Africa’s digital economy could contribute nearly $180-billion to the region’s growth by mid-decade, but, with only 39% of the population using the Internet, Africa is currently the world’s least connected continent.
Governments should pass startup legislation, embed startup incentives in legislation and invest in workforce education in order for Africa to join the global knowledge-based digital economy, global economic organisation the World Economic Forum (WEF) says.
“African governments urgently need to drive greater investment in the tech sector and the knowledge economy. Policy-makers can make a difference by reducing the burden of regulation, embedding incentives within legislation and investing in science and technology skills,” says WEF Africa division head Chido Munyati.
“Technology startups, such as Kenya’s mobile money solution Mpesa and online retail giant Jumia, which is Africa’s first unicorn, represent what the continent’s vibrant small business sector is capable of. Despite raising $1.2-billion of new capital in 2020, a six-fold increase in five years, this represents less than 1% of the $156-billion raised by US startups in the same year.”
Meanwhile, Africa’s investment in research and development (R&D) was just 0.42% of gross domestic product in 2019, which is less than a quarter of the global average of 1.7%, the WEF finds in its 'Attracting Investment and Accelerating Adoption for the Fourth Industrial Revolution (4IR) in Africa' report, written in collaboration with business advisory and services firm Deloitte.
“Startup acts” legislation, that is designed to spur private sector innovation and reduce the burden of regulation and promote entrepreneurship, must be introduced. Tunisia and Senegal are leading the way in Africa [in this regard]," the WEF says.
Further, countries should embed incentives for startups in legislation, such as startup grants, rebates on efficiency gains through technology implementation, co-investment of critical infrastructure, tax-free operations for the early years and incentives for R&D as a key policy enabler.
However, the analysis of 188 government incentives for businesses across 32 African countries finds that just 14 incentives, fewer than 10%, facilitate investment in 4IR technology. Further, most of these incentive schemes lack an efficient monitoring and evaluation system to gauge their effectiveness.
“Digital transformation promises to boost economic growth in Africa. Connecting the region to the global digital economy will not only open new avenues of opportunity for small businesses, but will also increase intra-Africa trade which is low at 16% compared with, [for example] intra-European trade which is approximately 65% to 70%,” says Deloitte Africa chairperson Delia Ndlovu.
Further, countries must invest in workforce education, skills and competencies, as only 2% of Africa’s university-age population holds a science, technology, engineering or mathematics-related degree, the report posits.
“African governments have much to learn from each other. In Côte d’Ivoire, a research and development tax incentive has been created to direct investment away from commodities and into innovation.
“In South Africa, the Automotive Investment Transformation Fund created by the largest manufacturers in the country is facilitating the development of a diverse supplier base to realise a 60% local content target.
“In Tunisia, the government offers State salaries for up to three startup founders per company during the first year of operations, with a right to return to their old jobs if the venture fails,” the WEF report shows.