Digitalization and small businesses supply chain financing: Evidence from sub-Saharan Africa

Abstract

Supply chain finance continues to play an important role in servicing businesses that have limited access to finance. With the disruptions associated with the fourth industrial revolution, opportunities exist in Africa to increase participation by small businesses. While the effect of digitalization on supply chain finance has been explored, evidence from Africa is still limited. This study sought to determine the effect of digitalization on supply chain financing of small businesses in Africa. The study utilized a dataset that consists of observations from 4409 small businesses in sub-Saharan Africa, including agricultural businesses. Four indicators of digitalization (use of company websites, social media, online advertisements, and mobile phone ownership) were used to compute and index digitalization. A logit regression model was fitted on the dataset to determine the effect of digitalization on supply chain finance. The results showed that digitalization significantly affects adoption of supply chain finance by small businesses. The results were robust and did not change significantly due to the inclusion of confounding factors. The results additionally indicated that supply chain financing is also affected by education level, company age and government training programmes in supply chain financing (p < 0.05), although there was a significant difference in the adoption of supply chain finance across countries and between small agricultural businesses and businesses from other sectors of the economy. Thus, any efforts to improve financing activities of small businesses should consider their digitalization development. Investments in digitalization infrastructure by Africa governments should be scaled up. The regulatory environment should be kept favourable to facilitate development of inclusive digital markets. Future research should explore available digital solutions, adoption costs and factors that affect demand by small businesses in sub-Saharan Africa.