Kigali, Rwanda, May 16, 2024—A new IFC report reveals significant opportunities for digital transformation across Africa, with more than 600,000 formal businesses and 40 million microbusinesses standing to benefit. The study underscores the pivotal role digitalization can play in enhancing productivity, increasing wages, and creating better quality jobs.
Digital Opportunities in African Businesses shows that despite 86% of African firms having access to digital tools like mobile phones and the internet, only a small fraction leverage these technologies to their fullest potential.
"The startup ecosystem in Africa is one of the fastest growing in the world," said Makhtar Diop, IFC Managing Director. "This groundbreaking report, backed by innovative firm-level data, clearly demonstrates the significant market potential for investors in digital technology startups and infrastructure. These investments could drive technology adoption in local businesses, boosting productivity, competitiveness, and inclusive growth – vital for a thriving economy."
The report finds that each step in digitalizing a business is important. Most businesses will start integrating basic technologies, such as payments, into their processes. Those that integrate technology intensively in their operations go on to achieve markedly higher productivity than those that do not. This intensive use translates into increased competitiveness and efficiency, contributing to broader economic growth and job creation.
One significant barrier for African businesses is the high cost of technology. African enterprises face prices up to 35% higher than those in other regions for similar software and equipment. Additionally, inadequate infrastructure, digital literacy deficits, and limited access to finance further restrict the widespread adoption of digital solutions.
Closing Africa's technology infrastructure gap and supporting Africa's growing start up ecosystem provide ample opportunities for investors, including up to $6 billion in infrastructure investments annually, up to $2.7 billion for the digital transformation of businesses, and funding for startups in high-impact sectors.
Regulatory reforms promoting competition and a level playing field for business can attract investments and encourage foreign participation, while integration into global markets can enhance affordability. Lowering tariffs on digital goods beyond African Continental Free Trade Agreement member countries can benefit businesses in the poorest countries that face high tariffs for technology and software.
The report, which received financial support from the Government of Japan, introduced several innovative research techniques to better understand the complexity of technological adoption and use by African businesses. This includes survey data from over 20,000 firms and a novel price data set that compares prices for digital versus non-digital products, enabling the authors to see the extent to which African businesses pay more for digital products than firms in other regions.
For more about the report, visit here.
About IFC
IFC — a member of the World Bank Group — is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. In fiscal year 2023, IFC committed a record $43.7 billion to private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity as economies grapple with the impacts of global compounding crises. For more information, visit www.ifc.org
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