Information and communication technologies are often assumed to be good for business. Those who support the spread of such technologies argue that they help businesses cut labour costs and find new customers, increasing their profitability. But it is unclear whether this applies to small and medium enterprises in East Africa.
Research conducted at the Center for Development Research (ZEF, Bonn University) analyses the impact of information and communication technologies (ICTs) on the performance of small and medium scale enterprises (SMEs) in Kenya and Tanzania. The research looks at three sectors that are important to both countries’ economies: food processing, textiles and tourism. Many SMEs in these sectors invested in new technologies to some extent during the 1990s.
ICTs, including telephones, mobile phones, faxes and computers, can improve a company’s performance in a number of ways, for example by reducing labour costs and increasing profitability. The Internet and email can help SMEs find customers outside their local area (including export markets) and make communicating with clients in other countries cheaper and easier.
But technologies designed in rich countries do not always increase efficiency and profitability in poor countries. Labour is often already cheap, so labour saving through ICTs may not increase profitability. Workers may also lack the skills necessary to make the best use of the technology. And the impact of one SME investing in ICTs will be limited where most local businesses have not yet invested, particularly where most businesses operate locally or regionally, as is the case in East Africa.
The research shows that:
- Investment in ICTs does not have a measurable impact on profitability, which might be due to the fact that firms do not have the necessary skills to use the IT equipment effectively.
- Higher levels of investment in ICTs are linked to having a larger workforce (ICTs are not necessarily labour saving).
- Investment in ICTs has a positive impact on market expansion, especially if it is combined with other investment.
- Smaller businesses are just as likely as larger ones to benefit from investment in new technologies in terms of market expansion.
- Investment in ICTs does not necessarily lead to increased exports. This may be because of other constraining factors (infrastructure, banking systems).
The authors emphasise the need for:
- measures to ensure a competitive market in East Africa, so as to cut ICT costs and improve quality
- governments and donors to view ICTs as just one of many ways to improve SME performance and to place ICT policies in a broader framework for private sector development
- more research on enhancing ICT impacts on SMEs, and on potential ICT impacts such as improved networks, better product quality and better services.
Source(s):
‘Investments in ICT-Capital and Economic Performance of Small and Medium
Scale Enterprises in East Africa’, Journal of International Development 18,
pages 533-552, by Shyamal Chowdhury and Susanna Wolf, 2006
Funded by:
Alexander-von-Humboldt Foundation
id21 Research Highlight: 9 March 2007
Further Information:
Shyamal Chowdhury
International Food Policy Research Institute
2033 K Street, NW
Washington DC 20006-1002
USA
Tel:
+1 202 8625600
Fax:
+1 202 4674439
Contact the contributor: S.Chowdhury@cgiar.org
International Food Policy Research Institute
Susanna Wolf
Trade Finance and Economic Development Division
UN Economic Commission for Africa
Menelik II Ave
P.O. Box 3001
Addis Ababa, Ethiopia
Tel:
+251 11 5443172
Fax:
+251 11 5513038
Contact the contributor: swolf@uneca.org
UN Economic Commission for Africa
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