer transaction more efficient and prices attractive to both parties. Therefore, it had become imperative for the companies to find an alternative mechanism for the promotion and exporting of leather products. Hence, some of these companies created websites as a way of promoting efficiency in their business transactions. Most of these companies opted for this initiative at the time w hen there were no Internet Service Providers (ISP) in Ethiopia, the companies had to use overseas ISPs to register their domain names and get their website hosted through the support of the Pan African Development Information Services (PADIS) - ECA. The companies’ electronic-trade was mainly focused and tailored to consumers (B2C), which improves the companies’ competitive positions and reduces marketing and other transaction costs. The new system also enabled the companies to outreach their products to a w ider network of consumers.
A snapshot evaluation of the performance of the companies show that after the introduction of the website, interesting progress was made. Some of these companies’ websites have been visited by more than 5.8 million people over the last ten years. There has been a steady increase on the online and domestic sales. In addition, the traditional export market has also showed an increasing trend. The introduction of the Internet also enabled the companies to capture the fashion trends more easily and quickly. The cost of advertising and promotion of the companies’ products have been changed from a Catalogue based on trade fairs to electronic advertising and promotion over the Internet. As a result companies have experienced reduction in the cost of advertising and business promotion.
CHAPTER EIGHT
MOBILE COMMERCE IN AFRICA
8.1 INTRODUCTION
Undoubtedly, the fastest growing ICT sector in Africa is mobile telephony, which is creating immense interest in the sector. Mobile phones are an important ICT tool for development due to their ability to easily leapfrog the infrastructure barriers in remote and rural areas in Africa.
Furthermore, the rapid advancement in the technologies and ease of use, coupled with falling prices in devices, presents the mobile phone as an appropriate and adaptable tool to bridge the digital divide. The scope of applications for development is wide, and as it can reach the majority of people, its impact is enormous. Overall, wireless communications provide the long sought after platform that can make digital data transfer possible in many developing countries. This is due in part to the lower costs of mobile systems relative to fixed networks, the provision of short message services (SMS) and the enabling of wireless Internet connections.
This has spurred the advent of m-commerce, a new form of electronic commerce brought about by the rapid growth of wireless communications in many Africa countries. The most common definition of m-commerce is the buying and selling of goods and services using mobile phones. In Africa and other developing countries, most mobile services are prepaid using stored value cards. This mitigates post-paid subscription problems of creditworthiness and billing.
In the study the definition of “M-Commerce” included the contribution of the mobile phone to business through voice and data services. The study presents a number of emerging initiatives, which use the current Global System for Mobile (GSM) communications, data exchange mechanisms of small message services (SMS), Wireless Application Protocol (WAP) and Unstructured Supplementary Service Data (USSD). These initiatives include information only services, financial transaction services and a mix of both.
When considering financial services, the spectrum of m-commerce responses has been everything from an information service added to an existing bank account, through to propositions that enable information and transactions on an existing bank account, to innovative transformational propositions such as M-Pesa58 which enables information and transactions on a newly registered mobile phone enabled account.
The study reviews the telecommunication and financial infrastructure and presents findings of some recent studies on how households manage financial services and their expectations for ease of access. Infrastructure expansion and upgrade, particularly international connectivity and bandwidth, coupled with the convergence of GSM networks and IP infrastructure, means that increasingly, sophisticated m-commerce applications are becoming a reality across African countries. However, the nature of a number of constraints (e.g. cost, literacy, handset specification) means that use of m-commerce is likely to remain the preserve of the well off for some time, hence exacerbating the digital divide.
58 See Box 8.1 below for more details about M-Pesa