Euler Hermes has released its Enabling Digitalization Index (EDI) 2018 which illustrates each country’s ability to provide the necessary environment for business to succeed in an increasingly digitalized global economy. The index measured corporations’ ability to transform and thrive digitally.
Weak connectivity, trade infrastructure and knowledge ecosystem have proved to be the main shortcomings in Africa. The continent has attracted substantial amounts of Foreign Direct Investment (FDI) but businesses have not really thrived because of inadequate infrastructure and a small population of techno-savvy citizens. South Africa leads the African pack by occupying the 46th position, Kenya is in 70th position and Nigeria is ranked 100th out of 115 countries in the world.
South Africa focuses on digital technology
Being the leading business hub on the continent, South Africa, occupies the first position. The country is endowed with economic development and infrastructural sophistication. Over the years, many companies in South Africa have invested billions in the digitization of the economy. The country’s competitive advantage is explained by a major focus on digital technologies like sensors or connectivity devices, and on software and applications, such as manufacturing execution systems. However, with this impressive record, the report noted that the connectivity quality in South Arica still remains below average.
As Kenya boosts infrastructure
Coming second after South Africa and 70th on the world ranking, Kenya is showing a steady increase in infrastructural development. Kenya is the business leader in East Africa with an economy estimated to be slightly over US $70 billion. The country also has an impressive trade infrastructure and a supportive business environment, which outweighs the country’s political instability. Like South Africa, Kenya also has a below average connectivity quality.
Nigeria is big in technology consumption
Third on the continent and 100th on the world ranking is Nigeria. The country has alternated between the first and second position in terms of economic size in Africa. Nigeria is Africa’s most populous country and that gives it the largest number of technology users. According to the report, Nigeria scored 100th out of 115 despite a substantial market score. “Developing digital regulation, building human capital, using pivot sectors and territories, banking on smart logistics, and reducing digital inequalities are five successful strategies to top EDI ranking,” said Ludovic Subran, chief economist at Euler Hermes.
The report suggests the following five strategies that African corporations can use to boost digitagility:
Develop proactive digital regulation – Authorities in Africa need to clarify industrial competition laws for new digital products and services. Bureaucratic barriers to legislation should also be removed to allow new entrants to operate profitably.
Build human capital and digital capabilities – Developing digital education and training and fostering the acquisition of STEM (science, technology, engineering and mathematical) competencies is a pressing government mandate in many African countries but improving key digital skills such as coding also increases levels of digitalization.
Use pivots (sectors, territories) for stronger connectivity – In some markets outside Africa, they rely on high value added industries as stronger competitiveness to help gain exports market share and contribute to growth. Another international best practice that African countries can make use of is to build digital hubs.
Bank on smart logistics – This factor refers to the application of Industry innovations (e.g. Internet of Things or IoT, cloud) to supply chain management. African companies can also make use of fintech-related to internationalization of their companies.
Reduce digital inequalities – Africa should foster digital connectivity for all its citizens. The ability of authorities to make it affordable to allow a greater usage pays off, as digital literacy is a major driver for companies to find ready customers and future employees for their growth.
The EDI measured the conditions for companies to transform and thrive digitally. The score is made of five components and 10 indicators:
- Regulation: we use the Distance To Frontier indicator from the World Bank Doing Business. The indicator is a proxy of regulation aspects, which matter for digitagility (ease of getting credit, minority investor’s protection).
- Knowledge: we use the Higher education and training score (secondary and tertiary enrollment rates, quality of the education system and the extent of employees training) and the Innovation score (R&D by corporates, collaboration between universities and the private sector, intellectual property laws) developed by the World Economic Forum.
- Connectivity: we use four indicators: internet user’s ratio (the number of people using internet in % of population), mobile phone and fixed phones lines subscriptions per 100 people, and the number of secure servers per 100 people.
- Infrastructure: we use the Logistic Performance Index (World Bank Doing Business) as a proxy of soft and hard logistic infrastructure.
- Size: We use the number internet users, and their income (captured by nominal GDP).
The Euler Hermes report ranks 115 markets around the world based on their overall index. The index is obtained by averaging the five sub component score. Each score is a simple average of the normalized raw indicator (rescaled to a 0-100 points range).