How Digital Technologies Can Enhance “Productive Transformation” in Africa
Recently I was invited to speak at an online event with members of the private sector and international organisations about the conditions and obstacles for private sector participation in Africa’s productive transformation, the role of digital technologies, and then the role of private sector and governments.
As I thought about this topic, I thought more about the concept of “productive transformation“.
There is no doubt that technology is crucial to Africa’s productive transformation, with the last three years having seen many successful examples particularly in the business-to-business (B2B) space in industries such as agriculture, construction, and logistics.
There are major opportunities in increasing the efficiency of markets and the allocation of resources; this will gain more impetus now that the Africa Continental Free Trade Area (AfCFTA) is being implemented. However, many barriers need to be overcome to ensure that:
- The rising importance of digital technology does not widen existing digital and socioeconomic divides
- Effective digital support measures are not simply a temporary response to the pandemic.
The Private Sector as a Key Driver
During COVID-19, there has been a sudden increase in the use of digital technology to enhance service industries in both B2B but also business-to-consumer (B2C) industries such as retail, tourism, healthcare, and education. Most of this has been driven by private sector.
Before COVID-19, the issue of jobs was already top of the agenda for everyone in the continent, and during the pandemic it has remained so. It is even more critical to use digital technologies better to help people find jobs, work online (for anyone globally), and enhance their incomes or boost the revenues of small businesses. We must not forget that providing jobs is a critical factor in enabling stability, security, peace, and ultimately the economic capacity to pay for other development services. That is the case whether these services are provided by the government and funded through taxes (which mainly come from work-related activities such as business taxes or consumption taxes), or from the private sector, which provide one-third or more of healthcare and education services across much of the continent, let alone transport or other critical services.
When it comes to the private sector role in Africa’s productive transformation, all companies in this space are able—to some extent—to leverage the fairly good ICT infrastructure in Africa. Of course there are major gaps in infrastructure provision, but there has been great progress in the last decade or so.
Complexity of Demand for Internet Services
More infrastructure will be built if there is more demand, but currently there is a lack of demand. This is not the same as lack of interest. Interest is generally there, but interest is not turning into demand because of the affordability of Internet data (affordability being a function of incomes of course, and if consumers have low incomes, then affordability is hard to achieve), the lack of access to devices and the skills to use them, and the lack of relevant apps/cloud services.
What this means for the private sector is that they need to invest in the digital skills for their workforce, their customers and others across their value chains (in distribution or retail, for example), and find other ways to help them get online to use their services.
In many cases, the private sector is paying for connectivity for their staff or customers to access their services or negotiating free/subsidized access to certain sites/services with mobile network operators (MNOs). There are further opportunities for partnerships with MNOs across all industries. There are a lot or promising cases but many more opportunities, and almost all viable business models now require technology in Africa (to reach consumers, to cut out middle-men and corruption, to mitigate other infrastructure limitations, to collect or analyze data to name just a few).
The Bottom Line
FinTech and mobile money is critical to enabling transactions on the continent, and to power productive transformation there needs to be more insurance products, loan products, and savings products for micro, small, and medium enterprises. Though it is not easy to develop suitable products, there are real opportunities for innovation here, particularly if there is collaboration between the FinTechs and businesses in the value chains (such as those providing inputs or buying outputs) and with development partners.
Viable business models in Africa are already difficult, particularly those that support those at the bottom of the pyramid, but without the use of digital technologies they will be impossible. Therefore it is imperative that the private sector explore how technology can enable businesses to develop viable business models and thus build a business case for investment that will enable Africa’s productive transformation.
As the private sector must, and should, be the main driver of job creation and productive transformation, the role for governments has never been more important. But there is much more to be done. In reality, the more important digital technology becomes, the greater the digital divide becomes, and right now it is increasing quite dramatically. It is the richer citizens and the bigger businesses who are currently online and using digital technologies, enlarging the divide to poorer citizens and smaller businesses.
At the moment governments across the continent are tending towards increasing taxes on Internet usage since many need quick and efficient ways to generate revenue. Often these taxes are charged multiple times, such as on the provider of Internet across the submarine cables, the provider of Internet on the backbone or transmission networks, and then the providers of Internet through last mile networks (such as mobile networks). There are also increasing taxes on mobile money, on digital services, and in other areas (such as fees on spectrum or fees for approvals to lay fiber), which increase costs to users and exclude them from digital economy.
The Role of Fiber
In general, governments are slow to develop supporting regulations that could make it easier, quicker, and cheaper to get fibre to SMEs or homes. As the continent expands its networks of roads and electricity cables, governments should ensure that both have fibre accompanying them, which will cost very little extra, but save on duplicating the infrastructure, particularly the civil works which is the majority of costs for fibre. The same can be said for new-build housing, which should all be mandated to be “fibre-ready” with manholes, equipment rooms, and ducts so Internet providers can easily and cheaply provide fibre. Doing this when buildings are constructed is much cheaper than having to come back and retrofit later.
During the pandemic, there has been some encouraging signs from policy makers and regulators. Certainly, e-government, which was already slowly improving has continued to improve: more civil servants are able to work remotely, digital systems have driven up efficiency, and new systems that can eliminate corruption make it easier, quicker, cheaper to get licenses.
On the whole, most government measures related to supporting the use of digital technologies by citizens during the pandemic seem to be temporary.
Taxes that were reduced have gone up again; spectrum given out free temporarily now needs to be paid for to be allocated permanently; digital service taxes that aim to target foreign multinationals are badly designed and capture local SMEs as well. Even necessary data protection regulations must be implemented appropriately so as not to unduly burden smaller businesses. To drive economic recovery and long-term growth, governments must stimulate economic activity amongst the poor and small businesses, not price them out of the digital transformation in a drive for short-term tax gains.
Beyond infrastructure, governments need to enhance citizens’ digital skills dramatically, something that few governments have paid much attention to, and an issue that affects women more than men and thus exacerbates the digital gender divide. Governments can also consider more incentives for investment in technology or technology skills, such as tax rebates for infrastructure investment or incentives for research and development or collaboration with academia. Governments can also leverage their public investments to reduce that needed by private sector which would stimulate private sector investment, for example government investments in connectivity for schools can reduce the costs for the private sector to then extend that connectivity to local residents. Finally, governments can also consider how to subsidize demand rather than supply to encourage competition and innovation, something that is fairly common in more developed countries.
To conclude, I do not want to be too pessimistic. Africa has made great progress in the last decade in particular, and private sector will continue to innovate to continue this progress. There are many great examples dotted throughout the continent, where if they could all be replicated and scaled-up, incredible progress could be made. These examples cover all aspects, such as the use of drones to deliver medical products, the use of Internet of Things to improve productivity in agriculture and their value chains, free access to education or health content for citizens or for teachers and health workers as training material, to name just a few. The private sector has really stepped up in the last 12 months.
Ultimately, though there are many opportunities, there are still many barriers to the use of digital technology in speeding up the productive transformation in Africa.
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Disclaimer: Any views and/or opinions expressed in this post by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Huawei Technologies.