Speed boosters

With the right policies and partners, Africa can accelerate the development of its digital economy

The future of the world is digital. The production and distribution of goods and services are increasingly enabled by digital technology, such as artificial intelligence, the internet of things, blockchain, cloud computing, robotics and 3D printing, among other things.

The digital economy already accounts for about 15.5 percent of global GDP, growing two and a half times faster than global GDP over the past 15 years. Indications are that the global digital transformation will continue to intensify, thus expanding the digital economy even further. According to the United Nations Conference on Trade and Development, the global export of digitally deliverable services increased from below 52 percent of overall service exports in 2019 to almost 64 percent in 2020. Moreover, digital technology not only contributes to GDP growth, but also comes with enormous strategic value, in terms of its contribution to the fight against climate change, eradicating poverty and enhancing global peace and security.

However, the growth of the digital economy has not been evenly distributed. Based on an analysis by a consultancy named Endeavor Nigeria in June 2022, Africa's digital economy is currently estimated to be worth $115 billion, which is merely about 4 percent of its total GDP.While the average share of information and communication technology in global imports was about 13 percent in 2019, Africa's information and communication technology imports were only about 5 percent. This is the result of a small digital footprint both in terms of digital infrastructure and digital literacy. Africa's internet penetration rate stands at around 33 percent compared to the global average of about 63 percent. African countries make up 12 out of 20 countries with the slowest internet speeds in the world in 2019. The shortage of submarine and terrestrial cables servicing Africa reduces bandwidth and undermines the ability to access digital services. This is compounded by an acute digital divide with only 6 percent of the rural population having access to the internet.

Africa also faces the challenge of the undersupply of critical digital infrastructure such as data centers which further stifles the growth of its digital economy. According to data from Xalam Analytics, with only 82 colocation data centers in 15 African countries, the continent accounts for only about 1 percent of the data centers in the world. As data consumption increases and as more and more enterprises and governments move their data to the cloud, Africa will need more data centers to serve its market. Having more data centers will ensure more latency and enable the governments to regulate their countries' data according to their laws. According to Statista, e-commerce in Africa has a market of 281 million people (about 20.5 percent of the population), generating over $27 billion in revenue in 2020. In comparison, data gathered by Learnbonds.com indicates that during the first quarter of 2020, Asia had an e-commerce market of 2.3 billion users. As such, Africa is trailing behind in the digital economy. A report by the World Economic Forum showed that the growth of Africa's digital economy is further hampered by government neglect, lack of funding and little research and development. For example, less than 10 percent of 188 government business incentives surveyed in 32 African countries went to digital technology. Africa's research and development in the technology sector is one-fourth of the global average.

Nonetheless, all hope is not lost. The continent's digital economy is projected to contribute nearly $180 billion to the region's growth by the mid-decade and more than $700 billion to Africa's GDP by 2050. Investors are increasingly gaining confidence in the African market. While about 300 African tech startups raised $1.2 billion in capital in 2020, 640 tech startups managed to raise $5.2 billion in 2021. However, most of the investment was concentrated in a few countries with Nigeria attracting half of it.

A digital single market will be important in unifying Africa's fragmented digital economy which makes digital trade inefficient and cumbersome due to different regulations and standards. The undersea cables under construction such as Huawei's PEACE and Google's Equiano promise to boost internet speed, expand access, and make the internet more affordable. This is consistent with the African Union's Africa Digital Transformation Strategy which seeks to create a digital single market and also achieve universal access to the internet by 2030.

To build its digital economy, Africa is also working with strategic partners such as China and the European Union. Through the Forum on China-Africa Cooperation, China and Africa have identified digital cooperation as one of the major areas of their bilateral cooperation. Working to narrow the digital divide, harmonizing standards, improving cybersecurity and training more digital technology experts are some of the ways the two parties are focusing on. Africa and the EU established the AU-EU Digital Economy Taskforce in 2018 through which the EU will accelerate Africa's digital transformation and help with the creation of a digital single market. The task force will also foster the development of digital skills, digital entrepreneurship, digital services and expand digital access. Other strategic partners include multilateral development organizations such as the World Bank. Through its Digital Development Partnership, the World Bank seeks to encourage digital innovation and also provide development finance that African countries can tap into.

Africa's digital economy has immense growth potential due to the continent's youthful population, rising middle class and the growing rate of urbanization. Its hundreds of millions of young people are embracing the potential and value of digital technologies. Therefore, with the right policies and partnerships in place, Africa's digital economy is poised for significant growth in the coming years.

The author is an associate professor of international relations and political science and director for the Centre for Africa-China Studies at the University of Johannesburg. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn