The following presents the speech of Mr. Auron Pasha, Executive Director of IDRA Research & Consulting, as one of the panelists in the session “Accelerating Digital Transition” of the 2021 EBRD Investment Council Conference - Building a Resilient and Sustainable Future: The Role of Investment Councils. IDRA conducted on behalf of EBRD a study on “digitalization of SMEs in Albania to mitigate the negative economic impact of COVID-19” which produced several recommendations for measures and policies to be implemented by the government and private sector.
It is a pleasure to be part of this distinguished panel discussing such an important topic as Digitalization for SMEs. In fact, as panelists, we were given a set of questions to prepare our presentation around, and I will start by grouping the first two into one category.
- What have been the struggles of the SMEs in the pandemic and post-pandemic recovery that you tried to address with the digitalization project?
- What was the role of the Investment Council in delivering the project?
Just for a brief context - Albania faced the challenges of not just one shock but two shocks at once:
- the earthquake on 26 November 2019, the strongest in Albania in four decades causing economic damage of around €1 billion, and while the reconstruction had just commenced, the country was severely impacted by:
- the global pandemic, as the early lockdown during March-May 2020 produced a significant recession during the first and more so during the second and third quarter of 2020.
To say that COVID-19 has inflicted on a global scale, incalculable social, economic, and structural damage that other previous crises could not, would be an understatement of the century. On the other hand, while the Covid-19 outbreak may have brought a damaging impact to small and medium enterprises (SMEs), it also created an unprecedented need for accelerated digital transformation as businesses had to change their operations to cope with office and shop closures, restricted movement, and supply interruption.
Never let good crises go to waste – the phrase credited to Winston Churchill comes to mind. Indeed, it is often in times of crisis that this kind of rapid progress takes place.
The pandemic situation created three major challenges regarding:
- Production process
- Consumer demand
- Workforce disruption
The Secretariat of the Investment Council in Albania did some preliminary analytical work and research in the early phase of 2020, among which a survey on more than 800 companies on the immediate impact of Covid-19. The survey results showed a lot of negative effects of the pandemic on SMEs (revenues, business operation, supply chain disruption, workforce, etc) but it also showed that more than 3/4 of the companies had used online services during the pandemic and would invest to do more so in the future. In this context, more needed to be done to support further digitalization of SMEs and maximize their access to Information and Communication Technologies. Hence, the need for the study that IDRA conducted in the framework of EBRD supports the Ministry of Finance and Economy. The objective of our study was to support the Government by providing deep analysis and assessment of the status of business digitalization in Albanian SMEs, and recommendations for improvements, specifically:
- Assessing Demand Side - Assessing the demand for digital solutions and digitals skills needs for SMEs across all economic sectors and regions of the country.
- Assessing Supply-Side - Assessing the availability of suitable products to meet the needs of SMEs for digitalization.
- Recommending necessary tools, mechanisms, and policies that could address those needs and could help SMEs exploit the benefits of the existing ICT
The study included a high-level assessment of SMEs (a broad situation analysis) and a quantitative survey on the level of digitalization of N=612 SMEs nationwide together with qualitative research.
While the study is quite elaborated and with many results, I am going to focus on just some key takeaways that can be relevant for other countries, which was also one of the main questions posed to the panelists.
The most apparent digital answer to the pandemic effect was e-commerce, as the closing of physical stores shifted online sales. The increase in the customer demand for online purchasing, increase in online B2B sales and purchases, usage of social media for market outreach, and increase in remote working and collaboration all this increases the need for improved digital infrastructure.
- Informality – as strange as it may sound, Informality may not get lower with digitalization (under some specific circumstances). In fact, it may even grow bigger, if “digitalization” is not “done” accompanied with a comprehensive package of measures. Consider the case of pandemic e-commerce trends that included selling online through social media but also through websites. The general payment approach for this trend was Cash on delivery – no electronic payment. This generates a whole new informal approach. Based on this it is important that
- Firstly, the digital strategy (any kind of such strategy) must address Informality.
- Secondly, given the fact that” Cash in hand” transactions are still perceived as more secure and convenient, tackling such perception will be the key to digital commercial activity. Hence, the need for the development of an explicit cybersecurity strategy, followed by the availability of digital payment methods.
- Still low awareness of the benefits of digitalization- long-term – SMEs mostly developed ad-hoc practices but have no clear path and/or vision of the digitalization process, mainly because of the lack of awareness of the benefits. This is primarily due to (i) low availability of information for e-business services or (ii) low comprehension of the available information.
- Need for an effective long-term strategy in ICT upskilling: Assessment results show that although there is an abundance of ICT specialist, they lack the appropriate skill set to push forward the digital transformation (let’s say there is plenty of basic ICT skills but a lack of more sophisticated skills). Short-term interventions should include workplace training or targeted VET programs. Long-term interventions such as the adoption of best practices in ICT education, practice-oriented curricula, and contextualized to digital environment needs.
- Need for decentralization policies to generate equitable gains: Any policy targeting the acceleration of the digitalization process will have the tendency to centralize the influence only metropolitan, creating a larger digital divide between regions. However, digitalization has the power to generate more equitable gains, precisely by the easiness it could be decentralized.
- Boost e-business adoption: The adoption of e-business means the automation of complex tasks, such as the use of ERP software to share information internally, e-invoices to automate billing and purchasing processes with customers and suppliers, and RFID to track their goods for production, sales, and customer service purposes.