Less than a quarter of African businesses use sophisticated digital technology intensively – IFC

Less than a quarter of African businesses use sophisticated digital technology intensively - IFC

Jun 12, 2024 - 11:12
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Less than a quarter of African businesses use sophisticated digital technology intensively – IFC

A report from the IFC states that despite evidence linking the use of digital technology to increased business productivity, less than one in four African enterprises heavily utilise this kind of technology in their operations.

Evidence from Burkina Faso, Ethiopia, Ghana, Kenya, Malawi, and Senegal, based on nationally representative statistics, indicates that 86% of businesses with five or more employees have access to one or more digital enablers, including computers, smartphones, or the internet.

However, only 23% of digitally enabled businesses use digital technologies for productive operations including planning, sales, payments, and business administration; 39% of businesses use digital technologies for similar tasks, but not heavily. Only 24% of businesses employ their most advanced digital technology extensively for a commercial function on average.

The paper enumerates a number of persistent obstacles to digital integration. According to the study, the cost of machinery and equipment, both digital and analogue, is 35–39% more in Sub-Saharan Africa and 13–15% higher in North Africa when compared to the United States. In addition, compared to other parts of the world, digital infrastructure, energy, and highly skilled labour are comparatively rare and expensive in Africa. These elements all support the adoption of technology.

African companies also face a financial shortage; according to the survey, their loan applications for technological improvements are rejected at a higher rate than those in other regions.

Digital literacy is another impediment to inclusion. We need maths and science graduates, software engineers, and IT expertise in Africa. Development is hampered by the lack of workers in these sectors, according to Susan Lund, vice president of the IFC for economics and private sector development, who spoke with African Business.

Another enduring problem is infrastructure. According to World Bank estimates, 600 million people, or half of Africa’s population, do not have access to electricity. However, there have been improvements in terms of infrastructure. As the research points out, the introduction of new underwater cables in Africa is expected to increase internet access and reduce broadband internet costs for a large number of Africans.

According to IFC projections, this increase in connection may cause the yearly cost of broadband internet to drop by 10–11% below the historical trend. However, up to $6 billion of yearly investment in middle- and last-mile infrastructure is needed to lower costs and boost the number of connections among new customers.

The study contends that in order to solve these issues, African governments must take a leading role. To attract investments and encourage international participation, one strategy is to undertake regulatory reforms that promote competition and level the playing field for firms.

A major opportunity

The research indicates that there is a sizable market for digital services, platforms, and infrastructure development in Africa, where over 600,000 formal enterprises and 40 million microbusinesses stand to gain significantly from digital processes and services. Africa is also the continent where startups are expanding the quickest worldwide.

“We find that at every step of digital integration, businesses become more productive, revenues grow faster, the business employs more people, pays higher wages, so when you think about long term growth and bringing people out of poverty, digital adoption is really important,” Lund says.

According to the paper, the macroeconomic benefits of digitalizing firms may be restricted, if not completely excluded, from microbusinesses and informal businesses, which provide the majority of jobs in Africa. In Africa, the majority of employment is informal, with 7 out of 10 workers being self-employed.

The benefit would be restricted to 7% of all formal workers in Africa if all formal enterprises with the anticipated market potential upgraded to sophisticated digital technologies. About 15% of all workers may have access to digital technology for productive tasks if micro and informal firms upgraded.

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