The importance of digitalisation and the digital economy in driving growth and structural transformation, as well as optimising fiscal performance in Africa cannot be overstated, economic experts have said.
Vera Songwe, the Executive Secretary of the UN Economic Commission for Africa (ECA), noted this while officially opening the 52nd session of the ECA Conference of African Ministers of Finance, Planning and Economic Development, underway in Marrakech, Morocco
The value of the global digital economy, she said, is estimated at over $11.5 trillion, set to rise to over $23 trillion by 2025. It is now estimated to represent 15.5 per cent of global GDP and is expected to reach 25 per cent of global GDP in less than a decade.
Songwe said: “There has been a rise in the digital innovation hubs on the continent, such as the Silicon Savannah in Nairobi and the Kumasi Hive in Ghana, not to mention more solution-oriented technologies such as ‘Flutterwave.’”
The Flutterwave application enabled global payment processing in Nigeria through a single, seamless platform. Last year, it processed $1 billion worth of transactions. Such digital developments, Songwe said, can have a transformative effect across the economy by reducing barriers to entry and expanding market reach for businesses, creating jobs, and boosting both domestic and foreign trade in goods and services.
“Digital trade in Africa is rapidly growing at an estimated annual rate of 40 per cent, and is expected to constitute a growing share of trade, especially for intra-African trade.”
Digital technology, she added, can help tackle youth unemployment by increasing access to the much-needed skills, such as through Massive Open Online Courses; and through linking skilled workers such as electricians and mechanics with clients online.
Adam Elhiraika, Director for Macroeconomic Policy Division, ECA, pointed out that some African governments have been able to reduce corruption, reduce the cost of tax collection, enhance management of government expenditure, among others, due to embracing the digitalisation.
Elhiraika said: “Digitalisation is one of the opportunities we have now. Countries in Africa like Kenya, Rwanda, South Africa, Burkina Faso, have raised tax revenue collection significantly, about six percent, through digitalisation.”
“Digitalisation will also help provide more opportunities for private sector growth so as to invest in other sectors. But digitalisation is also a tool for the private sector to invest in other sectors,” he added.
Companies are increasingly using online marketplaces to outsource tasks to workers globally. According to the World Bank, the total market size for online outsourcing was estimated to grow to $5 billion by 2018.
In Africa, Songwe said, there is a gradual trend towards digital solutions for tax and expenditure policy, public financial management and public service delivery.
Songwe noted that it is estimated that dissemination of digital transactions has the potential to reduce government leakages in public spending and tax collection amounting to $110 billion annually, “which could make a sizeable dent in the annual financing requirements for Africa.
“A growing number of countries in Africa have introduced e-filing, such as Ghana, Kenya, Rwanda and Zambia, and this trend is expected to continue.”
“The digitisation of public investment management has resulted in a budget execution rate of above 60 per cent in Rwanda compared to instances of 20 per cent project disbursement rate observed in some other East African countries.”
Promoting the digital economy and embracing the culture of digitalisation is not without challenges.
“I previously mentioned base erosion and profit-shifting where companies can avoid paying taxes by shifting profits to low-tax jurisdictions rather than the economy in which the profits were generated. Digitalisation can help reduce this practice as digital trade grows,” Songwe said.
There are also implications for digital trade rules. At present, very few countries have established national digital policies which support local content and the localisation of data – including intellectual property rights and privacy.
Leveraging digital access to local markets, promoting digital capacity and ensuring e-commerce is taxed accordingly are challenges which call for a concerted and coordinated approach amongst African countries, to avoid unintended barriers as they pursue industrialisation and structural transformation.
Lilia Hachem Naas, who heads ECA’s sub regional Office for North Africa, said: “Digital technologies would help establish more transparent, reliable and concrete methods to engender good fiscal practices that respond to Africa’s development challenges.”
“It is about encouraging complementarity among our member States and promoting South-South cooperation.”