Amid the restrictions introduced to stop the spread of the Covid-19 pandemic, small and medium enterprises (SMEs) have gone digital in a bid to boost their market share and grow sales.
Recent studies on Kenya’s SME sector indicate that the majority of the country’s business owners are increasingly relying on digital marketing to reach new clients and navigate a difficult operating environment.
A new report by think tank Genesis Analytics found that a combination of affordable devices, young population and a diverse economy can create a thriving ecosystem for entrepreneurs in the country to growing their businesses despite the existing challenges.
“Digital adoption by Small and Medium Businesses (SMBs) is correlated with higher rates of employment creation and growth,” explained the report in part. “This is because digital tools dramatically lower barriers to entry and improve the efficiency of businesses.”
According to the report, Kenya ranked highest in Sub-Saharan Africa in digital skills such as computer literacy, basic coding and digital reading even as the region lagged behind global averages.
“While the world median score in 2019 was 4.2, sub-Saharan Africa’s median score was 3.7,” stated the report. “Among the sample countries, Kenya ranked highest in the global rankings for digital skills at 48th out of 141 countries while South Africa ranked the lowest at 126.”
In recent years Kenya has ramped up efforts to fuel a digital-led economy and several initiatives by both the private sector and government have seen billions of shillings invested into equipping the labour force with digital skills.
Programmes like the State-run Ajira Digital Skills programme have seen thousands of young entrepreneurs receive training, mentorship and online work placements with the government looking to expand the same to universities and colleges.
According to the report, business owners leverage on the data and creative information generated by and shared on social media platforms that is relevant to their enterprises to find new customers and markets.
In addition to this, the applications such as e-commerce, digital payment and communication tools facilitate digital transactions and cut high administrative costs that many small businesses find prohibitive.
Power of refferals
While in the past businesses relied on their websites as the online premises to showcase their products and services to new customers, sites like Facebook and Instagram have gradually become the central locations.
For some business owners, however, digital marketing only serves to complement offline traditional marketing which remains crucial to their enterprises. Peter Kabugi, founder of SmartPic Productions, a firm that produces audio visual content for both individual and corporate clients, social media is useful for boosting their online presence, but only to a certain extent.
“A lot of our new business comes from referrals where people we’ve done work for in the past refer their friends and family to us,” he explained.
“We have a large portfolio of work we’ve done and we put some of it on Facebook so when people search for our business they can see what we’ve done,” he says.
SmartPic Productions has more than 1,700 followers on Facebook and Kabugi says the company sometimes pays for ads on the social networking giant to reach more potential clients.
“We’ve bought ads several times in the past but it is difficult to say whether they translate to sales because the offline channels like referrals still give us most of our business,” he says.
“I don’t think one can rely on just one channel because following up clients with phone calls and networking is equally important as having a digital presence.”
According to the report, some businesses are unable to tap into the opportunities that platforms such as Facebook, WhatsApp and Instagram have to offer due to several limitations.
“Problems with network connectivity and device access usually manifests in affordability constraints,” stated the report in part. “SMBs can be locked out of the digital economy because of the high cost of owning digital devices and using the internet relative to low business revenues.”
Of the 500 businesses surveyed in Kenya, 23 per cent cited the cost of internet usage and mobile data as the limiting factor to digital marketing while 16 per cent stated that mistrust for the platforms is a hindrance.
The study also found that low adoption of digital tools, particularly in difficult operating environments correlated with lower revenue and growth projections relative to business that have gone digital.
For example, Mauritius stood out as a unique case of poor social media penetration with most businesses reporting to be in a low-growth state and most likely to have negative revenue expectations.
According to the report, 35 per cent of firms in Mauritius stated that lack of awareness of whether social media was relevant to their business or customers held them back from the platforms while 11 per cent cited lack of skills.
“Rather than using alternatives to social media for marketing and promotion, 81 per cent of non-users of social media report not using any alternative form of online marketing such as SMS, email or website,” stated the report.
A big portion of non-users (85 per cent) also reported that they did not utilise any other offline channels such as physical shops, outdoor advertising, print media or radio advertising.
The report recommends policy interventions by the government to assist bring down the cost of digital tools, including low or zero-rated taxes on internet usage and mobile data as well as incentives for companies putting up digital infrastructure in rural areas.
“A good spectrum management and licensing regime should ensure there is a ready supply of spectrum in low, medium and high frequency bands to reduce barriers to entry for service providers and encourage competition and innovation across a wide range of broadband use cases,” stated the report.
President Uhuru Kenyatta on Thursday assented to the Finance Bill 2021 which introduced new taxes on digital services, airtime and internet data in a move criticised by many as retrogressive to the growing digital landscape.
In terms of taxes, the report recommends that regulators asses ICT and digital device taxes to determine whether short-term reductions in tax revenue could be offset by longer-term increases in revenue as the size of the digital economy grows.