About 90% of African businesses—over 100 million—are categorised as Micro and Small Medium Enterprises (MSMEs). They are responsible for 70% of the total employment and represent up to 40% of GDP.
The problem is that these small businesses struggle to grow. The MSME industry is fragmented and inefficient. MSME owners have challenges accessing credit, bulk discounts due to their low volumes, and their risk aversion means they generally lag behind consumer trends, making them vulnerable to competition from a growing range of e-commerce players.
The Problem: Slow MSME Growth in Emerging Markets
Given their contribution to economic activity and employment, MSMEs are a critical vehicle for socio-economic development in Africa. These businesses are the key to Africa’s economic transformation. They remain the heart of their communities, but their struggle to grow and thrive limits the value they deliver to the continent.
One challenge MSMEs face is access to working capital: African MSMEs receive roughly $70 billion in working capital finance each year; the credit gap exceeds $400 billion.1 This huge shortfall exists because lending to MSMEs is considered riskier than other forms of lending as MSMEs often lack acceptable assets for collateral or verifiable income data. Without access to credit, MSMEs cannot leverage essential growth opportunities such as building inventory, hiring staff, investing in expansion, etc. They cannot grow.
Access to credit is not the only problem that MSMEs face.
Consider retail MSMEs who are often at the bottom of the distribution chain. As MSMEs, they have weak purchasing power. Without access to credit, they have to buy little and often, sourcing from different suppliers. As they cannot negotiate wholesale prices with distributors, they face higher costs for their supplies.
Their suppliers also face difficulties. African societies are more reliant on cash, meaning suppliers often have to accept payment-on-delivery, which is riskier. African retail also has a ‘last mile’ problem: the final leg of goods delivery is expensive as it typically involves multiple stops with low drop sizes, where one or two deliveries could be several miles apart. Finally, there are often many layers between suppliers and small retailers (e.g., agents), and, in a disorganised market, suppliers have little visibility of retailers and vice versa.
We can see the constraints faced by a retail MSME in Africa in this snapshot. Ade, a small shop owner, has been unable to increase her revenues. Although she has identified that hiring another employee would allow her to expand, she does not have the cash to hire. The cash she has is spent on buying stock that keeps getting more expensive.
The constraints of the African MSME market are inhibiting Ade from providing more employment opportunities and creating greater economic value in her local market.
Boost can support Ade to deliver all the value she can.
The Future: Boost
Boost aims to unlock MSME growth in emerging markets. It does so by giving these businesses easy access to tools that ease pain points in their business processes. Boost targets retail MSMEs, the largest cluster of small businesses in Africa. In Nigeria, for example, about 55% of small businesses are retailers and wholesalers.
Boost’s immediate value offering is a mobile stock ordering solution that connects retailers to suppliers through a low-data site accessed through a connected WhatsApp platform. Using WhatsApp as the gateway to the ordering platform makes the site accessible to most retailers with mobile phones.
Perhaps the most interesting thing about Boost’s strategy is that they have gone pan-African quickly, with fast-growing operations already established in Ghana, South Africa, and Nigeria.
They have created a system where a retail MSME customer can access stock directly from suppliers at competitive prices. Boost aggregates products and makes them visible in their product catalogue for the retailer to browse on their mobile, and organizes delivery of purchased products directly to her shop. She saves time, hassle, and money from having to source and move stock herself. In addition, if she orders continuously, she will qualify for a stock boost on payment terms to grow her sales and ensure she can meet her demand.
Source : future.africa