Electronic transfers

Digital and Financial Inclusion in Post-Covid Eastern and Southern Africa

“Never let a good crisis go to waste,” an inspirational quote from Churchill, pairs well with the business strategy lessons the world should learn from the COVID-19 pandemic. Most governments and the private sector have responded quickly to studies on the treatment and prevention of COVID-19. Yes, human life was saved, but their sources of income were at stake! Due to the pandemic, government-mandated closings and closures have affected the smooth operation of physical businesses. Essentially, only nimble businesses that have adopted e-commerce systems have remained viable.

The lack of agility of e-commerce systems during the pandemic has eliminated 4 million jobs in Africa. The situation was even worse for micro, small and medium-sized enterprises (MSMEs) in the COMESA region (COMESA is the Common Market for Eastern and Southern Africa). Thus, our team embarked on a research study to assess digital financial inclusion in the COMESA region through the adoption of e-commerce by MSMEs.

We collected data from SMEs in five COMESA countries: Eswatini, Kenya, Rwanda, Zambia and Zimbabwe. The study revealed some interesting statistics about the COMESA region which reflected an increase in the use of digital platforms for businesses. The dynamic trend of e-commerce adoption among MSMEs in the COMESA region has shown a positive trend towards the adoption of e-commerce tools/platforms and technologies. This has been demonstrated by the increasing number of MSMEs using e-platforms, electronic devices and e-commerce platforms between countries.

Nuggets we bring to the world
The largest proportion of e-commerce users were found in Kenya, Rwanda and Zambia. Southern African countries (Zimbabwe and Eswatini) had a slightly lower adoption rate than East African countries (Kenya and Rwanda). The top e-commerce platforms used, across all focus countries, were websites, social media, mobile money apps, and the internet, in that order. However, the more educated respondents were, the further they moved away from over-reliance on social media to websites. Social media was the most widely used e-commerce platform for new MSMEs, with an operating experience of less than a year, social media gradually declined as businesses acquired more years of operating experience. Conversely, website usage increased gradually as companies gained more operating experience.

In Zambia, Rwanda and Kenya, at least 70% of MSMEs had access to internet banking services; the rate was around 60% in Eswatini. Zimbabwe was the only country where the majority of MSMEs did not have access to internet banking services. Money market accounts were commonly used in MSME business activities in Rwanda, Kenya and Eswatini. Wire transfers were mainly used in Zambia and Zimbabwe. Mobile money transfer was the dominant mobile money application and service in all MSMEs in the region. Mobile payments and mobile banking did not constitute a significant proportion.

Our study further showed that the major determinants of e-commerce adoption in the COMESA region are not entirely explained by the theoretical drivers of technology adoption. There was no statistical evidence to support the idea that e-business is driven by the simplicity of e-platforms, the value of e-business, social support, e-business infrastructure, or intrinsic factors. The study, however, found that years in business, years of using e-commerce platforms, and country differences impact decisions to adopt e-commerce. On the other hand, the results also showed that the adoption of e-commerce does not have a significant link with digital financial inclusion in the region.

How to bridge the gap between e-commerce and digital financial inclusion in COMESA
In light of our finding, we noted that for the COMESA region to reap the full digital benefits of e-commerce and digital finance, there is a need to support the establishment and development of e-commerce models that align with the country. needs of MSMEs at the base of the economy. A blanket approach within COMESA may not yield positive results due to differences in enabling environments among COMESA member states. We also note the need for the transition from cash to digital mechanisms for e-commerce platforms and to stimulate demand and support for the transformation of micro-traders to formal e-commerce platforms. Given that the cost of acquiring data and devices has been highlighted as a major deterrent to e-commerce adoption, we believe that reducing the cost of internet devices and data will give MSMEs the opportunity to acquire and use the various digital platforms.