Annual Forum Papers

Determinants and Impact of ICT use for African SMEs: Implications for Rural South Africa

  • Year: 2001
  • Organisation: Center for Development Research (ZEF Bonn)
  • Author(s): Susanna Wolf

In most African countries small and medium enterprises (SME) account for a significant share of production and employment and are therefore directly connected to poverty alleviation. While in many respects the South African economy is different to that of other countries in the continent, for the poor population in the rural areas SMEs are also very relevant for employment and as an income source. Especially in developing countries SMEs are challenged by the globalisation of production and the shift in the importance of the various determinants of competitiveness. Through the rapid spread of information and communication technologies (ICT) and ever decreasing prices for communication, markets in different parts of the world become more integrated. Therefore, one basic question of this study is whether the use of ICT (as production technology, as information processing technology or as information communication technology) can help them to cope with these new challenges. The spread of ICT has led several commentators to argue that these technologies are creating a new economy – an information economy – in which information is the critical resource and basis for competition in all sectors – manufacturing and probably even more in services. Generally, from the performance perspective, the competitiveness effect of ICTs derives from the impact that ICTs have upon the productivity of the factor inputs. In this regard, ICTs can improve efficiency and increase productivity by different ways including, improving efficiency in resource allocation, reducing transaction costs, and technical improvement, leading to the outward shifting of the production function.

It is argued that in remote regions, the disadvantages that arise with isolation can be significantly lessened through access to rapid and inexpensive communication. However, there are also more pessimistic views that assume that the digital divide will increase and therefore producers in developing countries and especially in rural areas will face even greater disadvantages relative to their competitors in developed countries. Although South Africa is much more developed and its ICT infrastructure is far more advanced than in most Sub-Saharan African countries, in remote areas with a poor population similar difficulties as in other African countries exist with respect to education, unemployment, ICT infrastructure and role of the SME sector and therefore the above questions are also relevant.

So far there is little empirical evidence of how the diffusion and application of information and communication technologies (ICTs) can be a catalyst for economic competitiveness and growth in developing countries. After a review of the macroeconomics of ICT diffusion and growth effects in this study, we therefore particularly focus on how micro-level competitiveness is influenced by ICTs using enterprise survey data from two East African countries: Tanzania and Kenya. In so doing, we also account for other factors that obviously influence competitiveness. Hence, the analysis incorporates also the influence of the enterprise resources in terms of factor inputs, because the performance is partly a function of the resources that are invested in such basic factor inputs as labour, physical capital, and production materials. Besides, the saliencies of African SMEs (e.g., relatively small size and young age by international comparisons, and human capital stock) are drawn into the analysis. As the food processing, textiles and tourism sector, where we have conducted our empirical analysis of East African SMEs, are also of considerable importance for South Africa, we can draw some conclusions and develop policy recommendations, that are relevant especially for rural South African SMEs.