Issue 8 | December 20, 2019

Digital Economy: A Game-Changer for Africa's Development

"Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory and Airbnb, the world’s largest accommodation provider, owns no real estate. Something interesting is happening." - Tom Goodwin.¹

The fourth industrial revolution is rapidly driving transformational disruptions across every sector of economies. Occupations are becoming more technology-intensive and "old economy" jobs are giving way to “new economy” careers. The World Economic Forum predicts that by 2022, over 60% of global GDP will be digitized.² Industry structures and business models are being disrupted by innovation in new products and services, cost structures, lower barriers to entry and shifting value chains that creates new opportunities in ICT-enabled services, such as on-demand economy – a digital marketplace offering immediate access to goods and services - particularly in transportation, retail, lodging, dining and grocery businesses.

The digital economy continues to evolve at breakneck speed, powered by the digital technology’s ability to collect, analyze and use huge amounts of machine-readable information on virtually everything. These digital data arise from the digital footprints of personal, social and business activities taking place on various digital platforms. Global internet traffic statistics show a tremendous growth from about 100 gigabytes (0.1 Terabytes) per day in 1992 to more than 46.6 Terabytes per second in 2017 yet the world is only in the early days of the data-driven economy; projected to hit 150.7 Terabytes per second by 2022.³ This is fuelled by more people coming online for the first time every day and the expansion of frontier technologies such as Artificial Intelligence, Big Data Analytics, Blockchain, 3D Printing, Cloud Computing, Automation and Robotics, and the Internet of Things.

Digital technologies are transforming the worlds of business, work and service delivery making the leading parts of the economy and society more productive. Digital dividends filter throughout the economy in as far as accelerating growth, expanding opportunities and delivering public services. While these benefits are neither automatic nor assured, countries that will focus on access to digital technologies complemented by improvements in use of these tools will be essential in reaping its dividends. Apart from the USA and China, digital transformation in many countries is just starting and will take time, but the time to take action is now.

Shaping Africa’s Future in the Digital Economy

Digital technologies have ushered in the greatest information and communication revolution in human history with its creative disruptions of the economic and business models of the “world order” as we knew it. These technologies have given rise to a new economic model popularly known as digital economy – an economy that is based on digital computing technologies, although many perceive it as conducting business through markets based on the internet. The digital economy is also often referred to as internet economy, new economy, or web economy. Many countries are yet to develop mechanisms to maximize the potential of this new economy in accelerating economic growth arising out of expanded opportunities with improved delivery of services while minimizing risks. The potential for employment creation also lies in the rest of the economy as digital technologies allow businesses to expand, new opportunities will also arise in ICT-enabled services such as the on-demand economy.

To maximize the digital dividends and minimize risks require understanding how digital economy interacts with other factors that facilitates its development. The internet has great potential to promote economic development when necessary reforms that strengthen the “analog” compliments that are foundational to the digital economy are put in place. Strengthening digital technology’s analog compliments such as regulation, skills, infrastructure and institutions require collaboration between governments, private sector and academic institutions to create a vibrant ecosystem that facilitates innovation and market entry.

Whereas changes in education and training take a generation to show effects, reforms needs to start early such that skills don’t become bottlenecks as countries advance in their digital transformation. As the new economy rely heavily on the internet, demand for advanced ICT skills will continue to grow. This calls for changes in the curricula and teaching methods. Today’s education systems need to prepare students for a career and not only a job as labor markets in the digital economy require creativity, teamwork, problem-solving, and critical thinking in the ever-changing environment which skills the current education systems does not teach.

Government policies and regulation of the internet that help shape the digital economy should provide an enabling environment for the private sector to build networks, develop services and provide applications to users. Decades ago, governments’ role was in building the fixed-line telecom networks and acting as owner and operator, but now that role reduced to policy maker and regulator, thus establishing an enabling environment for private sector players to do most of the work originally a monopoly of governments. Now governments need an active role broader beyond national ICT strategies in shaping the digital economy. The digital economy is poised to leave countries behind that will not make the necessary reforms geared towards reaping its benefits. There is need to develop new economic and business models that are technology intensive to create sustainable value for an inclusive economy

Tech hubs and the future of Africa's Development Agenda

The global digital economy estimated at US$11.5 trillion, offers enormous opportunity for the African continent to leapfrog its development agenda to improve lives of both the present and future generations. Whereas African countries currently share less that 1% of this global economy, the continent has a lot of potential to tap into the benefits of this economy. The African Union is promoting the “All Africa Digital Transformation Agenda 2030” to bring all Africa online.

Africa’s technology ecosystems are experiencing exponential growth as they have rapidly expanded in recent years. Tech hubs across Africa typify how technology clusters create a snowball effect whereby initial preconditions for success create additional, mutually reinforcing innovation drivers. Although not comparable in scale to Silicon Valley⁴ , technology clusters in Africa nevertheless demonstrate that collaborative efforts to develop a vibrant ecosystem can facilitate innovation and market entry.

The GSMA Ecosystem Accelerator Programme⁵ has seen close to 620 tech hubs in Africa according to Forbes Magazine⁶. Nigeria, South Africa, Egypt and Kenya are leading the pack with the highest number of active hubs on the continent at 85, 80, 56, 48 tech hubs respectively. In the East African Community, Kenya has already established itself as East Africa’s giant with its fast-growing pool of tech talents.

According to Tony Thompson⁷ , building the analog foundations for Africa's digital economy transformation will require investment of over US$80 billion. While governments’ role is vital in strengthening analog compliments, it is the private sector players that will drive it forward through innovation especially in OTT services that “ride over the top” of the established digital infrastructure.

The future of markets and jobs

Over the last decade, digital platforms using data-driven business models have emerged around the world disrupting existing industries in their wake. These platforms have become the core business model for major corporations (such as Amazon, Facebook, Alibaba and eBay) as well as those supporting ICT-enabled sectors (such as Uber, Airbnb, Safe Boda etc). Seven of the world's top eight companies by market capitalization use platform-based business models⁸ and twelve out of the world’s top 20 billionaires earned their fortunes in tech.⁹

Nearly half of the world's population has access to the internet with new users coming online every day. Creating jobs, boosting labor productivity and benefits to consumers in the digital economy therefore cannot be underestimated.

End Note
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¹ Tom Goodwin, former Head of Innovation at Zenith USA commenting on the digital economy in TechCrunch, 2015
² WEF. 2019. World Economic Forum Papers
³ UNCTAD. 2019. Digital Economy Report 2019: Value Creation and Capture; Implications for Developing Countries, Geneva: United Nations
⁴ Silicon Valley, located in the southern San Francisco Bay Area of California, is home to many start-ups and global technology companies. Apple, Facebook and Google are among the most prominent. It’s also the site of technology-focused institutions centered around Palo Alto's Stanford University.
⁵ The GSMA Ecosystem Accelerator Programme is a collaboration between UK’s DFID, Australian Government and GSMA to foster synergies between tech start-ups and mobile operators in Africa and Asia
⁶ Toby Shapshak, ‘Africa’s Booming Tech Hubs are “Backbone of Tech Ecosystem” Having Grown 40% this Year’ in Forbes Magazine, July 2019.
⁷ Mr. Tony Thompson is the Country Manager of the World Bank in Uganda.
⁸ Ibid. p.XV
⁹ Forbes. 2019. The World’s Billionaires List 2019. Forbes Magazine

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