It is mid-morning in Kolfe Atenatera-Industry Mender, one of the woodwork hubs in Addis Ababa, and life as the artisans, porters, drivers and wood haulage workers know it passes uneventfully. However, for Habtamu Gizachew, a woodworker, the past few months have been eventful, igniting a sense of hope that his business can bounce back stronger after the devastating effects of the Covid-19 pandemic. 

In 2016 he started his business, making different types of furniture - doors, closets, beds, kitchen cabinets etc. The demand for his products was substantial, although the avenues for marketing them were limited. Then the Covid-19 pandemic hit, wiping away almost all the gains he had made in the last few years. The main challenges he faced were delays in obtaining raw materials and a drastic drop in sales. He said, "The pandemic has had a negative effect on my business. I am unable to access working capital to sustain the business, there has been a reduction in sales, and reaching my clients is challenging." He further explains that, unlike others who relied on their digital literacy and skills as a solution during the pandemic, not having those skills made the situation even more challenging for him until recently.

Selamawit Alem is also a small business owner. She is the founder of Fidel Tutorials, an educational consultancy that provides academic support to students from various backgrounds through practical, skill-based, and student-centred learning. Her consultancy also offers a life skills component, focusing on critical thinking, problem-solving, and public speaking. Before the Covid-19 pandemic, their teaching and learning sessions were conducted in-person. Selamawit said, "I started offering tutorials to children in my neighbourhood as a part-time business. As more parents began to request my services, I expanded and brought on other tutors. Eventually, the business grew to 120 tutors who served over 70 clients. This gave me hope that I was building a strong foundation for my business."

Similarly, she experienced a significant slowdown in her business during the Covid-19 pandemic. The restrictions on movement and physical contact made it nearly impossible for her to continue operating. Once the restrictions were lifted, she resumed work, however, she encountered numerous obstacles in attracting clients for her program. These included reduced demand, trust and safety concerns (as most clients hesitated to engage in face-to-face interactions and allow tutors into their homes), limited marketing opportunities, and financial constraints, among others.

Habtamu and Selam's experiences are not unique; they are just two examples among many young business owners facing similar challenges in rebuilding their businesses. The limited availability of financial resources tailored specifically for small businesses and the growing competition in an increasingly digital world further amplify their struggles.

In Ethiopia, a collaborative effort between the UN Capital Development Fund (UNCDF), the Association of Ethiopian Microfinance Institutions (AEMFI), Africa 118, and Hibret Bank is helping to address the critical challenges young business owners face. Habtamu, Selamawit, and 100 other youth- and women-led businesses are participating in a program to assist MSMEs in digitizing their operations. Additionally, about 2000 others will be exposed to digitization through various stakeholder engagements.

As part of this initiative, the enrolled entrepreneurs now have access to Google's suite of online tools, enabling them to enhance their digital literacy skills and leverage technology for business growth. By acquiring proficiency in using these digital tools, the MSMEs can streamline their operations, improve their marketing and customer engagement strategies, and make data-driven business decisions. Ultimately, the project aims to empower these young entrepreneurs by equipping them with the necessary digital skills and tools to establish a strong online presence, thereby enhancing the resilience of their businesses.

Improving the creditworthiness of MSMEs is crucial for their success, and digital tools play a vital role in this process. By establishing a visible online presence, MSMEs can enhance their chances of accessing working capital. This is achieved by creating digital footprints, which provide opportunities for improved financial record-keeping, credit scoring, and exposure to risk assessment tools. As a result, the credit ratings of MSMEs could improve, enabling them to access financing from banks and online lending platforms.

In Ethiopia, it is estimated that only 130,000 MSMEs out of 800,000 have access to credit. There is also a financing gap estimated to be around USD 4.9 billion. Access to finance remains a critical issue for MSMEs, and addressing this gap is vital for their growth and sustainability.

The MSMEs digitization project targets 50% women-led businesses. Selamawit falls into this category. She shares her experience on the project, recounting the challenges she faced in transitioning her business online during and after the Covid pandemic. Although she recognized the importance of going digital to sustain her business, she struggled due to her limited knowledge of digital tools and how to use them effectively. However, after joining the MSMEs digitization pilot project, she has seen a positive impact on her business.

Selam says, "Having a Google profile has positively impacted my business. It has exposed me to a broad market of customers, including people in the diaspora, who previously did not know what I am doing here in Ethiopia."

Habtamu works in the traditional woodwork industry, where the usual marketing approach is through word-of-mouth and brokers. Initially uncertain about joining the program, Habtamu now expresses optimism. He says, "Since joining the project, I have gained two new clients who found me through my Google profile. We had a conversation, and now they are my customers because I have an online presence for my business."

In the video below, Habtamu shares his experience and emphasizes the program's benefits.

The MSMEs digitalization project is an initiative under the Digital Financial Services for Resilience program, funded by the European Union (EU) and the Organization of African, Caribbean and Pacific States (OACPS). Its primary objective is to support MSMEs impacted by the Covid-19 pandemic by enhancing their resilience.

Specifically, the project aims to tackle MSMEs' low digital literacy and skills, limited access to digital tools, funding challenges, limited online visibility, and inadequate financial data. UNCDF is committed to working with private players like AEMFI, Africa 118 and Hibret Bank to help youth-led and other MSMEs streamline their operations, connect with a broader market, and access finance for business growth.