The latest World Economic Forum report Attracting Investors and Accelerating Adoption For the Fourth Industrial Revolution In Africa analyzes the challenges Africa faces when joining the global knowledge-based digital economy. It also presents concrete strategies for policymakers to help the continent accelerate this transition.
This report was co-authored with Deloitte. It comes weeks after Google announced an investment of $1 billion to aid digital transformation in Africa. According to an International Finance Corporation (IFC), Africa’s digital economy will contribute $180 billion to its growth over the next decade. Africa is the continent with the lowest internet penetration, at 39%.
Although $1.2 billion was raised in new capital in 2020, a sixfold increase in five year, this is less than 1% of the $156 billion raised in the same year by US start-ups. Africa’s R&D investment was just half of its GDP in 2019, which is less than 25% of the global average.
Chido Munyati (Head of Africa Division at World Economic Forum) stated that “African governments must urgently drive more investment in the tech industry and the knowledge economy.” “Policy-makers have the power to make a difference through reducing regulation, embedding incentives in legislation, and investing in science and tech skills.
This report breaks down the three policy enablers.
- Pass legislation to encourage private sector innovation and reduce regulation. Senegal and Tunisia are the leaders in this area with start up Acts.
- Incentives for start-ups embedded in legislation. These include start-up grants and rebates on efficiency gains from technology implementation, coinvestment of critical infrastructure, tax free operations for the early years, incentives for R&D, and tax-free operations.
- Make investments in the workforce. Only one out of 50 Africans who are university-aged currently have a STEM (science, technology engineering, and mathematics) degree.
A study of 188 incentives offered by governments to businesses in 32 African countries found that only 14 of them – less than one fifth – encourage investment in Fourth Industrial Revolution technology. These incentive programs lack an effective monitoring and evaluation system that can gauge their effectiveness.
Delia Ndlovu is the Africa Chair at Deloitte. She believes that digital transformation will boost African economic growth. “Connecting Africa to the global digital economy not only will open new avenues for small businesses but it will also increase intra Africa trade, which is low at just 16 percent, compared to intra-European trade, which is around 65-70 percent.”
African governments can learn a lot from one another. To encourage investment in R&D, a tax incentive for R&D has been established in Cote d’Ivoire to divert money away from commodity production and instead into innovation. The Automotive Investment Transformation Fund, South Africa’s largest manufacturer, was created to facilitate the development of a wide supplier base in order to achieve the Automotive Production and Development Programme’s (APDP) 60 percent target.
Tunisia offers three state salaries to start-up founders for their companies in the first year. If the venture fails, they can return to their previous jobs.