African firms embrace Digital Economy, key to economic recovery post-pandemic




The COVID-19 (coronavirus) pandemic has increased the awareness of the importance of digital technologies, and many Sub-Saharan African countries are seizing the opportunity to create conditions for new, better and inclusive jobs.

The latest Africa’s Pulse, The Future of Work in Africa: Emerging Trends in Digital Technology Adoption, says as the region looks ahead to economic recovery, digital technology not only has the potential to create new jobs, but can also help boost the productivity of existing ones. The Pulse also points to mounting evidence that shows large employment increases result in better employment opportunities for both low-and high-skilled workers, and vulnerable groups such as women and young people.

“I am convinced of the power of digital to transform the future of Africa, and we applaud countries that are already making necessary investments and innovative reforms,” said Hafez Ghanem, the World Bank VP for Eastern and Southern Africa. “This will not only create new jobs, but improve the jobs people already have, and allow more people to work, earn, and provide for their families and communities.”

To harness the full potential of the digital technologies and to take advantage of the energy and ideas of a young, dynamic population, the report recommends that African governments, development partners and the private sector prioritize digital infrastructure, invest in science, technology, engineering and math (STEM) skills and enhance the skills of workers to advance human capital.

“For the continent to leapfrog and to make the digital economy more inclusive, it will require actionable policies in place to ensure fast, affordable, and reliable connectivity. This will be key to boost productivity and improve employment and wages for both women and men in the formal and informal sector,” said Ousmane Diagana, the World Bank VP for Western and Central Africa. “As countries move forward, jobs, digital connectivity, and skills will need to be at the center of policy action and private sector response.”

The report notes that employment among informal firms using digital management solutions was 1.6 times that of nonusers. Additionally, the average wage of firms using digital transaction technologies was 1.5 to 2.4 times that of nonusers.

Digital technologies and jobs in sub-Saharan Africa during Covid-19

Of the sub-Saharan African firms surveyed in 18 countries, the report reveals that 22% either started or increased their use of digital platforms, social media, and the internet in response to the pandemic. Seventeen percent of the firms invested in new equipment, software, or digital solutions.

At the high end, the use of digital platforms was the highest in Togo (43%) and South Africa (51%).

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(Source: Davies et al. 2021. Note: The values are average adjusted probabilities of starting or increasing the use of digital technologies (increased use of the internet, online social media, specialized apps, or digital platforms), calculated from a probit regression that controlled for country, firm size, sector, and the timing of the survey. The computations used weights equal to the inverse of the number of observations per country and excluded countries where the fraction of missing values in the dependent variable exceeded 60%. The bars represent 95% confidence intervals).

The report also shows that firms in sectors with a greater share of tasks/jobs that can be performed from home were more likely to have increased their use of digital platforms in their businesses. For example, Sub-Saharan African firms in financial and ICT services were the most likely to use of digital platforms in response to the pandemic shock (40 and 39%, respectively). More than one-quarter of the firms in retail and wholesale trade started or increased their use of digital platforms. The growth was particularly notable for e-commerce. For example, the African platform Jumia saw an increase of more than 50%, from 3.1 million to 4.7 million, in the volume of transactions during the first six months of 2020, compared with the same period in 2019. Finally, firms in agriculture, construction, accommodation services, and manufacturing were less prone to have expanded their use of digital platforms (less than 20%).

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(Source: Davies et al. 2021. Note: The values are average adjusted probabilities of starting or increasing the use of digital technologies (increased use of the internet, online social media, specialized apps, or digital platforms), calculated from a probit regression that controlled for country, firm size, sector, and the timing of the survey. The computations used weights equal to the inverse of the number of observations per country and excluded countries where the fraction of missing values in the dependent variable exceeded 60%. The bars represent 95% confidence intervals).

Additionally, the report examined whether Sub-Saharan African countries are ready to take advantage of digital opportunities. Empirical studies assess internet readiness along five dimensions: national ICT strategy, business environment, infrastructure, financial capital, and ICT skills base. The evidence shows that all the countries in the region, except South Africa, have low scores on their ICT skills base readiness to leverage internet opportunities (below 30). Furthermore, the ICT skills base is the dimension with the poorest performance across countries in the region.

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(Source: World Bank calculations. Each variable is a composite index scored between 0 and 100).

Economic Outlook

The Pulse predicts that the COVID-19-induced recession is less severe than earlier anticipated, with economic activity contracting by 2.0% in 2020 – the lower end of the forecast range in April 2020 – mainly due to slower spread of the virus and lower COVID-19 mortality, strong agricultural growth and faster than expected recovery in commodity prices. Africa’s Pulse points to a potentially strong and varied recovery in the coming years, if countries deepen reforms that encourage investment, create jobs, and enhance competitiveness. In 2021, as the region faces a second wave of COVID-19 infections – fueled by new and more transmissible variables and relaxed adherence to basic health protocols – and slow vaccine rollouts, these investments will be especially critical and must be far-reaching.

“Africa’s poorest people, informal sector workers, women, and youth are suffering disproportionately from reduced opportunities and unequal access to safety nets during the crisis,” said Albert Zeufack, Chief Economist for Africa at the World Bank. “As African countries continue to invest to keep their economies afloat and protect the lives and livelihoods of their people, it will be critical to ensure that every segment of the population is included.”

Economic activity in the region is expected to strengthen as countries act to contain new waves of the pandemic and speed up vaccine rollouts. Growth in the region is forecast to rise to between [2.3] and [3.4]% in 2021, depending on the policy measures adopted by countries in the region and the international community.

Sub-Saharan Africa’s recovery is expected to  vary significantly across countries. Growth is projected to rebound to [1.4]% in Nigeria, [3.0]% in South Africa, and 0.9% in Angola. Excluding Nigeria, South Africa, and Angola, activity is projected to expand at a more solid pace in the rest of the region. Non-resource-intensive countries, such as Côte d’Ivoire and Kenya, and mining-dependent economies, such as Botswana and Guinea, are expected to see robust growth in 2021, driven by a rebound in private consumption and investment as confidence strengthens and exports increase.

In Eastern and Southern Africa, the growth contraction for 2020 is estimated at -3.0%, mostly driven by South Africa and Angola, the region’s largest economies. The sub-region is projected to expand by 2.5% in 2021 and 3.3% in 2022. Excluding Angola and South Africa, economic activity in the sub-region is projected to expand by 2.6% in 2021, and 4.0% in 2022. Delayed vaccine rollout and modest growth prospects in South Africa and Angola, owing to persisting structural constraints, will weigh on the sub-region’s recovery.

After a 1.1% contraction in 2020, real gross domestic product in Western and Central Africa is projected to grow 2.1% in 2021 and 3.0% in 2022. Nigeria’s muted growth prospects and slow vaccine rollout will weigh on the sub-regional economic outlook. Excluding Nigeria, growth in the sub-region is projected to rebound to 3.1% in 2021, following a modest contraction in 2020, and strengthen to 4.3% in 2022. Metals exporters and non-resource-rich countries are expected to drive the recovery.

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