Better access to the internet in Africa has yet to translate into comparable rises in the use of digital technologies by small businesses, new IFC-World Bank research finds. Less than 7 percent of microenterprises use smartphones and computers for business, while 71 percent see no need for them, a survey found. This finding is in stark contrast to the strong associations identified between use of digital technologies and higher productivity, sales, wages, and profits.
Economists at the World Bank and IFC analyzed data from a survey of 3,325 microenterprises in seven countries — Ghana, Kenya, Mozambique, Nigeria, Senegal, South Africa, and Tanzania — carried out by Research ICT Africa, a South Africa-based tech-oriented think-tank. The median firm surveyed was a self-employed household enterprise with no full-time employees. Their analysis makes a compelling business case for increasing the use of digital technologies. Microenterprises who used smartphones and computers reported 2.8 times higher rates of productivity, 6.0 times higher sales levels, and 1.9 times the number of employees than non-users.
A major task ahead, however, is convincing small businessowners that these technologies will help their bottom line. Replies from the 93 percent who identified as non-users offer clues as to what actions can be taken. For instance, 35 percent said these technologies were too expensive for them, especially after factoring in the cost of purchasing the products with monthly usage fees and related electricity costs. About the same share, 34 percent, said that they did not know how to use the technologies, pointing to a digital skills gap to be bridged or, conversely, to the need for digital entrepreneurs to design technologies geared to the level of skills people have, so that they can build skills as they use them.
A smaller share of non-users, 20 percent, cited lack of availability as a reason for not using digital technologies. This suggests that while access remains a problem, it may not be the overriding cause of the low use rates. For instance, the mobile and high-speed internet use rate among the general population, at 22 percent of country populations averaged across Sub-Saharan Africa, is more than three times that of microenterprises. The availability of high-speed internet has steadily risen in Sub-Saharan Africa, from an average of 25 percent in 2010 to 84 percent by 2021. This increase in coverage has not yet resulted in a comparable uptick in connectivity. As of 2021, 74 percent of Africans living in areas where high-speed mobile internet was available were still not connected.
Lack of access to microfinancing is another obstacle highlighted. Just 3 percent of firms surveyed had previously received a loan. Tellingly, those firms who had received a loan were 18 percentage points more likely to use a smartphone. Infrastructure is a further area where improvement is needed: 44 percent of the firms surveyed—and 69 percent of agribusinesses—had no access to electricity. Microenterprises were, for the most part, disconnected from international supply chains, with only 16 percent having a large company as a main supplier and less than 2 percent having large, foreign-based suppliers. These links can be beneficial to small enterprises by creating digital learning opportunities and drawing them into large supply chains.
As to why more than seven in ten respondents are not using digital technologies, the paper outlines multiple factors that may be at play. For instance, apps that could be useful to them may not be designed with their skill level in mind nor be available in their local language—suggesting there is a market creation opportunity out there; owners may not understand concretely how using the technologies will boost productivity; or they may have low quality access, with slow and uneven download speeds.
The survey exposed a significant gender gap in use of digital technologies in the workplace in Africa. Men at small businesses were 3.3 times more likely to use computers than women and 2.4 times more likely to use the Internet to find suppliers. By comparison, the gender gap exceeds the generational gap in digital tech use, with younger employees 1.6 times more likely to use a smartphone than older colleagues.
Asked which specific digital apps businesses find most useful, accounting software scored highly. The median microenterprise that uses such software generated $4,038 in sales per month, in contrast to just $315 per month for the median firm not using accounting software. Online tools for recruiting workers are proving helpful in lowering recruiting costs. They are especially useful in the hotel industry, enabling businesses to reach prospective employees living in other countries. Businesses using the internet to find new suppliers reported higher wage levels than those who did not, with monthly wages averaging $270 versus $93.
Yet, these findings do not necessarily imply a causal relationship from adoption to performance. They might simply capture the fact that more capable firms are more likely to adopt digital technologies, which still suggests that most micro and informal businesses in Africa face significant barriers to their benefiting from digitalization as an instrument to expand access to markets and boost productivity.
Survey participants spanned a broad section of the economy, including traders (63 percent), agribusinesses (9 percent), and manufacturers (4 percent). Forty-four percent of businesses were women-owned, a share that rose to 49 percent for agribusinesses and was as low as 29 percent for manufacturers. The median age of the microenterprises was four years and the median age of business owners 36 years. Seventy-three percent of businesses surveyed were informal and 27 percent formal (meaning legally registered entities). Formally established businesses were more likely to use digital technologies and they performed better than informal businesses on the key metrics of productivity, sales, wages, and profits.
While this research allows for strong associations to be made between business performance and digital technology use, the authors recommend that it be repeated periodically to enable more categorical cause-effect inferences to be drawn. The working paper is part of an ongoing research project that IFC is leading set to culminate later in 2023 with a Digital Africa report providing more extensive analyses on the topic.
Izak Atiyas is a research fellow at the TUSIAD-Sabanci University Competitiveness Forum and the Cairo-based Economic Research Forum. A former economics professor at Sabanci University in Istanbul from 1998–2019, his research areas include productivity, industrial policy, competition policy, political economy, regulation of network industries, and privatization. He received a PhD in Economics from New York University in 1988 and worked at the World Bank from 1988–1995.
Mark Dutz is a consultant at IFC’s Economic Policy Research department where he contributes to work on productivity growth and its interaction with poverty reduction and shared prosperity. He has worked at the World Bank since 1990 and has experience in all regions and in the Office of the Chief Economist, as well as most recently as lead economist in the Office of the Chief Economist for Africa. He has also taught at Princeton University, from which he holds a PhD in Economics and a Master’s in Public Affairs.