Recession: Why Investing In Digital Technologies Is Strategic

By: Ceasar Keluro

This recession offers businesses, including MSMEs the opportunity to harness the process of ‘creative destruction’ to accelerate the operational shifts towards a stronger and a more supportable economic future. It demands deft investments in intangible assets (knowledge-based activities) and machinery, equipment and buildings. To attain a sustainable recovery, one built on a stronger, cleaner, inclusive future for all, African firms would need to become research-intense firms by taking advantage of this crisis to reinforce market leadership through increase spending on innovation, technology and research and development.

We know that lots of firms were built in recessionary times as well as firms who reinvented themselves thereby reinforcing their market position. It goes without saying that deliberate investment in technology can help your firm (small or big) become better when the market bounces. Opportunity areas for investments are: deft support for better operations or sales systems. There’s also the area of data analytics.

This can help you gain insights into your business drivers and you can build on these drivers to take the market. The use of CRM tools also can help you serve customers better. Yet the rise of remote internal capabilities can boost your business while you need to keep an eye on the risks. Staying lean with systems and software upgrades or even building bespoke software solutions can deliver the kind of market readiness for upsurge in demand.

Remarkably, recessionary crises are historically times of industrial renewal. We expect to see less efficient firms fail while more dynamic ones emerge and expand. We expect to see government invest in next generation infrastructure. Experts have noted that creative destruction is an essential engine of long term efficiency in market economies, and it intensifies in downturns. But government can assist MSMEs through investment grants, credits and R&D financing. This will boost their capacity to respond in the near future when the economy turns.

Yet businesses and government needs to contend with sharp fall in household incomes. To respond to this we will need to overhaul or build new, quick, efficient and inclusive infrastructure for distributing transfers to households in response to recessionary shocks through digital payment system backed by our financial regulators. BVN and similar data pools have to be overhauled, aligned with telcos Open Data infrastructure, into a national harmonized data infrastructure built to support households.

With this infrastructure, we can launch Household Recession Insurance Bonds. CBN can purchase this bond and transfer to household by digital payment provider account. With this CBN can use its resources and mandate to stabilize the economy while distributional issues are tied to science rather than special interest with legislative support. All of these will require legal changes, technology build outs, rule writing and social communication.

We expect this system must incorporate and apply methodologies drawn from psychology and sociology to understand the scale and nature of real-world issues, helping us build a robust infrastructure. This understanding can therefore help to triage this infrastructure for optimization and minimal risks. Also, we must leverage the full opportunities made available by technology to acquire data from all the platforms and online spaces in building out this infrastructure.

The force of globalization

Competition is now global. Global competitiveness seats at the core of industrial success, and it is taking new forms, like platformization. Trade liberalization is compelling businesses to face novel global competition in domestic as well as foreign markets. The declining “costs of distance” make this rivalry more instant and intense than in the past. Rapid technical change challenges African firms, nay SMEs to constantly upgrade their process technologies and introduce new products.

African firms irrespective of the size aren’t exempted trade wars. New patterns of trade, rapid prototyping, with product segments based on research and development (R&D) are eating into African business lunches. This is growing faster affecting notorious less technology-intensive segments which African firms are known for. Yet innovation remains more costly and often more risky than before, compounded by high concentration of advanced R&D spending by country and firms. Here the advanced world lead. But there are possibility for inter-firm and cross-national collaboration and networking in innovative effort. This should be the fixation of African businesses.

Also, experts believe COVID19 pandemic may lead to an emphasis on regional market as this pandemic has exposed the fragility of globalization. But the development of innovative technologies may derail such postulations. Yet we believe that technological effort is vital to African countries, even though we aren’t developing cutting-edge or frontier technologies.  We expect to see more importation of new technology, equipment, patents but this should be used effectively. There should be conscious building of technological capabilities, a mixture of information, skills, interactions and routines that African firms need in order to handle the tacit elements of technology.

Above all, technology mastery and diffusion in African countries is key to building resilient market for the next recession. This will make African markets efficient. Promoting free international trade and investment flows will maximize the inflow of beneficial new technologies but nascent industry needs to be protected. Although we are faced with coordination problem: the use of new technologies requires supporting changes in factor markets, i.e. in the creation of skills in education and training, technology support institutions, infrastructure etc. For our market to lead the world, we must start the process of addressing our coordination challenges.   

Caesar Keluro is a co-founder/CEO of Nanocentric Technologies Limited, a technology company helping firms achieve digital transformation.

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