Despite the positive correlation between digital technology and business productivity, a recent International Finance Corporation (IFC) report reveals that less than one in four African businesses intensively utilize advanced digital technologies.
The report, based on data from Burkina Faso, Ethiopia, Ghana, Kenya, Malawi, and Senegal, shows that while 86% of firms with five or more employees have access to digital tools like mobile phones, computers, or the Internet, only 24% make intensive use of sophisticated digital technologies such as cloud computing, data analytics, and artificial intelligence in their operations.
Barriers to Adoption
Several barriers hinder the widespread adoption of digital technology in Africa:
- Cost of Equipment: Machinery and equipment in Sub-Saharan Africa cost 35–39% more than in the United States and 13–15% more in North Africa.
- Infrastructure and Resources: Digital infrastructure, electricity, and skilled workers are scarce and expensive.
- Funding: African businesses face higher rejection rates for technology upgrade loans than other regions.
- Digital Literacy: There is a significant shortage of software engineers, IT specialists, and graduates in math and science.
IFC’s vice president of economics and private sector development, Susan Lund, emphasized the need for more skilled professionals to drive technological advancement in Africa.
Infrastructure Challenges
Infrastructure remains a critical issue. According to the World Bank, half of Africa’s population lacks access to electricity. However, new submarine cables are expected to improve internet access and reduce broadband costs. The IFC projects that increased connectivity could lead to a 10–11% annual drop in broadband prices. However, this will require up to $6 billion annually in middle and last-mile infrastructure investment, which refers to the infrastructure needed to connect the main network to end-users.
Government Intervention and Opportunities
The report underscores the urgent need for government intervention in addressing these issues. Regulatory reforms to promote competition and create a level playing field for businesses are not just essential, but a responsibility we must shoulder to attract investment and encourage foreign participation in Africa’s digital revolution.
The study identifies a significant opportunity for digital integration in Africa. Over 600,000 formal businesses and 40 million micro businesses could benefit from digital processes and services, indicating a vast market for digital infrastructure development. Africa is also the fastest-growing region for startups globally.
Lund highlighted the broader economic benefits of digital integration, painting a picture of a brighter future for African businesses: “At every step of digital integration, businesses become more productive, revenues grow faster, the business employs more people, and pays higher wages. Digital adoption is not just necessary but a beacon of hope for long-term growth and poverty alleviation in Africa.”
Inclusivity in Digitalization
The report cautions that the overall economic impact of digitalization may be limited if it does not extend to micro and informal businesses, which employ most African workers. These businesses often lack the resources and infrastructure to adopt digital technologies, and therefore, face significant barriers. Upgrading formal firms alone would benefit 7% of formal workers, while including micro and informal enterprises could extend digital technology access to 15% of all workers.
Conclusion
While significant barriers exist to adopting advanced digital technologies in Africa, the potential benefits are substantial. With targeted government intervention, improved infrastructure, and increased digital literacy, African businesses can harness the power of digital technology to drive productivity, economic growth, and poverty alleviation. We urge policymakers, investors, business leaders, and technology professionals to advocate for increased government intervention and investment in infrastructure and digital literacy to accelerate the adoption of digital technologies in Africa.
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