How SMEs can play key role in combating economic inequality

Tomatoes and bananas vendors in Kasarani estate,Nairobi. [Elvis Ogina,Standard]

One of the great challenges of the 21st Century is the need to reduce poverty levels and economic inequality globally.

Economic growth is the most powerful tool for reducing poverty and improving the quality of life in developing countries.

The latest World Bank’s Poverty and Inequality Report finds that more equal countries tend to have healthier people, are more economically efficient and have greater social stability than highly unequal countries.

The report also reveals that countries that invest smartly in reducing inequality today are likely to see more sustained economic growth than those that don’t invest. Less inequality can benefit the vast majority of the world’s population. However, emerging markets are often defined by marked levels of economic inequality. And while governments have a responsibility to try to close the income gap, Small and Medium Enterprises (SMEs) can have a profound impact in ensuring economic growth.  

SMEs represent about 90 per cent of businesses and more than 50 per cent of employment worldwide.

Formal SMEs contribute up to 40 per cent of national income (GDP) in emerging economies, and these numbers rise significantly if we include informal SMEs. It’s estimated that 600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SME development a high priority for many governments. In emerging markets, most formal jobs are generated by SMEs, which create seven out of 10 jobs.

The Organisation for Economic Cooperation and Development (OECD) says SMEs are essential for delivering more inclusive globalisation and growth, while the World Bank notes that SMEs play a major role in most economies, particularly in developing countries, by generating employment, adding value, making moderate to significant impacts to the GDP growths of economies, and driving innovation. It has been identified that SMEs are of overwhelming importance for developing countries because they account for more than 90 per cent of all firms outside the agriculture sector.

Despite their significance, many SMEs across the world, but particularly in emerging markets, struggle with the same challenges – lack of access to affordable finance, trade and investment barriers, and lack of access to global markets. Poor physical and ICT infrastructure often prevent SMEs from operating efficiently or accessing international markets at competitive costs.

Digitisation has the potential to offer SMEs new opportunities to participate in the global economy, but many are lagging in digital transformation and access to the internet remains unattainable for many in the region.

We’ve found that investing in strategic partnerships can provide much-needed assistance for SME’s.

In Nigeria, for instance, Microsoft has partnered with First Bank, Vodacom Business and MTN, to provide their SME customers with access to technology, skills development resources, business networks and an educational platform.

The bank is building the capacity of local SMEs and accelerating their digital transformation by providing them with exclusive and tailored non-financial solutions, giving them access to technology at discounted rates and in local currency, while providing access to business networks and education. In Kenya, we’ve partnered with Jumia to host an official store page on the Jumia online mall.

This provides SMEs with the opportunity to buy and use genuine products and solutions with payments in the local currency, helping to solve payment challenges. Innovative partnerships like these can really have a direct impact on SMEs and the challenges they face.

- The writer is head, strategic partnerships at Microsoft 4Afrika