Tech start-ups will be key drivers of Africa’s digital transformation, but there is an urgent need for more investment.
Start-up funding in Africa was more than $1,2-billion in 2020. This is a six-fold increase in five years, but still less than 1% of the value that US start-ups raised. And the continent’s research and development (R&D) investment is only a quarter of the global average.
According to the World Economic Forum, Africa is trailing behind the world in developing a knowledge-based, digital economy. Governments can change this by fuelling tech start-ups and other small businesses through incentives and investment in workforce skills.
However, a survey of 188 government incentives for business across 32 African countries found fewer than 10% facilitated investment in Fourth Industrial Revolution technology
The World Economic Forum report “Attracting Investment and Accelerating Adoption for the Fourth Industrial Revolution in Africa” analyses the challenges Africa faces in joining the global knowledge-based digital economy and presents a set of tangible strategies for the region’s governments to accelerate the transition.
The Forum’s report, written in collaboration with Deloitte, comes just weeks after the announcement by Google of a $1-billion investment to support digital transformation across Africa.
This investment centres on laying a new subsea cable between Europe and Africa that will multiply the continent’s digital network capacity by 20, leading to an estimated 1,7-million new jobs by 2025.
Africa’s digital economy could contribute nearly $180-billion to the region’s growth by the by mid-decade – but, with only 39% of the population using the internet, Africa is currently the world’s least connected continent.
Tech start-ups such as Kenya’s mobile money solution Mpesa and online retail giant Jumia, Africa’s first unicorn, represent what the continent’s vibrant small business sector is capable of.
“African governments urgently need to drive greater investment in the tech sector and the knowledge economy,” says Chido Munyati, head of Africa division at the World Economic Forum. “Policy-makers can make a difference by reducing the burden of regulation, embedding incentives within legislation and investing in science and technology skills.”
The report breaks down these three policy enablers:
* Pass legislation such as “Start-up Acts” designed to spur private sector innovation, reduce the burden of regulation and promote entrepreneurship, in which Tunisia and Senegal are leading the way.
* Embed incentives for start-ups in legislation, such as start-up 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.
* Invest in workforce education, skills and competencies. Currently, only 2% of Africa’s university-age population holds a STEM-related (science, technology, engineering, mathematics) degree.
However, the analysis of 188 government incentives for business across 32 African countries finds that just 14 incentives – fewer than 10% – facilitate investment in Fourth Industrial Revolution technology. And most of these incentive schemes lack an efficient monitoring and evaluation system to gauge their effectiveness.
Delia Ndlovu, Africa chair at Deloitte, believes that 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 to markets such as intra-European trade which is approximately 65% to 70%.”