Digitalisation is shaping economic development in Africa Featured

  • Written by  Prabhas Kumar
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Digitalisation is shaping economic development in Africa

Reduction in cash dependency affecting the overall economy. Digitalisation is currently driving all sectors of the economy, especially those that impact consumers the most, from agriculture to education and healthcare, where mobile micropayments can help people access medical services.

Furthermore, the cost of moving money can decrease its value by three to five times, not to mention the cost of printing it.

The second benefit is that it allows new business models to emerge, with agriculture being a good example of this. Digitising how people move inputs can significantly increase the productivity of small-­scale farmers. As a consequence, many farmers can gain exposure, access to markets and inputs, as well as financing and savings.

On top of these factors, wastage and losses along the value chain could be better identified and reduced. When it comes to electricity, digitalisation also has the potential to change the way people access and commercialise energy, especially solar. In addition, cashless payments for government services, especially for those that are recurrent, can have a widespread impact across the entire economy. Expansion in e-­payments and micropayments is transforming the delivery of goods and services and setting the stage for the emergence of new business models.

Africa Digital Economy The growing digitalization of economies and the associated rapid spread of advanced technologies like 3D printers, robots and cloud computing is having a significant impact on manufacturing production globally. While the digital divide between developed and developing countries (particularly those in sub-­Saharan Africa) is still significant, this does not mean developing countries will not be affected in the coming decades. With wages rising even in low-­income countries, automation may become an increasingly attractive option to domestic firms, and furthermore, creeping automation of manufacturing in developed countries will have a knock-­on effect globally.

With investment and growth in manufacturing traditionally seen as one of the most promising pathways to industrialisation and economic transformation for developing economies, the question of how governments can prepare for this inevitable change is a crucial one for Africa's long-­term growth trajectory.

For the e-­payment segment Kenya along with rest of East Africa, driven both by certain existing strengths and a combination of positive circumstances that allowed the mobile money ecosystem to flourish and lead the way for cashless transactions. Tanzania and Uganda are also contributing significant efforts. From a consumer perspective, smartphone penetration and demand for data is on the rise, and this drives demand for a variety of digital services, including e­payments.

In the long term, the level of investment that the main players in the sector are able to attract will determine each country’s pace of growth, and many governments are actively encouraging regulatory changes to ensure that this happens.

Overall, a combination of three factors will come into play regarding the expansion of e-­payments: the size of the market;; the level of commitment of the government and the framework in place;; and market-­specific factors. The rate of growth of e-commerce is also directly linked with the payment landscape. In Africa, in spite of the rapid adoption of different technologies, e-­commerce expansion is happening but has been somewhat slow. There is indeed a wide range of activity in the segment, but not in a traditional sense;; many niche products are being commercialized by different online retailers, goods are purchased via social networks and paid for using mobile money, taking a peer-­to-­peer form in many cases. Therefore, the emergence of dominant market players has not occurred, and does not seem very likely. However, those who can bring a certain degree of technology-­based aggregation and organization to those markets could take advantage of big opportunities.

Technologies such as blockchain are already being implemented in sectors such as agriculture and in many other areas, and will drive user sophistication. The wide range of uses it has can be extended to trading specific products, making contracts and trading between parties more efficient, and improving payments. Innovation and the entrepreneurship landscape in Kenya are very vibrant, and there is a consensus that incentives should be created for it to continue developing. A key factor for the emergence of new business models will be the financing landscape, and the presence and continuous activity of venture capital and private equity funds is essential to this.

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