Africa: Paving the Way for Digitizing Africa's Economy


Africa is the continent with more than 1.2 billion people, endowed with rich natural resources among others, vast arable land, livestock, mines, rivers, oceans and lakes with their marine life. However, though it is rich with such resources, the continent is unable to exploit the resources fully due to lack of technology, finance and well trained man power. As the result, it has remained one of the pauperized in the world.

Africa has only three percent share on the world trade. It mainly exports mines, crude oil and livestock in their raw form to the foreign market and obtains small amount of hard currency which doesn't cover its imports' bill which again leaves it in negative trade balance.

To eradicate poverty and to change the natural resources in to wealth, Africa needs to export value added products and to that end, expanding the manufacturing sector is essential. The sector plays pivotal role in job creation, creates market linkage with the agricultural sector, boosts export, substitutes import, and attracts both foreign and local investors.

Side by side with these, digitizing the economy has been a preferred option to reduce transaction cost and to advance financial inclusion. The financial sector in the continent is in its infancy level.

Despite the number of banks, insurance companies, and small and medium size financial institutions including the increasing credit associations, reaching the rural population through financial services has been a critical matter. The vast number of African population is engaged in subsistence farming and up to 75% of the population is resided in the rural part. The introduction of mobile telephone in the last two decades created enabling environment for the expansion of mobile banking service in the rural part.

The Information Communication Technology boosted farmers bargaining power. They can easily access the market price of their products in the urban centers and could supply their products by shortening the value chain with no broker's intervention. They can transfer and receive money. They also obtain information with regard to metrology so that enable to prepare themselves to withstand extreme climate conditions.

However, as compared to the number of population, the digital service provision is very less than the demand. And to transform the continent's economy into digital, pulling more foreign investment and constructing IT infrastructure is vital.

According to the recent report of the Economic Commission of Africa (ECA), since 2018, digitization has provided an important avenue for the African economy to leapfrog not only financial development but also development across other sectors of the economy. There are infinite opportunities on the digital platform, and fintechs are working round-the-clock to develop and introduce new products here.

However, these changes will benefit only those economies that embrace digitization, invest in the required infrastructure, and introduce commensurate regulatory technology. Digitization is transforming African economy in four major ways: retail payments systems, financial inclusion, sustainable business models, and revenue administration. Given that Kenya has stood out in its success in pursuing and utilizing digitization, the experiences of the country, explored and its experience shed light on Africa's digitization potential since 2018.

Digitization and retail payments systems: Digitization has revolutionized the retail payments system and the payment infrastructure. Economies are saving billions of dollars per year by using electronic payments and centralizing those payments. The retail payments infrastructure is one of the earliest beneficiaries of mobile-phone-based payments and transactions platforms. Electronic payment platforms save on transaction costs in terms of time, travel, and even unit costs. Indeed, this revolution cuts across rich and poor, underserved and formal and informal businesses.

Given this transformation, it was time in 2018 for all African economies to join the Better Than Cash Alliance (BTCA)--a global partnership that encourages the shift away from cash and towards digital payments--advocate for electronic retail payments migration, and develop the requisite payments infrastructure so that government payments can be centralized into an electronic payments platform. The potential economy-wide benefits are immense. For African economy to benefit from all these developments, digitization has become an easier platform to support financial inclusion and female financial empowerment.

Obstacles to financing access, such as physical distance, minimum balance requirements, little to no credit, and low-income flows can be circumvented. Savings have increased; micro-savers have opened bank accounts, and banks are now able to price short-term loans. In fact, currently there are over 20 million virtual saving accounts (one bank accounts for 18 million of these virtual saving accounts five years after the product was launched) that have been opened in the last five years compared to about 30 million deposit accounts in the banking sector. Not only has digitization in Africa brought financial services to the doorstep, it has been an important avenue for creating market access. The benefits are clearly widespread and attractive, and new virtual savings products and platforms continue to emerge.

To revitalize digitization recently, the United Nations Economic Commission for Africa (ECA) and Google have signed a landmark Memorandum of Understanding (MoU) to foster and accelerate digital transformation in Africa on the margins of the 2024 edition of the Africa Business Forum.

The partnership is founded on the complementary expertise and strengths of both parties who wish to collaborate on activities to support ECA's mandate such as digital development in Africa in line with the African Union Digital Transformation Strategy for Africa (2020-2030) and Google's Digital Sprinters Framework. It also aims at leveraging the power of information and communication technologies (ICTs) for the benefit of Africa's digital economy.

As a general framework for collaboration, the MoU will seek to further explore specific key areas of interest pertaining to digital skills development for Africa's burgeoning young population, startup development, increasing financial inclusion, strengthening cyber security and online safety measures, and advancing policy research for policymakers on the continent.

ECA's Executive Secretary Claver Gatete, acknowledged Google's pivotal role in improving Africa's connectivity infrastructure, supporting Africa's innovators and entrepreneurs, and building digital capacity in emerging technologies through skills development for researchers, students and educators.

"This partnership holds the potential to produce significant and influential outcomes in tackling digital challenges and narrowing the digital divide across the African continent," he remarked.

Africa, with the lowest internet penetration rate globally, sees 63 % of its population without internet access, according to ECA. The ECA is committed to closing digital divides by promoting infrastructure development and affordability, sound regulatory environment, and fostering digital skills.

To tap into Africa's digital transformation potential to meet the Sustainable Development Goals and Agenda 2063, it is crucial that the continent's youth--projected to account for nearly half of the global youth population by 2030--are prepared for a digital future and the 4th Industrial Revolution.

Google's Vice President of Government Affairs and Public Policy, Emerging Markets Doron Avni said; "With advanced technologies, the most profound transformation is yet to come. Collaboration will be essential if Africa is to realize this opportunity and ensure no-one is left behind. We are excited to collaborate with the ECA to work towards this shared objective."

As part of the Agreement, Google and ECA will endeavor to begin collaboration on Startup development, Computer Science Education and Cyber security. Google will endeavor to partner with ECA to reach its target to enable one million startups to generate 100 billion USD in revenue by 2033. Computer Science Education is also the other part of the agreement, ECA said.

Starting in 2024, ECA, Camden Trust and Google will endeavor to up skill over 5000 young African students and 200 teachers on computer science and robotics to support their participation in the World Robot Olympiad global competition and increase Africa's representation. The organizations aim to operate in more than 10 countries, including Ethiopia, Equatorial Guinea, Ghana, Kenya, Mozambique, Nigeria, Rwanda, Senegal, Tanzania, South Africa, South Sudan, Uganda, and Zimbabwe.

Additionally, the partnership seeks to conduct collaborative research on Cyber-security and its connection to achieving the SDGs and Agenda 2063.


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