Keeping track

Small enterprises that are digitally enabled have a definitive upper hand

Keeping track

Tropes about digital technology can seem a little condescending from a small-business perspective. Bankers, academics and multilaterals often speak as if digital enablement has to be ‘delivered’ from the top-down to a rather helpless set of struggling small companies, which will of course be extremely grateful for the boon.

This is almost the opposite of how things are playing out in the small-business space in SA and the continent more widely. Small enterprises are seizing the moment, whenever it makes business sense. Small-business operators tend to be extremely savvy about what they do to earn a living.

This is especially true in trade, the biggest informal and semi-formal business activity in SA’s urban areas, where small entrepreneurs are intensely aware of narrow margins, logistical issues and problems accessing credit. It is seldom admitted in boardrooms but most pavement hawkers are better business people than the suits in the executive office. Banks are simply not liked nor trusted in this space. Their requirements seem obscure, their processes bureaucratic and small entrepreneurs are often terrified that they will spend years paying for products they did not know they were buying (such as an insurance policy attached to a loan).

This is why hardcore profit-making business intermediaries are achieving such success in Africa. Earlier this year the Financial Times, in collaboration with data researcher Statista, published an index of the 75 fastest-growing indigenous companies in Africa. The list, especially near the top end, is dominated by digital enablers. Half of the top 20 companies on the index are fintech, e-commerce or technology businesses.

The fastest-growing firm, Kenya’s Wasoko, delivered a CAGR of 346% per year for the four years to 2020. It grew turnover from $300 000 in 2017 to $27.4 million in 2020. What Wasoko does is uses an e-platform to deliver goods and credit more efficiently to informal retailers. Previously, the owner/operator of a spaza would have to travel to a wholesaler (an act that in itself might be fraught with difficulty), pay cash for whatever goods they were able to carry and then return to their shop to sell their new stock. End retail in Africa tends to be a hand-to-mouth way of doing business because, previously, spazas couldn’t carry much inventory, offer much range, obtain (or offer) credit, and were painfully vulnerable to criminals.

Now, in Kenya, spaza owners can subscribe to Wasoko’s business-to-business platform, order online and have stock delivered to their outlet. This deals directly with the well-known problem of ‘last-mile’ distribution in Africa’s burgeoning informal urban settlements.

In KwaZulu-Natal, a new start-up, Thumela, offers a last-mile logistics solution by piggy-backing on the minibus-taxi industry. Founder Zamokuhle Thwala says the business has picked up traction among entrepreneurs who sell things such as cosmetics, clothing and hair products via e-market places and WhatsApp.

By aggregating demand, digital enablers allow spaza owners to place orders using their mobile phones, carry more diverse stock and offer it more cheaply to customers. Perhaps most important, from a developmental perspective, is that enablers keep records that allow their customers to build a credit profile. It’s a powerful method of financing because it’s strongly de-risked, with digital enablers acting as trusted suppliers.

Digital enablers who succeed do so because they are trusted. Small companies find their conditions and requirements clear, simple and transparent. Above all, they meet a business need as perceived by entrepreneurs.

By David Christianson