The MSME sector has long been identified as vital for economic growth and poverty reduction. MSMEs dominate economies worldwide – representing 99% of enterprises in developed countries, 80% in emerging markets and 60-70% in developing ones.
Studies have shown that MSMEs play a leading role in economic development and poverty eradication, twin objectives every African country has on the top of their agenda. MSMEs provide employment opportunities to millions of people – particularly the youth – through creating jobs, empowering employees and increasing access to financial services.
However MSMEs face many challenges, including shortage of skills, limited access to finance and technology, as well as a lack of market knowledge. Limited or poorly managed business support systems also contribute to MSME failure rates which are more than twice those of large firms.
The MSME sector has diverse needs but suffers from the inability to meet these due to globalization, rapid technological changes and other challenges faced by all entrepreneurs operating within complex markets.
A technology incubator-styled policy and practice can resolve many of these thorny issues.
The challenges MSMEs and start-ups face in the African incubator hub space
MSMEs lack access to technology that would enable them to become more competitive through innovation or improved business processes, especially for firms operating in remote rural areas. MSME development is hindered because MSMEs are given little opportunity to be exposed to new information on current technological innovations, learn how it may benefit their businesses, interact with potential suppliers of the technologies, obtain technical assistance or obtain finance for purchases of commercially available technologies. Technology incubators therefore need to address these shortcomings if they are to contribute positively towards MSME development.
Furthermore, these so-called start-ups’ see ICT as business tools rather than technical innovation or products. As such, they then require support to minimise the risks involved with adopting new technologies since they are not producing cutting-edge technology that the world wants. In essence, they become consumers of tech, instead of producers.
Commonly in Africa, it is not uncommon for MSMEs to struggle with the adoption of new technologies because of high risk exposure, high cost and low return on investments due to limited output or sales volume. They often require other MSMEs as clients or partners before being able to implement a technology productively at an acceptable cost level.
In addition, MSMEs have been found to be those most disadvantaged by tertiary education institutions’ inadequate exposure to ICT-related content that would have facilitated their development as innovators. MSMEs’ high technology needs are largely unmet by universities and similar research centres, which offers limited relevant ICT education and training to MSMEs in the region.
The role of Technology incubators in Southern African MSMEs
Technology incubation hubs in Southern Africa provide MSMEs with a range of services including business training, mentoring, networking and potential sources of finance such as equity or debt financing. The service provision is based on an individual needs assessment and MSMEs may be given options from among the available resources.
Technology incubators can serve as catalysts for MSME growth and development. MSMEs in the technology incubator networks can also learn through exposure to new ideas and knowledge, and also benefit from intangible assets like brand-building by association with the technology incubator’s reputable clients. The MSME Development Index (MDI), compiled by MSME South Africa – a national trade organisation – has found an 81% match between technology incubation and MSME development needs.
Furthermore, technology incubators play a similar role as incubators do in business innovation hubs. MSMEs entering a network as part of a technology incubator can benefit from access to technology, financial support and advice from other MSMEs already in the technology hub. The MSME has potential added value through its position within the hub allowing it to enter into client relationships with more established MSMEs that are members of the community. MSMEs may also receive practical assistance or investment financing based on collaborative efforts within the technology incubator network.
Existing examples of successful technology incubators include NEPAD eSACCO, which works with co-operative societies across sub-Saharan Africa by providing affordable access to telecommunications for member MSMEs, Eastern and Southern African Technology Forum (ATF), which aids MSMEs to improve technology management, and MSME-TASO, which is a Ugandan MSME technology consulting firm.
In South Africa, technology incubator programmes have been used as an evaluation tool for the development of MSMEs. A recent study also found that MSME owners believe that technology incubators can assist with their business activities by providing advice on improving managerial processes and financial management, whereas MSME non-owners lack awareness of what technology incubators can offer them or are not prepared to invest financially in their businesses. MSME owners reported having stronger technical skills than non-owners; suggesting that they may use these skills to overcome some of the challenges posed by ICT adoption.
MSME owners generally perceived the risk level associated with ICTs as lower than MSME non-owners did, and were more likely to perceive ICTs as an effective business tool than MSME non-owners did. MSME owners perceived the benefits of ICT use in their businesses higher than MSME non-owners did. MSME owners responded that they would be willing to adopt ICTs if it meant increasing profit margins and improving customer service – an indication that budding entrepreneurs in Southern Africa are beginning to shift their mindset positively.
What are the key support measures that technology incubators should provide For MSMEs?
The key support measures that technology incubators should provide MSMEs are the following:
- Providing MSMEs with access to capital, which can be either in cash or in kind. MSMEs can require soft loans/facilities for buying machines, equipment e.t.c.
- Business development services, which include knowledge on how to start a business or what types of businesses to start. Entrepreneurial skills training might also be required by MSMEs to help them market their products effectively
- Network building among MSMEs and other stakeholders in order to create opportunities for MSME growth and development
- Access to technology, which MSMEs need in order to remain competitive. Technology incubators can provide MSMEs with access to affordable ICT products and services conducive with MSME growth
What are a few of the lessons learnt and best practices in relation to the contribution of technology incubators to enterprise development in Southern Africa?
The MSME sector in Southern Africa contributes significantly to the economy of the region. MSMEs contribute more than 30 percent of regional revenues and more than 45 percent of regional employment. Yet MSME activities are constrained by inadequate levels of financing, poor infrastructure, limited access to markets and distribution networks, technology skills gaps and other factors.
Outcomes-focussed MSME technology incubators have emerged as a new breed of business support institutions that offer innovative business services for MSME clients in their areas of focus with underlying technology-related objectives . They may be viewed as “technology enablers” that facilitate MSMEs’ ability to use ICTs to create sustainable competitive advantage, explore new market opportunities for MSMEs and MSME clusters, as well as to drive economic development. It is worthy of note that incubator services are delivered through three main technology themes: business incubation, technology related services and ICT incubation.
In South Africa, MSME technology incubators have been particularly effective in increasing new MSME entry rates into both high-tech industries and product market segments . The MSME Sector Technology Plan 2010 – 2020 notes that MSME activities are constrained by inadequate levels of financing, poor infrastructure, limited access to markets and distribution networks, technology skills gaps and other factors.
Based on their specific focus area, these technology incubators typically target MSMEs involved in one or more of the following key sectors: ICT related industries; renewable energy and green technologies; agro-processing activities; manufacturing and small industrial enterprises.
A way forward
The development of business start-ups in Southern Africa must be strongly given support and encouragement by the government and the private sector. Given the Covid-19 pandemic shock that has ravaged the region, an increased investment in the start-up ecosystem will greatly favour the region and continent as a whole.
In the last decade or a little earlier than that, the advent of start-up eco-systems, co-working spaces, and technology hubs in places like Cape Town have produced many new successful entrepreneurs as well as technology solutions that have been sold for tens of millions of dollars, like Lulalend, PayCode, and many more.
Shared spaces like WeWork and Regus already have very successful coworking templates that can be replicated, supported, and scaled up in the region to accommodate start-ups and MSMEs where individual entrepreneurs can share ideas, technology, and risks.
Furthermore govenermnet policy should link the SETAs and TVETs, as well as other research centres, to technology hubs such that research and development can be quickly and successfully transformed into marketable goods and services benafter they are beficiated with technology at the various hubs.
While the government’s intervention will be welcome, commercializing such hubs will make them attractive for the private sector to happily fund. To achieve the aim of a technology incubator, which is to create more jobs, research and technology must be commercialized. Funding and Financial Institutions, Venture Capitalist, and Angel Investors can come in here to help create new start-up businesses, expand the product lines of existing companies, and also make a profit at the same time.
For the moment, this may be the most sustainable means of financing these MSMEs. It is a model that has worked successfully in Carlifornia’s Silicon Valley, Cape Town, and similar technology hubs around the world. If scaled, it can be beneficial to all parties involved.
This model will increase business-to-business transactions, and can be achieved in different ways like through educating students, publishing results of research, and making sure that inventions are developed into beneficial products and services for the benefit of the general in the region.
Since technology incubators are typically aimed at promoting the creation and growth of start-up enterprises by supporting new ideas and providing basic amenities to support small-scale enterprises owners, it behoves on policymakers in the region to pay more attention. Doing so will not only create more employment and economic development, but it will definitely increase the standard of living of the people, generation after generation.
In other words, for Southern Africa to quickly come out of the effects of the Covid-19 pandemic, governments at various levels should focus more on technology incubators as they have proven to be very good avenues for creating new wealth and develop a region quickly.
While discussions on policy reforms and the scaling up of the identified successes from the AfCFTA are welcome, as seen in Durban recently, MSMEs must be given priority too, considering that they are the backbone on which entire national and regional economies stand. The combined power of small businesses have kept millions in jobs, provided for househoulds in rural and urban areas, and contributed meaningfully to the GDP of countries before – and particularly during the last two years when Covid-19 completely altered our lives.
Shiphra Chisha | President African Women in Business