Chapter 2. Policies to create jobs and achieve Agenda 2063 in the digital age

The majority of Africa’s intermediary cities are located far from a high-speed terrestrial fibre-optic network. In Central Africa, only 5% of the intermediary cities are within 10 kilometres (km) of the backbone network, compared to 36% of the big cities (Figure 2.1). In Southern and East Africa, on the other hand, the backbone network has expanded further across the urban networks, with respectively 71% and 51% of the intermediary cities connected to the terrestrial fibre-optic broadband network. Box 2.1 explains the methodology used to analyse the spread of Africa’s broadband communications infrastructures across space. Annex 2.A1 shows the results on a map and reports the unconnected cities by population size.

Investing in high-speed communications infrastructures for intermediary cities can connect a large population to the terrestrial fibre-optic network. Nearly six in ten (57%) of all African cities that are not connected to the network lie within only 50 km of it; in 2015, they accounted for a total estimated population of 146 million. Attracting private investments for broadband connectivity for small towns and intermediary cities would allow resource-constrained governments to benefit from strong multiplier effects. According to an expert survey by the African Union Commission and the OECD, digitalisation can help unleash new opportunities for direct job creation in large and intermediary cities, while these opportunities are rather limited in rural areas (Figure 2.2). In addition, broadband connectivity brings positive spillovers in the connected regions, in terms of both employment and firms’ productivity (Sorbe et al., 2019).

As Africa’s rural population continues to grow, intermediary cities can act as transmission hubs that serve the rural hinterland, strengthen rural-urban linkages and drive rural transformation. Africa’s rural populations will continue to grow in absolute terms at least beyond 2050 (see Chapter 1). Increasing productive activities – such as food processing, agricultural inputs supply services, logistics or warehousing facilities – in intermediary cities will be crucial to connecting Africa’s rural-urban supply chains (Traoré and Saint-Martin, 2020; Minsat, 2018). This will also help local small and medium-sized enterprises (SMEs) meet regional demand. Firm-level data on Côte d’Ivoire show that when the location quotient, or concentration, of firms increases by 10% in intermediary cities like Daloa or in Odienne, firms operating there increase their sales by 15-17% (Fall and Coulibaly, 2016).

Greater investment in connecting border cities to the communications infrastructures could increase opportunities for transborder activities, jobs creation and economic development. The proximity of border cities is spurring promising transborder co-operation. Many of the intermediary cities in Africa are located within 50 km of national borders.1 Neighbouring countries are creating cross-border special economic zones (SEZs). In 2018, Burkina Faso, Côte d’Ivoire and Mali launched the first cross-border SEZ in Africa – called SKBO – with the aim of encouraging agro-industrial and mining companies to set up in the area spanning between the cities of Sikasso, Korhogo and Bobo Dioulasso (AUC/OECD, 2018). Similarly, in 2019, Ethiopia and Kenya announced their intention to convert the Moyle region into a cross-border free trade zone (UNCTAD, 2019).

Affordability of data and Internet-enabled devices is an essential complement to infrastructure development for digitalisation to benefit a larger number of African households (Box 2.2). Subscriptions to mobile phones have steadily increased; however, the high cost of data services is the main factor limiting the use of Internet services. Among the Internet users surveyed in ten African countries in 2017, over a third (36%) stated the cost of data as the main limitation to Internet use (see Figure 2.3). Of those who do not use the Internet at all, the cost of Internet-enabled devices is the second-most stated barrier to accessing the Internet (23%); right after the lack of awareness about the Internet. Similarly, research on mobile financial services shows that barriers to using Internet services include other factors such as lack of money or regular income, low levels of digital literacy and limited knowledge of basic financial concepts. For instance, self-exclusion may also occur due to low levels of financial and digital literacy (OECD, 2018a). Usually, these barriers are higher in remote and rural areas.

In 38 out 48 African countries for which data are available, current prices of data services would have to be halved to be affordable for 75% of the population and would need to be reduced even further to achieve universal affordability. Despite their gradual decrease over the past decades, data services on the continent are the most expensive in the world. In 2018, only 17% of Africa’s population could afford one gigabyte (1 GB) of data, compared to 37% in Latin America and the Caribbean, and 47% in Asia (Nguyen-Quoc and Saint-Martin, forthcoming). In Mozambique, about six in ten households stated that they could not afford the necessary devices required to access the Internet (Gillwald and Mothobi, 2019). This share is four in ten in Uganda and three in ten in Rwanda. Only in four countries (Egypt, Mauritius, Namibia and Tunisia) are today’s prices affordable to three-fourths of the population (Figure 2.4).

Ensuring sound competition among telecommunication providers can enhance diversity and affordability of last-miles services. Spectrum allocation policies, which assign scarce radio frequency bands to operators, should facilitate licensing procedures for telecom service providers aiming to cover underserved populations or geographic areas. For example, allowing small operators to use virtual or mobile network facilities can improve product diversity and market competition. Countries can also exploit vacant radio spectrum bands, previously used by television broadcasting, for broadband Internet transmission, as the successful tests in Malawi and four other southern African countries demonstrate (see Chapter 3). Microsoft has also been experimenting with TV White Spaces since 2009 and has implemented pilot projects to connect communities in countries such as Botswana, Colombia, Ghana, Kenya, Namibia, the Philippines, Tanzania, South Africa, the United Kingdom and the United States (OECD, 2018e).

Innovative public-private alliances can help design cost-effective solutions to connect less densely populated rural areas (OECD, 2019f). SES, the world-leading satellite operator, estimates that about 30% of Africa’s rural population may never be technically reachable with the terrestrial fibre-optic network in a cost-effective way (AU-EU DETF, 2019). In Nigeria, for example, Internet service providers find that extending service to rural areas via the terrestrial fibre-optic network is commercially unviable due to low commercial returns, higher maintenance cost, and the lack of reliable grid electricity supply (World Bank, 2019). To expand coverage in their rural areas, some countries are encouraging private investment through a variety of incentives and new partnerships.

For example:

  • In Algeria, Ghana, Kenya and Nigeria, the public sector partnered with mobile telecom companies and with the telecommunications equipment providers to bring cost-effective mobile broadband services to their rural populations, via microwave systems called RuralStart 2.0 (GSMA, 2018; ITU, 2020).

  • MTN, the pan-African telecom operator, announced in 2019 that it would deploy more than 5 000 Open Radio Access Networks (Open-RAN) sites across its 21 African operations to bring 2G, 3G and 4G connectivity to areas that were previously under-connected (Parallel Wireless, 2019). Guinea and Uganda are already benefiting from this technology.

Governments can use Universal Service and Access Funds (USAFs) as a policy vehicle for rural connectivity. Thirty-seven African countries created USAFs – special programmes with funding schemes for universal Internet access and services. USAFs are typically financed through mandatory contributions by mobile network operators and other telecom companies with the aim to expand connectivity and digital services to underserved locations (GSMA, 2014). A recent review (Thakur and Potter, 2018) found that governments can better use USAFs. About USD 408 million, or 46% of funds collected across Africa, were still unspent by end-2016. Some countries, such as Nigeria and Tanzania, have used their USAFs to promote rural connectivity:

  • Nigeria has established the Universal Service Provision Fund, which invests in Community Resource Centers in semi-urban and rural areas. It provides subsidies for operators to expand their broadband service in these areas through the Rural Broadband Initiative.

  • Tanzania, in partnership with two telecom companies (World Telecom Labs and Amotel), has used part of its USAF to connect its villages with over 1 500 inhabitants via a microwave-based solution. The system went live in 2016 and connected 2.5 million rural people for the first time.

Greater continental co-operation under the direction of the Digital Transformation for Africa Strategy is necessary. Transborder co-operation can lower transit costs and interconnection rates, yielding benefits for both coastal and landlocked countries. Prohibitively high tariffs can restrain access to backhaul infrastructure (i.e. subsea cables and international bandwidth) for small service providers (see Chapter 1).

New technologies such as smart contracts, real-time payments solutions and distributed ledger technologies (also known as blockchain) can fundamentally transform the agricultural sector and help address the specific challenges of smallholders. Smallholder agriculture and rural non-farm activities are central to reduce poverty and enhance the livelihoods of large numbers of African people; still, they face significant obstacles to access markets and generate sufficient income (Fan and Rue, 2020; Poole, 2017). A stocktaking exercise of these so-called Disruptive Agricultural Technologies highlighted that their focus ranges from enhancing agricultural productivity (32%) to improving market linkages (26%) and, to a lesser extent, data analytics (23%) and financial inclusion (15%). The top five countries with the highest activities in agricultural technology, or agritech, are Kenya, South Africa, Nigeria, Ghana and Côte d’Ivoire. Over 83% of agritech solutions do not require high connectivity and can operate with intermediate connectivity (Kim et al., 2020).

Scaling up smart contracts and real-time payments solutions can enhance rural-urban supply chains. Several examples show how smart contracts and digital payments help better match demand and supply, reducing the number of intermediaries, offering higher prices and stable markets to farmers and reliable supplies to vendors. For example, Kenya’s mobile-based platform Twiga Foods, launched in 2014, serves around 2 000 outlets a day through a network of 13 000 farmers and 6 000 vendors (Bright, 2019). However, policies must help scaling up beyond single business cases.

Digital solutions can provide farmers with location-specific agronomic information and tailored advisory services at lower costs. Agritech and data-related start-ups are on the rise across the continent: Farmerline and Esoko in Ghana, Data Science in Kenya, Korbitec in South Africa, OroData in Nigeria and Eduweb in Kenya (UNECA, 2018). Governments can collaborate with tech companies to diffuse affordable and user-friendly solutions for agricultural extension services and spread the best farming practices. Here are some case studies, which stakeholders could use for mutual learning and scaling up:

  • Ethiopia’s Agricultural Transformation Agency has developed the Ethiopian Soil Information System, or EthioSIS. This system provides a digital map analysing the country’s soils down to a resolution of 10 km by 10 km which it updates regularly (Annan, Conway and Dryden, 2015; das Nair and Landani, 2020). Soil mapping has resulted in yield improvements of up to 65%, thanks to more informed use of fertilisers and better soil management.

  • In Kenya, DigiFarm for Consumer allows financial service providers to connect to its platform, access farmers’ data and offer them services on the hub (GSMA, 2019a).

  • In Malawi, weather-based index insurance, the provision of drought-tolerant seeds and ICT-enabled weather information services assist farmers. Some 140 000 rural smallholder households have benefited.

  • In Uganda, the MUIIS initiative provided weather forecasts, agronomic information and access to financial services to smallholder farmers, increasing yields and incomes for over 200 000 farmers.

New digitally-enabled business models can help improve product traceability for international trade. In Botswana and Namibia, radio frequency identification (RFID) chips are being used in the beef sector to better track and monitor animals’ health status and movement (Deichmann et al., 2016; World Bank, 2016). Blockchains offer promising solutions for real-time tracking and tracing of the origins of products at lower costs (OECD, 2019a). For example, Anheuser-Busch InBev applies blockchain systems to collect geo-location tags and match farmers’ profiles for each transaction in the supply chain (AB-InBev, 2019). Although promising, some challenges remain to be addressed to scale up the use of blockchain technologies in Africa’s agri-food value chains (Box 2.3).

Other promising innovations for agricultural development include shared-economy models and digital tools for land rights. Pay-as-you-go (PAYGO) renting models allow users to pay for lumpy investment goods in small increments (CTA, 2019). Examples include ColdHubs (for cold chains in Nigeria), Kobiri (for the rent of mechanised equipment in Guinea) or SunCulture (for solar irrigation pumps in Kenya). In partnership with the local authorities and blockchain-based start-ups, countries such as Ghana, Rwanda and Zambia have developed new solutions to manage land titling (see Annex 2 A2 for further details).

Most young Africans have skill sets that do not match their local labour markets. Between 2000 and 2020, Africa has made impressive progress in secondary and tertiary education completion rates among its youth (Chapter 1). However, both under-qualification and over-qualification of young workers in labour markets are pervasive across the continent (Morsy and Mukasa, 2019; AfDB, 2020). Surveys across 11 African countries highlight that nearly one in two youth feels his or her skills are inappropriate for the local labour markets, with 28% of youth feeling underqualified and 17% feeling overqualified. High educational attainment does not guarantee a better match: 35.5% of young graduates from the tertiary education feel overqualified for their jobs, while 6.1% feel underqualified (Figure 2.5). This skill mismatch creates dissatisfaction at work, affecting the overall productivity of the workforce and impeding firm dynamism, profitability and competitiveness (OECD, 2017b).

Africa’s education systems will need to equip youth with additional skills for the digital era. It is difficult to guess which specific skill sets will be the most demanded in local job markets within 10 or 15 years. Skills such as problem-solving and resilience will certainly be key to adapt to changing labour market conditions (World Bank, 2016). Youth will also need solid foundational skills, including good literacy, a basic knowledge of science, technology, engineering and mathematics, and digital skills. In Benin, Liberia, Malawi and Zambia, 60% of employers on average equally value technical skills (efficient use of materials, technology equipment and tools) and soft skills (teamwork and communication) as capital factors for their business development (Arias et al., 2019). Going up the value chain, jobs in activities such as marketing, logistics and quality control as well as in agri-business will require more advanced technical skills including data analytics or digital marketing (ACET, 2018; AUC/OECD, 2019).

School-to-work transition programmes need rethinking, in term of both focus and implementation. About 70% of Africa’s population are under 30 years old. A significant proportion of this young labour force is not in education, employment or training. They are outside the education and training systems, jobless or own-account workers in the informal sector. Low levels of Internet usage among these youth (see Figure 1.8 in Chapter 1) could limit the reach and effectiveness of approaches such as Massive Open Online Courses or on-job training within enterprises.

Policies should focus more on developing a wider skill base for young people. In most African countries, the formal sector is too small relative to the size of the youth cohorts entering the job market. For example, in Nigeria, the African country with the largest population, the local economy created an estimated 1.6 million formal sector jobs between 2013 and 2016. This compares to about 9 million youth turning 18 in Nigeria over the same period (Mastercard Foundation/Laterite, 2019). With such a job shortage in the formal economy, policies should focus more on developing a wider skill base for young people. The gender gap in digital skills is particularly worrying (E-skills4girls, 2020). Box 2.4 provides examples of gender-sensitive policies supporting skills development across the continent.

Tech hubs, incubators and tech companies can be of great relevance in preparing Africa’s youth for the transition to work. They can help design more effective training methods and new channels for lifelong learning and strengthen informal training institutions. A number of global tech companies are now carrying out initiatives around entrepreneurship and the development of digital skills for young Africans. Boot camps and joint incubation programmes with local tech hubs are part of this vibrant ecosystem. Academic programmes are creating new alliances with these actors.

  • In 2019, Microsoft launched its Africa Development Centre in Nairobi. The company expects to invest over USD 100 million in infrastructure and employment of qualified local engineers over the first five years of operation. It is also engaging in a number of training initiatives on the continent.

  • In May 2018, Facebook launched NG_HUB in Lagos in partnership with the Co-creation Hub to provide 50 000 young Nigerians with skills for own-business development and to nurture a strong mutual learning community of entrepreneurs (Oludimu, 2018). Beyond Lagos, the company has partnered with seven other tech hubs across the country (Jackson, 2018). #SheMeansBusiness (launched in March 2018) is another entrepreneurship training programme. It helps Nigerian women start and grow their own businesses.

  • In partnership with Facebook and Google, the African Institute for Mathematical Sciences (AIMS) created a new master’s degree programme, “African Masters in Machine Intelligence”, in 2018. AIMS is a pan-African network of centres of excellence in the areas of science, technology, engineering and mathematics.

With the expansion of e-platforms, a new category of own-account workers is on the rise on the continent: the iWorkers. Their work is entirely fuelled by the use of digital platforms and applications (such as Uber, Delivroo, Upwork, online click-work), through which prices and payments arrangements are set (OECD, 2016; Stanford, 2017). They remain self-employed but depend almost entirely on digital platforms to connect to their clients. In Africa’s cities, iWorkers are flourishing in jobs such as driving taxis, delivering food by motorcycle (Lakemann and Lay, 2019) and designing websites. Mastercard Foundation (2019) estimates that iWorkers could make up more than 10% of Africa’s total labour force by 2030.

While these “new forms” of self-employment provide opportunities to reach a wider customer base and pay lower operating costs, job quality is a concern. Many iWorkers face precarious working conditions (OECD, 2016; Graham and Woodcock, 2018). An Eurofound/ILO (2019) survey conducted in 75 countries between 2015 and 2017 found that: i) compensation is often lower than minimum wage in the respective countries, ii) incomes are often unpredictable, and iii) workers do not benefit from standard labour conditions as in a formal employment relationship.

Policy makers should start setting solid regulatory schemes and social protection for iWorkers. A number of African countries have recently assessed the working conditions for this category of own-account workers. In 2017, Egypt became the first African country to issue a national e-commerce strategy. In 2018, Liberia conducted a country-level assessment of e-commerce platforms. Policies should also support collective action to help better regulate platform work. For example, in Kenya, a group of online workers came together to set up an association in 2019, the first experience of its kind in the country (Melia, 2020).

Additionally, the global nature of online labour platforms calls also for an international approach to domestic actions. These platforms often have headquarters outside of Africa and do not fall into the jurisdiction of African governments. Unilateral tightening of regulation may put African workers at a disadvantage with workers elsewhere and potentially eliminating this livelihood option. Co-operation is key:

  • Setting international standards for responsible business conduct for lead platform companies can help tackle practices such as “uncontestable non-payment” (Berg et al., 2019).

  • Promoting certification, such as Fairwork, on employment conditions for platforms can also help hold these platforms accountable (Graham and Woodcock, 2018).

Financial technologies are key to boost financial inclusion among actors in the informal economy. For example, in Tanzania, the deployment of a mobile learning and interactive SMS system on financial literacy content, Arifu (integrated into M-Pawa, a mobile savings and loan product) significantly improved saving and borrowing behaviours among smallholder farmers. Arifu users took out larger loans (TZH 1 017/USD 0.44), repaid them quicker (by 5.46 days) and had larger first payments (TZH 1 730/USD 0.76 more) (Dyer, Mazer and Ravichandar, 2017). Similarly, the Ugandan mobile savings and loan product, MoKash, tackled illiteracy in rural areas by providing a didactic platform with pictorials instead of text, as well as on-the-ground help to assist customers with registering and performing initial transactions.

The spread of fintech − technology-enabled innovation in financial services − offers new ways of doing business. For example, the convergence of social media, mobile e-commerce and digital payments could disrupt the retail sector rapidly. In eight African countries,2 90% of sales of consumer goods go through informal retail distribution channels (PwC, 2016). Small retailers around the world consistently identify the same sets of issues where digital solutions could add real value: working capital financing, payment solutions, customer relationships, inventory managing and business intelligence (e.g. forecasting and business statics) (CGAP, 2019). A recent policy review (OECD, 2020a) shows that fintech is driving innovative funding mechanisms for smaller enterprises, such as recoverable grants, pay-for-success convertible notes and blockchain-based financing solutions (OECD, 2019c; CFF, 2018).

Fintech can help informal firms to formalise by allowing them to progressively adopt formal tools and processes. Currently, 50% of all own-account workers in Africa’s informal economy have a smartphone (ILO, 2018). Mobile money services are often the first formal financial channel used by informal actors (GSMA, 2019b; Klapper, Miller and Hess, 2019). Some informal firms already utilise digital applications and free social media tools to promote their products and services. Empirical evidence shows that adopting mobile financial services reduces the size of the informal sector in developing countries by 2.4 to 4.3 percentage points of gross domestic product (GDP) (Jacolin et al., 2019).

African policy makers can capitalise on regulatory reforms in fintech to expand the availability of fintech innovations.Box 2.5 highlights a number of regulatory initiatives in Africa. In 2019, Rwanda was the world’s top country in the GSMA Mobile Money Regulatory Index, which scores 90 countries based on the extent to which their regulatory framework enables widespread mobile money adoption (GSMA, 2019c). Five other African countries were classified in the top 10 (Malawi, Lesotho, Liberia, Tanzania and Burundi) and another five in the top 20 (Ghana, Angola, Guinea, the Democratic Republic of the Congo and Kenya).

In certain cases, policy makers may encourage the adoption of digital financial services by informal actors. For example, in 2014, the Government of Uruguay created tax incentives to promote the use of digital payments by firms and consumers; in the following three years, formal financial transactions increased sevenfold (Klapper, Miller and Hess, 2019). Similarly, in the framework of the Rwanda National Payment System (RNPS) Strategy 2018-2024, the National Bank of Rwanda and the Ministry of Finance and Economic Planning now actively encourage network operators and payment service providers to propose digital payment solutions to merchants (NBR, 2017). Other initiatives that provide digital legal identity to citizens such as Digital ID Blueprint for Africa are critical to enhance the functioning and trustworthiness of digital financial services.

Interoperability is key to sustain the diffusion of fintech and mobile money services, notably to accelerate the creation of Africa’s common digital market. Interoperability is the ability of different IT systems to access, exchange and use information seamlessly in real time, enabling all participants to operate across all systems. So far, cross-network transactions do not take place in real time, and their unit cost is high (Ndung’u, 2019). Initiatives for regional interoperability are now taking root across the continent. For example:

  • In July 2018, the East African Securities Regulatory Authorities agreed to employ regulatory sandboxes to encourage innovation among capital market practitioners who operate regionally (Wechsler, Perlman and Gurung, 2018).

  • In 2018, Orange and MTN, two of the continent’s largest operators, created Mowali, a digital payment infrastructure connecting mobile money services within one inclusive network in 22 African countries.

  • Regional Economic Communities such as the West African Economic and Monetary Union (WAEMU) and the Southern African Development Community (SADC) are also developing projects to streamline payments in their regions and bring region-wide interoperability. These initiatives are particularly important in the context of the AfCFTA implementation.

Chapter 1 highlighted that two promising groups of entrepreneurs can benefit the most from using digitalisation to scale up and create new jobs. A first group is mostly dominated by early-stage start-ups and high growth SMEs bringing new technologies and business models to disrupt or create new markets. A second group is dominated by start-ups and SMEs that deploy existing products or proven business models as they seek to grow through specialisation in niche markets, market extension or step-by-step innovations. Implementing policies that empower these dynamic entrepreneurs to compete, grow and create more jobs in the digital era is critical.

Innovative entrepreneurs need global business partners and a regional mindset to grow. Connecting new African entrepreneurs with existing worldwide ecosystems or clusters can provide them with access to funding, markets, talent and support systems. This can enhance their innovation capabilities and positively affect their confidence, competitiveness and growth prospects (Accenture, 2019). In South-East Asia, many successful start-ups, such as the e-commerce giant Lazada and the transportation and logistics app Grab, were born with a regional mindset that helped them grow early and fast (Forbes, 2019).

Digital connectivity can enable Africa’s entrepreneurs to enter new niches. To be reachable online, SMEs can opt for developing their own website or for using social media or specialised trade platforms (Amazon, Alibaba, Jumia, etc.). These digital tools enable payment arrangements and better communication tools, co-ordination and tracking systems along the value chain while increasing visibility to potential customers and business partners. For example, a number of small tourism companies in East Africa have successfully served new niche activities within wildlife tourism and eco-tourism and for tourists from emerging markets (Foster et al., 2017). Results from an econometric analysis of 27 000 manufacturing SMEs in 116 developing countries (including 31 African countries)3 confirm that SMEs which adopt digital technologies are more likely to engage in international trade. Having a website is positively associated with a 4.6 percentage point increase in the share of imports among firm inputs and a 5.5 percentage point increase in the share of direct exports in firms’ sales.

With the appropriate digital tools and skill sets, entrepreneurs can produce digitally delivered services and avoid weak transport and logistics infrastructure. Since 2015, electronic transmission has become the dominant mode used in Africa’s trade in professional services (such as finance, insurance ICT and technical support). It accounted for USD 18.8 billion, or 57% of Africa’s export in professional services in 2017, up from USD 8.0 million in 2005. The gaming industry is another promising area. Forecasts say the gaming industry will surpass USD 200 billion of revenue globally by 2023, up from an estimated USD 145.7 billion in 2019 (Newzoo, 2019). In 2016, Kiro’o Games released Aurion, an African-themed video game, to the global market via the Steam platform. This small company of 20 employees, based in Cameroon, raised USD 57 000 in April 2016 to develop games from 1 310 backers through Kickstarter, an online crowdfunding platform (Kickstarter, 2019). It joins a recent wave of African video game makers from Egypt, Nigeria and South Africa that focus on producing unique, local narratives for the continental market (Dahir, 2017).

The high costs of moving physical goods, combined with slow and unreliable custom processes, hamper Africa’s intra-regional trade and SMEs’ survival rates on export markets. Jumia’s recent exit from Cameroon, Rwanda and Tanzania highlights this problem (Financial Times, 2019). Only 18% of new exporters in Africa survive beyond three years (AUC/OECD, 2019). In addition, only 11.2% of African SMEs have an internationally recognised quality certification.

Policies should aim to improve regulation and remove bottlenecks along the following segments of cross-border e-commerce: the online creation of businesses, international e-payments, cross-border deliveries, aftersale services, and standards and certification (WTO, 2018).

  • Cross-border recognition of e-documents is essential. Streamlining and interconnecting customs administrations through one-stop border posts (OSBPs) could simplify administrative procedures for regional trade. For example, the East-African Community (EAC) has reduced transit times and costs by fully operationalising the OSBPs in all its member countries in November 2018 (EAC Secretariat, 2018).

  • Regulatory harmonisation needs to accelerate in certain areas. These include licences for e-commerce, online tax registration and declaration for non-resident firms, electronic authentication and payment, online dispute resolution, and intellectual property rights. SMEs may not be able to comply with many national legislations on data and digital trade (OECD, 2004; Ferencz, 2019; Koski and Valmari, 2020). Regional Economic Communities are well-placed to:

    • Co-ordinate the establishment of coherent data protection frameworks that are compatible with international standards

    • Promote communication and support initiatives on compliance mechanisms.

The digital marketplace can enhance SMEs’ access to markets by lowering installation costs, improving co-ordination with distant partners and enhancing access to information. Global online platforms such as Alibaba, Amazon, eBay and TripAdvisor and regional ones such as Jumia, Takealot and Kilimall increase SMEs’ visibility while requiring little initial investment. E-commerce in Africa remains limited due to a low level of trust in online shopping and difficulties in shipping and paying across borders (López-González and Jouanjean, 2017). Amazon currently accepts sellers from only 23 African countries.4 Google Play Store accepts developer registration from 37 African countries and merchant registration from 27 African countries.5 Thus, developers and merchants from the other African countries cannot sell goods or applications on these platforms.

Governments must ensure competition in the digital economy so that many more African firms can join e-commerce platforms. Monopoly control over data and differences in scale can affect the distribution of gains between firms operating on e-platforms. Calligaris, Criscuolo and Marcolin (2018) document firm-level mark-ups across 26 OECD countries to show that, in digital sectors, a few “superstar” firms enjoy disproportionate market power and account for a higher share of the profits. Firms operating in “digital intensive” service sectors enjoy a 2-3% higher mark-up than firms operating in less digital intensive sectors. The gain is substantially higher (up to 43%) if a firm is operating in one of the top digital sectors. This differential widened during the period of study, 2001-14, and resulted mostly from the steep increase in mark-ups for the top firms.

Regulators and competition authorities need to ensure that competition policies and investigation tools are up to date and agile enough for data markets regulation. The digital transformation may introduce new dimensions of competition in markets and new ways to achieve anticompetitive outcomes, such as the use of algorithms to collude or the anticompetitive acquisition of start-ups by incumbent players (OECD, 2020b; OECD 2018d). Competition laws need, for instance, to limit exclusivity requirements and preserve “multihoming” where sellers can work with multiple platforms.6 In addition, dominant e-commerce platforms can substantially favour their own brands through recommendation systems and unmatched advantages in market data. To address these two issues, in 2018, Indian regulators banned foreign e-commerce platforms from imposing exclusivity requirements and selling products from companies in which the platforms had equity. The OECD Competition Assessment Toolkit can also assist governments in eliminating barriers to competition in a changing environment by providing a method for identifying unnecessary restraints on market activities and developing alternative, less restrictive measure. In 2019, Tunisia applied this methodology to review the competitiveness and efficiency of its wholesale and retail trade sectors, as well as road and maritime freight transports (OECD, 2019e).

Governments can actively promote open standards and fair access for businesses to data and to consumers on platforms while balancing legitimate concerns about personal privacy rights. Consumer data can increasingly serve as a competitive asset when providing products at a price of zero, or when developing personalised prices. Users’ data and content will also need to be portable across platforms so that data transfer does not bar users from switching to a superior platform. For example, regulators could make it mandatory for e-platforms to adopt open policies for their application programme interfaces (API). An API contains the set of routines, protocols, and tools that specify how different software should interact. Bilateral and regional co-operation may be needed across borders to ensure that common standards are applied and that information is available to regulators (OECD, 2020b).

Too few African entrepreneurs file for intellectual property (IP) protection. In 2018, only 17 000 patent applications, or 0.5% of the worldwide total (Table 2.2) were registered in Africa, of which a large majority (81.6%) emanated from non-residents (WIPO, 2019).

In most cases, the IP registration process remains costly, slow and cumbersome to navigate for local start-ups and inventors. For example, the cost to register and maintain a 30-page patent for the ten first years is about USD 37 000 in the ARIPO (African Regional Intellectual Property Organization) system and USD 30 000 in the OAPI (Organisation Africaine de la Propriété Intellectuelle) system (see Table 2.3). This is about 6 to 7 times higher than in South Africa (USD 5 216) or in Malaysia (USD 4 330) and more than 10 times higher than in the United Kingdom (USD 2 500). Relative to the country’s income level, Kenya’s patent registration fees are 13.3 times its GDP per capita, while for Senegal and Ethiopia the ratio is 10.2 and 7.9, respectively (Brookings, 2020). Consequently, most of Africa’s young innovators find themselves obliged to market their products without IP protection (ITC, 2016).

Policies need to support entrepreneurs register and defend their copyrights, brands, patents, industrial designs and trademarks. Making it easier to use IP (in particular patents and design rights in specific business activities) will help some young firms to obtain financing, drive job growth and spur innovation (OECD, 2015). In most African countries, three areas require particular attention:

  • Streamlining application procedures. An example of best practice comes from Kenya. In 2015, the Kenya Copyright Board collaborated with Microsoft 4Afrika to develop more user-friendly interfaces for registration. Innovators in Kenya are now able to register their IP and obtain copyrights through an automated online registration system. They can also receive a patent, trademark or certification mark from the Kenya Industrial Property Institute (ITC, 2016). The system resulted in a 100% increase in applications in the first four months and expanded to serve the Common Market for East and Southern Africa (Microsoft, 2016).

  • Reducing examination times and lowering the costs of IP registration for local entrepreneurs. Since 2016 in India, for example, the government has set up a fast-track scheme to enable start-ups to register patents and trademarks for their inventions. Selected facilitators provide start-ups with high-quality services throughout the filing application process, including fast examination of patents at lower fees. The government bears all facilitator fees, and the start-ups enjoy an 80% reduction in the cost of filing patents.

  • Strengthening the IP rights enforcement mechanisms and simplifying the procedures for their owners to receive royalties. In Nigeria, for example, about 70% of surveyed stakeholders considered that weak enforcement of the country’s intellectual property regime caused adverse effects on the Nollywood movie industry (Oguamanam, 2018). SMEs, online content producers and stakeholders in the creative economy often lack the resources and knowledge to defend their IP rights. In 2013, the Nigeria Copyright Commission disclosed that the country was losing over USD 1 billion to piracy annually (ICC/BASCAP, 2015).

Venture capital (VC) funding for Africa’s start-ups grew sevenfold between 2015 and 2019. Tech start-ups raised a total of USD 2.02 billion in VC funding in 2019, a 74% increase compared to USD 1.16 billion in 2018 (Partech, 2020). Most (54.5%) VC funding went to fintech and the financial sector.

The funding ecosystem for entrepreneurs remains fragile and inadequate. Just four countries (Egypt, Kenya, Nigeria and South Africa) have attracted the lion’s share (85%) of these VC funds. In a sample of 7 000 African start-ups, less than 10% have been able to raise funds from investors and venture capital. Only 5.4% of the total funds raised went to start-ups younger than five-years-old (Figure 2.7). Start-ups founded by women in particular lack financing (see Box 2.6). Financing for Africa’s start-ups and SMEs in general remains far below need. The International Finance Corporation (IFC, 2017) estimated that the 44 million micro, small and medium-sized enterprises in sub-Saharan Africa needed USD 404 billion of finance in 2017, creating a financing gap of approximately USD 331 billion, or 16% of the continent’s GDP.

Local banking and most local VC investors rely on the cash flow-based valuation system, which works well for older asset-based companies but often undervalues young enterprises with rapid growth potential. Consequently, many early-stage entrepreneurs face obstacles in obtaining loans from local banking systems, in spite of having promising business ideas. For example, among the 93 fast-growing tech firms located in the Yabacon Valley (Lagos) surveyed by Ramachandran et al. (2019), 60% reported access to finance (and in particular local investments and VC) as a major or severe obstacle.

It is urgent to adjust risk assessment and valuation methods for entrepreneurs. Traditional risk assessment and valuation approaches may fail to grasp the full potential of local entrepreneurs. Evaluating start-ups requires a greater emphasis on their business models, including suitability for the local context, scope for business expansion on the targeted market segments, team composition, motivation and education profiles. So far, few experienced investors have started considering these alternative valuation methods for start-ups (Wulff, 2020). African governments can use public guarantee mechanisms to encourage business angels and private venture capitals to invest more in entrepreneurs. Making data publicly available on entrepreneurial activities can help identify high-potential new businesses, provided it respects international standards and laws on data privacy and data protection. Capacity building agencies, such as incubators, foundations, training institutes and mentoring programmes, can help entrepreneurs prepare their projects better in order to attract more investment.

Governments can carry out direct funding and acceleration programmes for start-ups. Start-up accelerators aim to help companies scale up by connecting them to investors, business partners and clients. In some cases, they also provide some start-up capital, generally in exchange for an equity participation. The case of Egypt offers an illustrative example (see Annex 1.A2 in Chapter 1).

Prudent public procurements can boost demand for start-ups. In 2012, the Federal Government of Nigeria decided to test an innovative mobile phone-based input subsidy programme that provides fertiliser and improved seed subsidies through electronic vouchers. A four-year contract was awarded to Cellulant, a local fintech start-up, to create a mobile wallet solution (e-wallet) connecting farmers with input-suppliers and financial institutions. This programme has become one of the largest agritech solutions in Africa using mobile wallet technology (Cellulant, 2019). Through this initiative for agricultural inputs, called the growth enhancement support scheme, the Nigerian government distributed USD 7.3 million in subsidies to farmers. Since 2012, the e-wallet technology has delivered services to about 12 million farmers in Nigeria (Cellulant, 2020). Following a satisfactory evaluation in 2016 (Wossen et al., 2017; Uduji et al., 2018), the contract was subsequently renewed for another four years, until end-2020.

Countries with a sovereign wealth fund (SWF) should consider setting up small venture capital funds within their investment structures to support the development of start-up and SME ecosystems. Angola (see Box 2.7), Gabon and Senegal are paving the way. For instance, Angola’s SWF (FSDEA) and Gabon’s Okoume Capital devoted part of their budget to supporting entrepreneurial start-ups and innovation ecosystems. Senegal’s FONSIS (Fonds d’Investissement Stratégiques) invested in Teranga Capital, which in turn provides financing for SMEs (OECD, 2020c). Given the flourishing number of incubators in Africa, sovereign and strategic investment funds could even initiate a partnership with them to help them succeed. In recent years, Africa has been one of the most dynamic regions in the world in terms of SWF creation. From 2009 to 2015, assets under African SWF management increased by 39%, from USD 114 billion to USD 159 billion (Quantum Global, 2017). In 2020, there are 18 SWF currently operating in 14 countries on the continent (SWF Institute, 2020). Six of these African SWFs have assets over USD 1 billion.

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Improving the governance of land right systems is a crucial part of unlocking economic growth, creating jobs and reducing poverty in Africa. Land titling relies greatly on customary land tenure where land is managed by a village chief, traditional ruler or council of elders: about three-quarter of Africa’s land cover is under customary tenure, while statutory tenure is in the form of a renewable fixed-term lease. More than 90% of Africa’s rural land is undocumented (Byamugisha, 2013). Table 2.A2.1 highlights some inherent typical problems with such land right management systems.

Ghana, Kenya, Rwanda and Zambia are now applying blockchain-based digital technologies to strengthen their land right systems:

  • In Ghana, since 2016, digital technologies help create immutable and transparent digital land registries (Ghana’s Bitland works with the Land Administration Project, which was created by the Lands Commission and the World Bank). BenBen is a Ghanaian web and mobile application underpinned by blockchain technology that allows certified business actors to manage land records and perform land transactions (e.g. proving ownership, confirming a sale or accessing credit). BenBen has reduced the average time to confirm land entitlement from 12 to 3 months and the average time to receive feedback from the Lands Commission from 30 to 3 days (Berryhill, Bourgery and Hanson, 2018).

  • In Kenya, the Ministry of Lands announced the adoption of blockchain and artificial intelligence technology to streamline its registry by easing the transfer of information and ensuring transparency and processing of land acquisition. The process of digitising land in Kenya started in 2013 as per Section 9 of the Land Registration Act 2012. It gives the Registrar of Lands the mandate “to maintain the register and any document required in a secure, accessible and reliable format which includes amongst other ways, electronic files” (Bashir, 2018). In March 2019, the ministry announced that phase one of digitisation of land records would be finalised by 2020 (Mwangi and Mutheu, 2019).

  • In Rwanda, in November 2018, the Rwanda Land Management and Use Authority (RLMUA) and the Rwanda Information Society Authority inked an agreement – renewable to up to two years – with the United States Medici Land Governance (MLG) to design a paperless and corruption-proof process for land registration. The new technology uses blockchain solutions to easily share data, enabling more efficient and rapid land transfers and streamlining workflows. It also creates an interface with Rwanda’s tax authorities.

  • In Zambia, satellite images and machine learning validate data accuracy. Zambia’s Ministry of Land and Natural Resources created a mobile application, jointly with the MLG. The memorandum of understanding signed between the institutions in 2018 led to streamlining a titling process that builds on the 50 000 homes on which MLG collected governance information. The next step, begun in May 2019, will lead to the issuance of no fewer than 250 000 certificates of title related to real estate property under the jurisdiction of the Lusaka City Council in and around the capital city.

Tackling land rights is a complex policy issue. Any digitalisation initiative will need to adapt to local conditions and social institutions. First, it is important to ensure appropriate technologies are accompanied by regulatory oversight to safeguard data security and privacy protection. For example, Kenya’s Land Registration Act 2012 gave the Registrar of Lands the mandate to develop an electronic land registry programme. However, the programme has stalled due to various challenges including torn and missing land records and poor ownership. Governments wishing to tap into such new technology options will need to implement a set of policies, regulations, workflows and performance standards as well as ensure broad public awareness that goes beyond the technologies themselves (Deininger, 2018). Working with social institutions remains essential in order for a locally legitimate process to adjudicate disputed claims (e.g. clarifying rights and agreeing on boundaries prior to a formal register entry).

Second, the importance of inclusive and empowering solutions, that take into account social institutions cannot be stressed enough. Studies carried out by Toulmin (2009) reveal that, even if the institutional capacity to provide formal land title registration in ways that are fair and reflective of the local context and complexity, such registration is often not needed: the rights of secondary land rights holders (i.e. women and herders) tend to be expropriated because they often are left out of the register. In fact, evidence demonstrates that focusing on titling alone may not necessarily lead to greater tenure security for women. It can instead do the opposite. To ensure tenure security, policies must expand the range of interventions that address internal and external constraints women face when exercising their land rights (Salcedo-La Viña, 2020) to ensure that they can also make land-use related decisions.

Notes

← 1. In the case of West Africa, the populations of these border cities have been growing faster than those of other cities in the region (OECD/SWAC, 2019).

← 2. Cameroon, Côte d’Ivoire, Ethiopia, Ghana, Kenya, Nigeria, Tanzania and Zambia.

← 3. The sample includes more than 27 000 SMEs from the World Bank Enterprise Survey. The regressions control for a number of firm characteristics such as ownership status (foreign versus domestic owner), the experience of the manager, capital intensity and the capital utilisation rate. Using the Generalised Linear Model estimator, the regression also includes fixed effects for each country, sector (ISIC 3-digit level) and year.

← 4. Authors’ calculations based on the list of countries accepted for seller registration on Amazon Seller Central, https://sellercentral.amazon.com/gp/help/external/200405020?language=en-US&ref=mpbc_200417280_cont_200405020 (accessed 3 April 2020).

← 5. Authors’ calculations based on Google Play Console help, https://support.google.com/googleplay/android-developer/answer/9306917?hl=en&visit_id=637215196617653600-1175332302&rd=1 (accessed 3 April 2020).

← 6. For example, the dominant ride-hailing platform may have exclusivity requirements obliging its drivers to work exclusively for the company and thus discouraging drivers from trying out and working with competing platforms.

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