AI adoption by small businesses grows, but barriers persist in developing countries: UNCTAD

Artificial intelligence (AI) is increasingly reshaping entrepreneurship in developing countries, but major gaps in skills, connectivity, finance and regulation threaten to limit its impact, according to a recently released report by the UN Trade and Development (UNCTAD).

The publication finds that micro-, small- and medium-sized enterprises (MSMEs) and start-ups are already using AI tools for marketing, customer service, logistics, finance and product design, with large language models emerging as a low-cost entry point for smaller firms. However, adoption remains uneven, and without stronger support systems, AI risks widening existing economic divides.

UNCTAD estimates that only 27% of people in low-income countries are online, compared with more than 90% in high-income economies. In least developed countries, about 65% of the population remains disconnected, effectively putting AI out of reach for millions of entrepreneurs. Connectivity, the report notes, is the first and most basic hurdle to AI adoption.

Adoption delays

Where access exists, skills and managerial capacity remain key constraints. Many entrepreneurs lack a clear understanding of how AI can solve real business problems or how to integrate it into long-term strategy. This knowledge gap can delay implementation by months or even years, particularly for smaller firms with limited technical talent and financial resources.

“AI can be a powerful tool for entrepreneurs, but its benefits are not automatic,” said Arlette Verploegh Chabot, who leads UNCTAD’s work on entrepreneurship development. “Supportive ecosystems, the right skills and clear rules are essential to help entrepreneurs understand where AI adds value and how to integrate it into their businesses in a meaningful way.”

The report highlights that simpler, off-the-shelf applications such as chatbots often deliver quick productivity gains, while more advanced AI solutions require stronger digital capabilities and higher-quality data. In many developing countries, relevant local and sector-specific data are scarce, fragmented or costly, limiting firms’ ability to tailor AI tools to local markets.

Compliance challenges

Gender and age disparities also persist. Women entrepreneurs are about 25% less likely than men to adopt AI, largely due to confidence and familiarity gaps rather than lack of interest. Young people report widespread AI use but say training on ethics and responsible deployment is insufficient.

Regulation is another determining factor. UNCTAD warns that rules designed for large corporations can overwhelm MSMEs. Instead, it calls for clear, proportionate and predictable frameworks, including risk-based regulation and “regulatory sandboxes” that allow firms to test AI solutions under regulatory oversight. Examples from the EU, Singapore, the UAE and Saudi Arabia show how such approaches can encourage innovation while maintaining trust and safety.

Financing remains a binding constraint. AI adoption requires upfront investment in skills, software and infrastructure, yet many MSMEs struggle to access credit. The report recommends blended finance, public guarantees and targeted subsidies to lower risks and expand access to capital.

Ultimately, UNCTAD concludes that AI adoption depends less on the technology itself than on the surrounding ecosystem. With stronger digital infrastructure, skills development, access to data and innovation-friendly regulation, AI could help entrepreneurs in developing countries boost productivity, scale locally relevant solutions and compete more effectively in global markets.

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Nathaniel Alexander Abaño

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