Micro, small, and medium-sized enterprises (MSMEs) make up 90% of businesses in Africa and many of them can be found in Africa’s large, offline marketplaces. Nigeria’s Alaba International Market — the largest electronic market in the country — houses 10,000 merchants alone. To ensure these businesses don’t get left behind and to accelerate digitization on the continent, startups, corporations, and policymakers should encourage digital solutions for consumers and business owners in these marketplaces. Mobile phone transactions can help create a record of offline payments and informal savings systems, as well as help with inventory management and fulfillment systems. Studying the behavior of these customers and the MSMEs that serve them can make it possible to bridge the gaps that are keeping many offline.
Alaba International Market, the largest electronics market in Nigeria, is an age-old brick-and-mortar operation, home to more than 10,000 merchants with a $4 billion turnover yearly. These markets exist all over Africa — traders transact in huge volumes, selling everything from cattle to fabrics and electronics.
These non-digital, micro, small and medium enterprises (MSMEs) make up 90% of businesses on the continent. And they’re serving non-digital customers: Currently, less than half of the population in Africa uses the internet and only 24% shops online. “In Africa, our biggest competitor is cash. Around 95% of all transactions in Africa are in cash,” said Raghav Prasad, Mastercard’s division president in charge of sub-Saharan Africa.
There have been efforts to increase digitization all over Africa, both by private corporations and governments. For example, Microsoft recently announced a partnership with the government of Nigeria to accelerate the country’s digital economy by developing high-speed internet infrastructure and upskilling 5 million workers over the next three years.
However, to ensure that the bulk of Africa’s businesses are not left behind, startups, corporations, and policymakers driving digital transformation on the continent must create and encourage digital solutions for Africa’s large offline markets. In tandem with digital literacy and infrastructure projects, layering digital products on familiar offline activities can create more efficiency and scale in MSME operations.
For example, small business owners in parts of Nigeria often use local cooperative and thrift savings associations in which agents collect and manually record daily contributions from their customers. Nigerian startups have begun to digitize this informal savings system by simultaneously recording these transactions on mobile phones, thereby creating an opportunity for more formal banking arrangements without disrupting the process for thrift collectors or their customers. Customers can receive text messages documenting their transactions, and business owners can use these records to access scarce credit from third-party financiers and banks to scale their business. By collecting and aggregating data on many offline business activities, these efforts are also creating an opportunity for better data-driven innovations both in policymaking and technology.
Inventory management is another area of opportunity for digitizing MSMEs in Africa. The inability to keep up with sales and demand can be devastating for any business, and many of these MSMEs manually track their inventory, using intuition and written records to keep tabs on profits, needs and sales. Simple, mobile phone-based systems to organize inventory means merchants can input transactions as they happen, view available stock at a tap, and easily assess sales frequency.
Digital fulfillment is another transformative opportunity for MSMEs on the continent. Customers in remote areas who have to visit cities to buy certain goods can pool efforts to enjoy economies of scale and better manage the logistics of last mile-delivery. We’ve seen this in China, where consumers in smaller cities pioneered the Community Group Buying (CGB) concept during the Covid-19 pandemic. Grocery shoppers, for example, organized to collectively bargain on and bulk purchase items which were then delivered to and distributed by the community. Giant tech companies are investing in CGB which has been described as consistent with the government’s goal of connecting rural areas to the digital economy in China, and can serve a similar purpose in Africa.
Legacy companies (like banks and fast-moving consumer goods companies) with their vast resources, data and physical reach, and startups with their nimble approach to product development are uniquely positioned to digitize these offline opportunities. Through on-the-ground research, they’ve done the hard work of identifying pain points, facilitating the necessary solutions, and educating customers on the advantages of these digital efforts. Policy makers must support these solutions through constant engagement with stakeholders at all levels, particularly consumers, to achieve a thorough understanding of the problems being tackled without stifling innovation.
Studying the behavior patterns of non-internet consumers and the MSMEs that serve them will make it possible to bridge the gaps that keep this demographic offline — and accelerate the digital transformation of Africa’s mass market.