Digitization is critical for growth of SMEs

By Phyllis Wakiaga

The commitment by the Government to accord more support to SMEs comes at a critical time when the manufacturing sector is expected to create 1.3 million jobs and contribute 15% to GDP by 2022. 

This is also a time when the fourth industrial revolution is changing the landscape of manufacturing. Currently, we are seeing an increase in the use of digital technologies at all points along the Global Value Chains, from design of products, automation in production and e-commerce in retail. 

It is no secret that SMEs are the drivers of our economy. According to the 2017 Economic Survey, it is estimated that about 7.5 million Kenya Micro, Small and Medium Enterprises (MSMEs) contribute approximately 40% to the Kenyan GDP. This is hence the most critical time that we examine how digitization will impact the growth and expansion of manufacturing SMEs in the country.

For the manufacturing sector to create the much needed jobs and raise its contribution to the economy, it means that industry needs to increase its production capacity, product diversity and return on investment. However, this can only be achieved by the use of up to date technology, systems and machinery.

According to 2018 Report on How to Grow Manufacturing and Create Jobs in a Digital economy, SMEs are the least prepared in building digital capacities, with only 20 – 40% having an IT policy in place, 65% have web presence and less than 25% use cloud computing. For SMEs to leverage on digital technology, there is need to close the digital divide if they are to increase their production capacity, whilst remaining competitive in the global market.

One of the major concerns in the use of digital technologies in the manufacturing sector is its impact on jobs. According to the 2012 Global Information Technology Report, 10% increase in a country’s ‘digitization index’ can led to a 0.75% growth in its GDP.  

For instance, A to Z Textiles Mills of Tanzania introduced a modern laser fabric cutting machine, to create 25, 000 – 30, 000 pieces of fabric in one shift with a total of 17 employees. To produce similar amount manually requires 25 to 35 people. Due to the increased output rate that resulted in higher volume of accurately cut fabric, the company increased labour employment in the next stage of production – stitching, which demanded specialized skills to operate sewing machine.  It is estimated that roughly 300 extra jobs were created. 

To fully benefit from digitization, it is crucial for Kenya to provides financial support to SMEs, startups and technological and innovation hubs. This means that SMEs will be in a position to have enough capital to purchase the latest machinery for production. On the other hand, technology and innovation hubs will provide SMEs with a platform to diversify their products, in line with the market and as well as compete with global brands.

It is also time that we further develop skills in line with industrial demands and global trends. We need to include Science, Technology, Engineering and Maths (STEM) subjects in our curriculum. More so, we need to provide better Technical and Vocational Education and Training (TVET) through public – private partnerships. 

This is where the current phase of TVET, the Competency Based Education and Training (CBET) comes in. CBET is outcome based, demand driven, industry centered and flexible. Through such programs, industry has an opportunity to train technical graduates on existing machinery as they get ready for the job market.

Lastly, it is important that we develop a digital industrial policy, that is embedded into the wider industrial policy, with the aim of improving firm efficiency and inclusive development. The digital policy would look at improving access to internet and digital technologies, improved firm level capabilities by encouraging innovation, research and development, fostering competitiveness of industry and enabling regulatory environment.

The writer is the CEO of Kenya Association of Manufacturers and the UN Global Compact Network Representative for Kenya. She can be reached at ceo@kam.co.ke.