Boosting small businesses through e-commerce and value chain integration
SMALL BUSINESSES ARE the backbone of the global economy, accounting for around 50% of employment and 90% of business.
Helping micro, small and medium-sized enterprises (MSMEs) to grow is central to poverty reduction.
E-commerce and integration into value chains can be particularly effective in enabling MSMEs to compete and grow, which can lead to improved incomes and job creation.
Participation in value chains connects MSMEs to suppliers, processors, buyers and other actors, opening up access to valuable market information, establishing links with sources of finance, improving product quality and allowing products to grow. be adapted to meet specific or changing demands.
As noted in the “World Development Report 2020, Trade for Development”, the participation of MSMEs in e-commerce and other digital platforms – such as service provision in catering services, accommodation and other sectors – can make it easier to sell goods and services, reduce the costs of entering markets and the costs of doing business, and boost the productivity and profits of MSMEs.
The transformation potential of e-commerce is illustrated by the example of Taobao in China.
E-commerce has led to an increase in MSME sales in standardized, labor-intensive products such as clothing and footwear, as well as niche products, by enabling “entrepreneurs to connect remotely with consumers through improved website design, to establish a brand and to tailor products to specific demands”.
This led to an increase in online retail sales in rural China between 2014 and 2017, from RMB 180 billion to RMB 1,240 billion.
Jumia is a leader in e-commerce in Africa, operating in markets including Egypt, Nigeria, Kenya, Morocco and South Africa.
Jumia both sells goods and offers a marketplace for third-party sellers. Jumia has opened up access to small-scale producers as well as large companies, for example Twiga Foods in Kenya signed a partnership agreement with Jumia to allow customers to purchase fresh produce from small-scale farmers on Jumia’s platform.
However, Jumia, like other e-commerce players, faces significant challenges in many African markets, as evidenced by a relatively high rate of cancellations, failed deliveries and returns.
The growth of e-commerce and other digital platforms in low-income countries faces a number of challenges.
These include restricted internet and cellular access, relatively high data usage costs, low levels of access to safe and low-cost digital payments, and the lack of a rigorous address system in many places.
Weak legal and regulatory frameworks for digital transactions, data usage and consumer rights also hamper the potential benefits of e-commerce and value chain development, while poor road conditions hinder the reach of e-commerce. and consumer participation. rural MSMEs.
Hybrid models offer a potential interim solution while the supporting pillars of a digital economy are put in place.
For example, sector-specific platforms have begun to flourish, including in sectors where information asymmetries are significant.
Additionally, orders can be placed online with payment made in cash “on delivery”, and where networks of pick-up stations are used instead of delivery to non-specific addresses.
Informal e-commerce, for example using WhatsApp or Instagram to reach buyers via social media, is also widely used by micro-enterprises for marketing, receiving orders and reducing transaction costs, especially by women. .
A study by IFC found that women in Africa particularly benefit from e-commerce by accessing new markets and through greater flexibility.
The report finds that women are more likely to join an e-commerce platform such as Jumia to grow an existing business (as opposed to starting a new one), and also need additional support to grow their business further. its full potential.
In recent months, I have traveled to Angola, Burundi, Lesotho, Democratic Republic of Congo (DRC) and Mozambique to support the preparation of new World Bank projects that will boost the growth of MSMEs through e-commerce and to other digital platforms, and through integration. with value chains.
We have launched projects that harness the transformative potential of value chains in Mozambique and Malawi, and open up market access for women and young entrepreneurs in the DRC.
A new $300 million project to open access to finance, value chains, digital technologies and support services to entrepreneurs in the DRC has now been approved, along with a new project to integrate MSMEs value chains and supporting trade facilitation and climate resilience of MSMEs. in Lesotho.
*Douglas Pearce is Practice Leader for Eastern/Southern Africa in the Global Finance, Competitiveness and Innovation Practice at the World Bank Group.