Amazon Web Services (AWS), an Amazon.com, commissioned a new report quantifying the relationship between public cloud computing adoption, national productivity, and economic growth in sub-Saharan Africa (SSA). The report highlights the potential for Kenya to unlock Kshs 1.4 trillion of additional economic value over the next decade (2023-2033), representing 0.56% of Kenya’s cumulative gross domestic product (GDP), by accelerating adoption of cloud computing.
The study, performed by Telecom Advisory Services, and directed by Raul Katz, Director of Business Strategy Research at the Columbia Institute for Tele-information (Columbia Business School), provides a cutting-edge econometrical method for calculating the aggregate productivity gains realized by economies that adopt cloud computing. It extends previous economic research focused on firm-level productivity by establishing cloud adoption as a driver of national productivity and economic growth.
(TOP: Amrote Abdella, the GM for sub-Saharan Africa at AWS).
According to the report, in 2021 Kenya added 0.08% to the GDP, amounting to Kshs 12.9 billion of economic value. Over 91% of this impact can be attributed to the national productivity gains or so-called “spillover effects” on the economy. The remaining 9% was driven by cloud spending from both public and private organizations in the SSA region.
On average, SSA countries experience a 0.02% increase in GDP for every 1% increase in cloud penetration. An increase of 1% in cloud adoption by Kenyan organizations will yield an average GDP increase of 0.03%, above the SSA average at 0.02%, but behind the SSA regional leader, South Africa, where 1% cloud adoption yields 0.06% GDP increase.
Kenya has ambitious plans to diversify its economies through digitization. Twenty six percent of organizations in Kenya adopted cloud computing in 2021, versus 49% in Western Europe and North America, showcasing the potential there is to improve cloud penetration.
Amrote Abdella, the GM for sub-Saharan Africa at AWS, said: “This report underscores the immense potential for SSA to harness cloud computing and expedite economic growth. By increasing the current average cloud penetration, the region can unlock additional economic value. AWS is committed to supporting its customers and partners in SSA, and around the world, throughout their cloud journey. We firmly believe that cloud technology will be crucial in driving innovation, boosting productivity, and scaling businesses in the region over the next decade.”
The study demonstrates that the economic impact of cloud computing is guided by returns to scale – greater adoption of cloud computing will lead to proportionally greater productivity gains and economic impact.
“With the current forecast, the economic impact of the cloud is undeniable and is poised as a key catalyst for economic prosperity. As such, it is important for businesses in the region to invest in cloud computing technology to stay competitive and boost their economic potential,” added Abdella.
Dr. Katz explains: “Until recently, research on the economic impact of cloud was focused on the firm-level, understanding the microeconomic benefits associated with cloud adoption (for example, capital efficiency, contribution to product development, and the like). These studies, while valuable, did not quantify the aggregate effect of cloud on the economy in a similar way to what has been done in areas such as broadband Internet. To address this gap, our team at Telecom Advisory Services developed a state-of-the art econometric model, leveraging global series of data on cloud adoption between 2014 and 2021. A common critique of the estimation based on econometric models is that the results could determine correlation rather than causality because adoption of digital technologies may be considered as a driver, but also a consequence of productivity and economic growth. The structural multi-equation model used in this study effectively endogenizes the variable that can drive reverse causality by specifying a micromodel of supply and demand, that is then jointly estimated with the macro production equation. To control for spurious correlations, the model also includes fixed effects.”
The report identifies four key advantages of cloud computing: First, it enhances business efficiency and effectiveness, streamlining processes and improving outcomes; second, it offers access to a wide range of services, enabling businesses to leverage advanced technologies; third, it boosts productivity by facilitating collaboration, mobility, and agility within the workforce; fourth, cloud computing promotes environmental sustainability by reducing carbon emissions per unit of data transmitted.
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