## Digital Solutions for Small Businesses in the Middle East and North Africa

_IMF Blog, September 22, 2020_

## Source details

**Canonical URL:** [Digital Solutions for Small Businesses in the Middle East and North Africa](https://www.imf.org/en/blogs/articles/2020/09/22/blog-digital-solutions-for-small-businesses-in-the-mena)

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## Bibliographic details
- Authors: Inutu Lukonga
- Published: September 22, 2020

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### Overview and key facts
- Small and medium-sized enterprises (SMEs) account for more than 90 percent of the region’s businesses.
- In some countries, SMEs contribute as much as 50 percent of employment and 70 percent of GDP.
- SMEs face limited access to credit, unfavorable business environments, and talent gaps that constrain growth and employment contributions.
- SMEs in the region have been slow to embrace digital technologies and e-commerce; businesses trail governments and consumers in internet usage.
- Consumers are rapidly shifting to online shopping and increasingly prefer rapid and convenient services, creating competitive pressure for SMEs to adopt digital solutions.

### Potential benefits of digital technologies for SMEs
- Emerging technologies and broadband internet can facilitate:
  - operational efficiencies,
  - innovation,
  - access to markets and finance,
  - ability for firms to operate remotely during lockdowns.
- Remote working can help integrate women and youth in the labor market.

### Supply-side constraints and recommended reforms
- Infrastructure and market structure:
  - While all countries have easy access to international fiber optic networks, many maintain barriers to entry such as government monopolies or restrictions on foreign participation and network peering.
  - High capital investment requirements have slowed deployment of advanced network technologies and internet exchange points.
  - Apart from the Gulf Cooperation Council states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (GCC), many countries have limited access to high speed broadband internet; internet services are often slow, unreliable, and unaffordable.
- Digital skills and labor market:
  - Digital skills are in short supply across the Middle East and North Africa region.
  - Some countries with high levels of digital expertise, such as Lebanon and Egypt, sometimes suffer brain drain to higher income countries, including the GCC.
  - Recommended actions: mandate science, technology, engineering and mathematics subjects; provide technical and vocational education and training through public-private partnerships; ease labor restrictions to facilitate expatriates in highly technical areas.
- Logistics and utilities:
  - Deficiencies in E-commerce logistics—unified address systems, area codes, postal service, land and customs clearance—delay delivery and increase costs for online trading.
  - Reliability of electricity is essential to internet functioning and requires improvement.
- Digital financial infrastructure:
  - Infrastructure and instruments for accepting electronic payments—such as point-of-sale terminals, credit and debit cards—have limited penetration.
  - Payment systems are mostly not interoperable.
  - Regulatory and other reforms are essential to facilitate development of digital financial infrastructures.
- Public sector digitalization:
  - Digitalization of government services and procurement can incentivize SMEs to digitalize, given the significant size of the public sector and prevalence of payments to and from governments.

### Demand-side constraints and recommended reforms
- Digital usage gap:
  - The digital usage gap—the disparity between people who live in areas covered by broadband but who are not using internet—is several times the coverage gap, indicating demand constraints beyond availability.
- Measures to increase demand:
  - Develop digital literacy and awareness programs.
  - Foster consumer trust by strengthening frameworks for cybersecurity, digital identification, data privacy, and consumer protection.
- Specific demand-side issues:
  - Consumers reportedly do not trust websites to handle their information and are unaware of their consumer rights.
  - Large segments of populations in some countries are not connected to the internet and are unbanked.
  - In parts of the region, including North Africa and Iran, ownership of smartphones and other internet-enabled devices is below the global average.

### Enabling reforms to realize digital benefits
- The digital strategy must be underpinned by financial sector and business environment reforms, including:
  - strengthening financial infrastructures—credit registries and bureaus, modernized bankruptcy laws, collateral registries;
  - business support measures to help SMEs access credit.

*Source: Digital Solutions for Small Businesses in the Middle East and North Africa (Inutu Lukonga, September 22, 2020).*

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_Source: https://www.imf.org/en/blogs/articles/2020/09/22/blog-digital-solutions-for-small-businesses-in-the-mena_