Beyond Digital Growth for African Countries Compared part 1
Business growth in Africa has mired despite obvious reasons for optimism with the alarming statistics from the World Bank and IMF who cut their 2019 economic growth projections for sub-Saharan Africa (SSA) to 3.5% and 2.8%, respectively, with growth in 2018 at 2.3%. Poverty has increased — 437 million of the world’s extreme poor are in SSA — and 10 of the 19 most unequal countries in the world are in SSA.
Africa often referred to as the untapped business clime is closely watched as the next big growth market – a description that has persisted for a while
There are many reasons for optimism: the African continent is home to some of the youngest populations in the world, it promises to be a major consumption market over the next three decades, and it is increasingly mobile phone-enabled. An emerging digital ecosystem is particularly crucial as a multiplier of that growth because access to smartphones and other devices enhances consumer information, networking, job-creating resources, and even financial inclusion.
According to research conducted by the Bhaskar Chakravorti and Ravi Shankar Chaturvedi from The Fletcher School at Tufts University on a study of 6 key countries from different sub-regions of Africa on digital technology in economic development. These countries are namely: Nigeria, South Africa, Egypt, Ethiopia, Kenya, and Rwanda.
Business growth in Africa has mired despite obvious reasons for optimism with the alarming statistics from the World Bank and IMF who cut their 2019 economic growth projections for sub-Saharan Africa (SSA) to 3.5% and 2.8%, respectively, with growth in 2018 at 2.3%. Poverty has increased — 437 million of the world’s extreme poor are in SSA — and 10 of the 19 most unequal countries in the world are in SSA. The World Bank projects that if poverty reduction measures and growth remain sluggish, Africa could be home to 90% of the world’s poor by 2030.
At the Tufts Fletcher School, in a research project funded by the Mastercard Impact Fund administered by the Mastercard Center for Inclusive Growth, Bhaskar Chakravorti and Ravi Shankar Chaturvedi examined this proposition, they studied six key countries drawn from different sub-regions of the continent representing distinct archetypes of size (of economy and population), economic growth, median age, quality of governance, and digital momentum : Egypt, Ethiopia, Kenya, Nigeria, Rwanda, and South Africa. They examined three primary categories of levers that could translate digital technology uptake into development and inclusive growth: jobs enabled by digital platforms; institutional drivers necessary for digital success; and the foundational digital potential of the country.
These levers were integrated into a framework we call the African Leapfrog Index (ALI), introduced here. ALI evaluates each country against a continent-wide “best-performance” benchmark by applying a process they have introduced in earlier HBR articles about global digital strategy. They hope it offers a handy tool for decision-makers in business and policy to identify country and regional strengths and prioritize the gaps to be closed.
The framework they arrived at integrates the following factors:
Ease of Creating Digital jobs: this includes potential for high, medium and low skills digital jobs, to what extent is the country ready for the various levels of digital jobs in their numerous categories.
Governance and Infrastructure Resilience: this includes online freedom, governance and basic infrastructure as it pertains to the government in its provisions, policies and regulations.
Foundational Digital Potential: this has to do with overall state of digital evolution, digital momentum and use of mobile money.
The six African countries they studied display different profiles in terms of strengths and gaps. Their relative standings along each of the essential factors are visualized in the graphic below. The outer boundary represents the benchmark and each country’s footprint is shown within the figure. The closer the footprint is to the outer boundary, the higher the leapfrog potential in the country.
There are several patterns of note. The six African countries were organized into four segments:
- Paving the way: Kenya and South Africa
- Punching above its weight: Rwanda
- Untapped opportunities for growth: Egypt and Nigeria
- Potential for greatest digital gains: Ethiopia
Let’s take a cursory look at where their analysis shows the greatest opportunities and gaps are for each of these countries.
Nigeria
Nigeria has a powerful entrepreneurial climate, with innovative ventures such as Jumia, Interswitch, Kobo360, and Andela as the outcomes. These ventures cut across the education, fintech, agriculture, healthcare, logistics, and travel. Nigeria was Africa’s leading startup investment destination in 2018, recording nearly $95 million in deals. Lagos’ Yaba neighborhood has even earned the nickname “Yabacon Valley.” The relative affordability of Nigeria’s internet is key: The Economist ranks it first in affordability in the region. The government’s National Identity Management Commission is set for a massive registration for the country’s mandatory National Identity Number (NIN). A unique identity system is essential in developing countries, where the vast majority have few other ways to prove who they are and thereby get access to public services or the financial system, usually through a mobile phone.
Recommendations from the research for Nigeria
It is advised that Nigeria must improve on its use of digital payments. Some 87% of Nigeria’s economy is transacted in cash and most Nigerians had never heard of mobile money. Policies to stimulate greater mobile money use will be important — in 2018, the central bank allowed telecoms and supermarkets to be “payment service banks,” and take deposits and make payments by digital means, but the practice needs to become mainstream.
Policies to facilitate digitization must adapt to many challenges, which, themselves, must be addressed over time. There is a high frequency of power outages, low level of public trust in technology, and a large informal economy (65% of GDP and 80% of workforce).
Nigeria’s sizable super-wealthy community should be better encouraged to participate in early-stage and angel investments in digital startups.
South Africa
South Africa is a regional leader in the Ease of Creating Digital Jobs, buoyed by strong consumer demand for digital businesses and an institutional environment that offers supportive regulations, comparing favorably against key emerging market nations in Latin American and Asian/Southeast Asian regions. South Africa is also a regional leader in the deployment of several emerging technologies, such as biometric data and payment cards to deliver social security, drones in mining, which helps keep it at the innovative edge. South Africa also has several facilitating factors that reinforce its strengths: on a continent that struggles with power outages, it has the lowest frequency of monthly outages among the countries studied; it has high digital transparency measures, including a relatively strong Freedom on the Net score; and it was ranked 19th globally as a financial hub by the World Economic Forum, which also scored the country highly for having one of the most advanced transport infrastructures in the region.
Recommendations from the research for South Africa
With 64% internet penetration, and broadband and mobile internet speeds below the global median, South Africa should increase internet access to a broader cross-section of its population and improve the quality of the access.
While 60% of South Africans engaged in digital payments in 2017, this number falls to 30% for the poorest 40%. Digital payments capabilities must be made more inclusive and more widespread.
With 29% unemployment – and 55.2% among 15-24 years olds — and slowing GDP growth, job-creating digital businesses should be promoted.
Policies to follow through on President Ramaphosa’s commitment to a “skills revolution” – including creative and multimedia skills — must be prioritized.
Source: Research conducted by:
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Article compiled by Adams Amana, currently Editor at Cash4wealth
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