87 Steve Esselaar Independent Communications Authority of South Africa Sandton, South Africa Christoph Stork LINK Centre/Research ICT Africa (RIA) PO Box 601, WITS, 2050 Wits University, Johannesburg South Africa +2711717 3914 christoph.stork@gmail.com Ali Ndiwalana Makerere University Kampala, Uganda Mariama Deen-Swarray Namibian Economic Policy Windhoek, Namibia ICT Usage and Its Impact on Profitability of SMEs in 13 African Countries ESSELAAR, STORK, NDIWALANA, DEEN-SWARRAY ICT Usage and Its Impact on Profitability of SMEs in 13 African Countries This article reports on a small and medium enterprise (SME) survey carried out by the ResearchICTAfrica (RIA) in 14 African countries. It argues that the nega- tive return on investment reported in the literature can be attributed to the failure to distinguish between the formal and informal sectors. This article demonstrates that informal SMEs have a higher proªtability than formal ones. It further shows that ICTs are productive input factors and that their use in- creases labor productivity for informal as well as formal SMEs. The article fur- ther argues that there is still demand for ªxed-line phones among SMEs but that mobile phones have become the default communications tool because ªxed lines are either too expensive or not available. The primary policy recom- mendation arising out of this is that applications for SMEs need to be devel- oped using mobile phones. This article reports on a small and medium enterprise (SME) survey carried out by the Research ICT Africa network (RIA 1 ) in 14 African countries. The SME E-access and E-usage Index (2005) aims at understanding the impact of ICTs on private sector development, and how ICTs can contribute to a vibrant SME sector and economic growth in the context of developing economies. The analysis presented here is based on the results of only 13 of the 14 countries. The data for Zambia had not been processed at the time of the submission of this article. The data currently cover Botswana, Cameroon, Ethiopia, Ghana, Kenya, Mozambique, Namibia, Nigeria, Rwanda, South Africa, Tanzania, Uganda, and Zimbabwe. The SME sector has an important role to play in economic develop- ment, poverty reduction and employment creation in developing econo- mies (Hallberg, 2000). The SME sector is the sector in which most of the world’s poor people are working (Stern, 2002). The sector largely exceeds the average economic growth of national economies in many countries and contributes signiªcantly to employment creation. Accordingly, govern- ments and donors alike have recognized the important role of the SME sector for overall development. As a result, many government policies are geared toward supporting SME sector growth through a variety of pro- grams that range from tax incentives to technical assistance, from regula- tory provisions to policy interventions, training and other types of business development services (O’Shea & Stevens, 1998). The SME E-access & E-usage Index aims to look at ICT usage from the © The MIT Press 2008. Published under Creative Commons Attribution NonCommercial-NoDerivativeWorks Unported 3.0 license. All rights not granted thereunder to the public are reserved to the publisher and may not be exercised without its express written permission. Volume 4, Number 1, Fall 2007, 87–100 1. RIA is a network of researchers at 14 African universities and research institutions working on ICT policy and regula- tion.