How capacity constraints might rob small tech-companies of the opportunities presented by COVID-19 to the digital economy
Authored by: Jerioth Mwaura (Project Lead, Youth Impact Labs) and Mercy David (Research Intern, Youth Impact Labs)
COVID-19 has presented an opportunity to accelerate digital transformation in Kenya. Since the first positive case of COVID-19 was reported in mid-March, the Kenyan government issued a raft of directives to curb the spread of the pandemic including an international travel ban, a night-time curfew, cessation of movement into and out of the Nairobi Metropolitan area, and Kilifi, Kwale and Mombasa counties as well as directives for workers to stay at home where possible. These containment measures have significantly disrupted supply chains, reduced foot traffic in brick and mortar stores and affected the operations of most small businesses. The challenges brought about by the crisis have driven rapid adoption of technology among businesses and consumers as businesses to online platforms while consumers have turned to their phones and laptops to purchase essential goods and services.
In the last two months, the country has witnessed a frenzy of online business activity including partnerships between large retail chains and online platforms, pivoting among digital logistics firms to focus on home deliveries, and leveraging tech to enhance food distribution. While digital solutions have stepped up and helped mitigate economic losses by managing the loop between suppliers and consumers, this shift has exposed the capacity challenges within Kenya’s digital economy as various platforms grapple to substantially expand their capacity to serve a larger client base.
The digital platforms including e-commerce and e-logistics solutions are playing a key role in Kenya’s response to the pandemic and have given the retail industry and markets a life line. Farmers that were stranded with thousands of goats and chicken due to reduced demand from restaurants can sell their products online through platforms such as Herdy Fresh; pharmacies that were experiencing reduced demand can deliver over the counter medical drugs directly to customers through logistics solutions such as GetBoda and thousands of micro-traders that were affected by reduced foot traffic can create webshops on e-commerce platforms such as Sky. Garden.
At the onset of the pandemic, consumers resorted to panic buying of essential goods as they feared that containment measures would result in shortages. The characteristics of shopping baskets also changed as consumers shopped for groceries, office furniture, and laptops to set up home offices. The increased demand was also fueled by strategic partnerships with restaurants, supermarkets, pharmacies, farmers and other suppliers that were shifting to online solutions.
The sudden increase in demand revealed the technical, financial, and human capacity limitations in the digital economy.
COVID 19 has exposed weaknesses in the supply chain and highlighted the need to invest in robust procurement and quality assurance capacity among digital platforms. Some merchants on major e-commerce platforms rely heavily on imports from China. The shutdown of global travel and air traffic disrupted supply chains for many MSMEs and e-commerce platforms and resulted in stock-outs. Restriction of movement outside of the Nairobi metropolitan area also disrupted the supply chain of farm products sourced from rural areas. While the Government allowed movement of essential service providers, on the ground logistics providers were forced to swiftly engage new suppliers to keep up with the increasing demand and avoid disruptions. Herdy — an e-commerce platform that sources and delivers fresh meat online– previously relied on supplies from farms located outside of Nairobi. At the wake of the pandemic, the firm quickly pivoted by finding new suppliers within the metropolitan boundaries to ensure that they could source fresh meat on demand. For most e-commerce platforms, this translated to structuring new engagements and devising new engagement protocols that would be followed by the new suppliers. Overall, the pressure to engage new local suppliers has tested the effectiveness of the supply policies and has become the litmus test for digital platforms’ ability to lead the digital transformation. While having a robust tech infrastructure is key, the ability to seamlessly source a diverse range of goods quickly while ensuring quality and safety standards demonstrates the need for platforms to further invest in their procurement and quality assurance capacity.
Integration with new partners has stretched the tech platform’s technical capacity. Numerous brick and mortar stores have knocked the doors of digital platforms seeking to forge strategic partnerships. Partnerships such as Tuskys and Sendy, Mydawa and Getboda, Twiga and Jumia have contributed to increased traffic on digital platforms.With every new partnership, the platform has to dedicate resources to facilitate seamless tech integration. While some platforms have local tech teams that were able to ensure rapid integration, some platforms reported delays and bugs as they sought to rapidly integrate with partners.
Pivoting to diversify services and implementation strategies has strained the platforms’ human resource capacity. Like most technology businesses, digital platforms operate lean teams to ensure cost-efficiency. As expected, the sudden increase in demand strained existing capacity and in some cases drove firms to hire consultants to complement their capacity. To effectively pivot, platforms have adopted new operation protocols or hired specialists to help them navigate the process of diversifying their services. Lack of diversification of skills among some platform teams resulted in the platforms missing crucial opportunities to expand and diversify. For instance, moving into food delivery services has meant that logistics platforms hire hygiene officers to help them comply with the government directives for food transportation. Additionally, this requires special permits and government approvals to ensure that they meet the parameters set by the government.
Consistent Cash flow has been a challenge in the digital platform. Majority of businesses surveyed following the COVID-19 crisis reported having only 2–4 months of runway due to dwindling revenues. The Central Bank of Kenya recently highlighted that 75% of SMEs in Kenya risk collapse if they don’t get fresh funding by the end of June. In addition, firms that were in the middle of fundraising reported that investors halted all processes at the onset of COVID-19 crisis. The demand surge necessitated a huge investment in inventory, technology, human resources and safety measures which further strained the platform’s cash flow.
The capacity constraints experienced by digital platforms have highlighted the need for ecosystem support to bolster the growth of digital platforms. The COVID-19 crisis has presented a great opportunity to accelerate the digital transformation of Kenyan businesses, however, technology, human resource, and funding constraints threaten to rob the sector of the opportunity to grab the opportunity and thrive.
Youth Impact Labs has been working closely with several digital platforms to provide working capital grants. The grants are aimed at helping the platforms increase human resources and technical capacity to expand their services as well as purchase inventory required to meet the demand. While working capital grants are important stop-gap measures additional investment from commercial sources is required for digital platforms to grow rapidly and realize the digitization dream.
About Mercy Corps Youth Impact Labs
Catalyzed by funding from Google.org, Mercy Corps’ Youth Impact Labs (YIL) identifies and tests creative, technology-enabled solutions to tackle global youth unemployment, accelerating job creation, so every young person has the opportunity for dignified, purposeful work. In Kenya, YIL focuses on digital marketplaces and platforms that offer services to micro and small businesses; agricultural supply chain management; and digital work.
The program supports these enterprises through financial and technical support, issued in the form of milestone-based grants. Through our post-investment support, on-boarded partners also get access to advisory services to support the development of technology solutions and tailored business support service to actualize scale.
Follow more information about Youth Impact Labs please visit:
Facebook / Twitter / LinkedIn / Instagram / Website
