Home Opinion Special Reports Few African Businesses Use Advanced Digital Technology – IFC Report

Few African Businesses Use Advanced Digital Technology – IFC Report

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IFC
IFC

Despite the positive correlation between digital technology and business productivity, less than one in four African businesses intensively utilize advanced digital technologies, according to a recent report by the International Finance Corporation (IFC).

The report, which is based on data from Burkina Faso, Ethiopia, Ghana, Kenya, Malawi, and Senegal, reveals that 86% of firms with five or more employees have access to digital tools like mobile phones, computers, or the internet. However, only 24% of these firms make intensive use of sophisticated digital technologies in their operations.

Several barriers impede the widespread adoption of digital technology in Africa. The cost of machinery and equipment in Sub-Saharan Africa is 35–39% higher than in the United States and 13–15% higher in North Africa. Additionally, digital infrastructure, electricity, and skilled workers are scarce and expensive. Funding is another challenge, as African businesses face higher rejection rates for technology upgrade loans compared to other regions.

Digital literacy also poses a significant challenge. Susan Lund, IFC’s vice president for economics and private sector development, highlighted the need for more software engineers, IT specialists, and graduates in math and science to drive technological advancement in Africa.

Infrastructure remains a critical issue, with the World Bank estimating that half of Africa’s population lacks access to electricity. However, the arrival of new submarine cables is expected to improve internet access and reduce broadband costs. IFC projects that increased connectivity could lead to a 10–11% annual drop in broadband prices, but achieving this will require up to $6 billion annually in middle and last-mile infrastructure investment.

The report underscores the importance of government intervention to address these issues. Regulatory reforms to promote competition and create a level playing field for businesses are essential to attract investment and encourage foreign participation.

There is a significant opportunity for digital integration in Africa. The study finds that over 600,000 formal businesses and 40 million microbusinesses 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 emphasized the broader economic benefits of digital integration, stating, “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 crucial for long-term growth and poverty alleviation.”

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 the majority of African workers. Upgrading formal firms alone would benefit 7% of formal workers, while including micro and informal businesses could extend digital technology access to 15% of all workers.

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