Two senior executives from rival African ICT service providers were playing golf. One remarked casually, while his opponent was trying to putt, that enterprise ICT sales in their countries of operation reached USD900 million last year.
The opponent missed his putt, and next morning summoned all his senior managers for a meeting: "We didn't even know the entire market was worth USD900 million – why aren't we selling more to enterprises in Africa?"
A version of this anecdote was related to Analysys Mason's Johannesburg team when we published our first report on the region's enterprise markets in 2012. Data on African consumer markets is increasingly available, but enterprise markets remain clouded by uncertainty – both through a lack of official data, but also because the existing providers, like the golfer trying to unsettle his opponent, find it strategically useful to keep market insights to themselves (until useful to divulge). However, investors, operators, ISPs and governments are increasingly asking the following questions: how big is the enterprise ICT market in Africa, and how can it be addressed?
Large enterprises are an existing, attractive market, while smaller firms present a new opportunity
How big the market is depends very much on size categories that providers are able to address. By number, large enterprises (with more than 250 staff) make up only 0.5% of enterprises in 'representative economies' in Sub-Saharan Africa (see Figure 1).1 Such enterprises are sophisticated buyers of ICT services, comparable to their peers in developed markets – and many are already well-served by the likes of Wananchi Business Services, MTN Business, CMC Networks, Internet Solutions, Orange and the mobile operators in each country. At the other end of the scale, the 90% of enterprises – many of them informal – that have fewer than 10 employees are unlikely to require services much different from those provided for private consumers and are costly to service with standard enterprise ICT.
Figure 1: Enterprises by size and share of employees in a typical representative Sub-Saharan African country [Source: MENON Business Economics, based on data from the World Bank, 2010]
That leaves nearly 10% of all firms in the small (10–49 employees) and medium (50–250) categories, which typically employ around 20% (in Burundi, Cameroon and South Africa) to 40% (in Kenya, Malawi and Zambia) of each country's workforce. Estimates of their contribution to GDP range from around 20% up to 50% across the region, but generally this sector has been poorly characterised in terms of growth trends, owner profile, and nature of value and employment created.
Knowledge about SME challenges must be used when designing a market entry strategy
Given the mobile revolution in Africa, one would expect nearly all SMEs to use mobile telephony, but in some places only 50% (in Côte d'Ivoire) to 75% (in Kenya) of them are reported do so. Data from Kenya and Nigeria from around 2012 suggest that around 40–50% use computers for business, while around 35% use the Internet. Several studies have identified the barriers to adopting more ICT (see Figure 2) and reveal a few interesting similar messages.
Figure 2: Top four barriers to ICT adoption among SMEs in several countries in Sub-Saharan Africa, and the frequency with which they were cited by survey respondents [Source: Analysys Mason, Emerald Group Publishing, Globeedu Group and the Center for Promoting Ideas, 2011–2014]
|Rank||Botswana and Ghana1||Côte d'Ivoire2||Kenya3||Nigeria4|
|1||Cost of ICT equipment (68%)||Cost of ICT equipment (97%)||Inadequate infrastructure (60%)||Power supply (82%)|
|2||Power supply (57%)||Lack of technical skills (96%)||Cost of ICT equipment (58%)||Inadequate infrastructure (72%)|
|3||Ignorance of ICT solutions (55%)||Cost/benefit uncertainty (92%)||Ignorance of ICT solutions (52%)||Connectivity issues (67%)|
|4||Inadequate infrastructure (42%)||Inadequate infrastructure (81%)||Negative attitude towards ICT (46%)||Lack of education (62%)|
1 Asare, S., Gopolang, B. and Mogotlhwane, O. (2011), 'Challenges facing SMEs in the adoption of ICT in B2B and B2C E-commerce: A comparative case study of Botswana and Ghana', International Journal of Commerce and Management, Vol. 22 (4), pp.272–285.
2 Ardjouman, D. (2014), 'Factors Influencing Small and Medium Enterprises (SMEs) in Adoption and Use of Technology in Cote d'Ivoire', International Journal of Business and Management, Vol. 9 (8), p.179.
3 Obino Mokaya, S. (2012), 'The Adoption of Information and Communication Technology by Small Enterprises in Thika Municipality, Kenya', International Journal of Business and Social Science, Vol.3 (13), pp.172–177.
4 Apulu, I. (2011), 'Are Nigeria SMEs Effectively Utilizing ICT?', International Journal of Business and Management, Vol.6 (6), pp.207–214.
Two barriers are in place in more than one country: the lack of electricity and the cost of ICT equipment. These need to be taken into account, but it is worth noting that the World Bank Enterprise Survey (2010) identified electricity and funding to be the most commonly cited challenges to African enterprises generally, so this is a reflection of the business environment rather than a comment on ICT services in particular.
The insights from these studies can be used to formulate an approach to the ICT market.
- Electricity is a problem in Africa, so device strategies must not assume that it is reliably available.
- SMEs in Africa are highly capital-constrained, and a variety of mitigations for this are possible. Foremost is to identify low-cost services (like hosted applications) that solve a real problem and free up capital from elsewhere. Partnering with banks may also help, given the increasing policy emphasis and their increasing commercial focus on increasing access to financial services.
- A shortage of ICT skills means that the sales and support channels may have to be highly local – and potentially relatively high cost – to give owners confidence that the service will work for them.
- Low-cost service and highly local channels are likely to be easiest to provide for industry verticals, so identifying the correct vertical to enter – offering the right revenue opportunity, clear value to the customer, and ideally drawing on existing provider expertise – is critical.
So who has the head start in addressing African SMEs: telecoms operators or pure IT providers? Many have predicted that mobile operators have a head start because they are already present and have large cash flows. However, they also rely heavily on low-cost channels and generic services so the strategy above is likely to be difficult to implement. Mobile operators will need to partner, or risk losing ground to providers who can implement it.
Robert Schumann is a Principal analyst at Analysys Mason.