Information and communication technologies for business in East Africa

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 theCenter for Development Research (ZEF, Bonn University) analyses the impact of information and communicationtechnologies (ICTs) on the performance of small and medium scale enterprises(SMEs) in Kenya and Tanzania. The research looks at three sectors that areimportant to both countries’ economies: food processing, textiles and tourism.Many SMEs in these sectors invested in new technologies to some extent duringthe 1990s.

ICTs, including telephones, mobile phones, faxes andcomputers, can improve a company’s performance in a number of ways, for exampleby reducing labour costs and increasing profitability. The Internet and emailcan help SMEs find customers outside their local area (including exportmarkets) and make communicating with clients in other countries cheaper andeasier.

But technologies designed inrich countries do not always increase efficiency and profitability in poorcountries. Labour is often already cheap, so labour saving through ICTs may notincrease profitability. Workers may also lack the skills necessary to make thebest use of the technology. And the impact of one SME investing in ICTs will belimited where most local businesses have not yet invested, particularly wheremost 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 touse the IT equipment effectively.
• Higher levels ofinvestment in ICTs are linked to having a larger workforce (ICTs are notnecessarily labour saving).
• Investment inICTs has a positive impact on market expansion, especially if it is combinedwith other investment.
• Smallerbusinesses are just as likely as larger ones to benefit from investment in newtechnologies in terms of market expansion.
• Investment inICTs does not necessarily lead to increased exports. This may be because ofother constraining factors (infrastructure, banking systems).

The authors emphasise theneed for:

• measures toensure a competitive market in EastAfrica, so as to cut ICT costs and improve quality
• governments anddonors to view ICTs as just one of many ways to improve SME performance and toplace ICT policies in a broader framework for private sector development
• more research on enhancing ICT impacts on SMEs, and on potentialICT impacts such as improved networks, better product quality and betterservices.