Digital transformation has had a monumental impact on the world as we know it. Digital technology across the globe is being used to transform industries, create smart cities and drive social and economic change. There is no doubt that in developed regions, this transition has happened faster than in developing countries. Still, we must note that we are seeing an incredible shift across Africa, especially East Africa, in how technology is being utilised, so much so that many call East Africa a new hub for digital innovation. This blog examines the question, “Is East Africa adequately prepared for a comprehensive digital transformation and ready to become a digital economy?”
Factors that have contributed to digital transformation in East Africa
The East Africa Community (EAC) includes Kenya, the Democratic Republic of Congo, Burundi, Rwanda, South Sudan, Uganda and Tanzania. These countries all differ in terms of where they are with digital innovation individually, but together they are focused on transitioning to digital economies. To fully understand why this region is becoming known as an innovation hub for digital transformation, it is essential to understand the various factors that have contributed to this, which we outline below.
Mobile Money Revolution
One key factor contributing to East Africa’s digital transformation is the resounding success of mobile money platforms. For example, M-Pesa in Kenya has revolutionised financial services by allowing users to transact, pay bills, and send money using mobile phones. This innovation improves financial inclusion in the region for the many unbanked individuals who previously had no access to financial services.
Overcoming Traditional Infrastructure Challenges
Across the region, many East African countries have turned to digital solutions as a response to the lack of infrastructure development. For example, a lack of access to traditional banking methods has led to the rapid growth and adoption of mobile money platforms. Another great example is the use of USSD to fulfil several necessary services like topping up airtime or buying prepaid electricity where there is a lack of physical locations to provide these services.
Focus on Entrepreneurship and Tech – Start-ups
The region has seen a dramatic surge in tech start-ups and entrepreneurial activity. This has been driven by the young and tech-savvy population eager to create solutions to address local challenges, from agriculture and healthcare to education and transportation. An article published by the Financial Times mentions that Africa’s tech sector has recently become one of the fastest-growing tech ecosystems in the world, with tech being one of the fastest-growing sectors in Africa.
Supportive Ecosystems for Digital Transformation
In this region, Governments, NGOs, and international organisations have taken the steps needed to create supportive environments. Incubators, accelerators, and funding opportunities have become available and accessible to innovative projects and tech start-ups. Some governments in East Africa have also adopted policies that encourage digital innovation. These regulatory environments can attract investment and foster growth in the tech sector. Across the board, there is a unified focus on growing this sector and uncovering its potential.
Internet Penetration and Connectivity
While internet penetration rates in East Africa are lower than in some other regions, they have been steadily increasing, enabling more people to access digital services and opening up new opportunities for digital innovation.
From the above, it is clear that several inroads have been made in digital transformation within this region. As well as all evolutions, several other factors significantly affect and challenge the move to digital. We unpack the challenges and opportunities related to each of these factors below.
Industry-Related Factors: The Mobile Industry's Significance
Across the region, many thriving tech start-ups focus on largely undeveloped sectors, and in doing so, they target underserved individuals and businesses. In this way, start-ups utilise digital solutions to improve access to necessary services across industries, including financial, retail, transport, education and health.
The increase in mobile connectivity and access has been fundamental to the success of these start-ups, as the improved connectivity enables the adoption of these digital technologies. In this way, Telecoms infrastructure is a foundation for developing digital economies as it drives economic growth, digital inclusion and social mobility. With the digital economy set to significantly contribute to the Gross Domestic Product (GDP) of 7.7%, this sector is vital to grow, develop and invest in.
With this being said, there are still several challenges in terms of mobile connectivity that need to be addressed. Let’s unpack this in more detail.
According to GMSA’s Mobile Economy report, 35% of the region’s mobile customers are still on 2G, 51% are on 3G, and 14% are on 4G. We are also looking at mobile subscriber penetration, which is only sitting at 45%, which is less than half of the region’s population, with smartphone adoption sitting at 42%.
These statistics tell us that although mobile broadband networks cover many areas, many individuals are not using mobile internet services. This usage gap is caused by several barriers, which include affordability and the need for digital skills. This provides an opportunity for Telcos, specifically within the region, to bring in new services and products that meet users’ needs and focus on digital education.
Telcos also need to continuously upgrade the networks in these regions, which often require more infrastructure to enable users to access a broader range of services. This relates to the introduction of 5G within the area.
For digital innovation to be truly transformative, these innovation hubs should have access to the latest generation networks. According to a recent study on the Rise of Africa’s Digital Economy by the European Investment Bank, the physical infrastructure layer is central to transitioning to a digital economy as it provides foundations for the higher layers in all value chains. Without reliable and secure high-speed networks and data centres, there can be no sustainable digital transition. Africa still needs investment in the physical infrastructure layer as many markets on the continent do not have sufficiently deep or comprehensive coverage, and the available networks are not at the right price and quality point. This is the case for several of the countries in East Africa. This report also states a strong need across the continent to increase the capacity of transmission networks and leverage investment in infrastructure to promote last-mile connectivity to underserved areas by mobilising blended finance. It is widely understood that private sector organisations are crucial to expanding connectivity and infrastructure and, increasingly, supporting local innovations.
These barriers must be overcome to unlock the true potential of the mobile connectivity available and the digital innovations coming out of this region. When this does happen, there will be a dynamic shift in economic growth and development.
Skills and Talent Development: Nurturing a Digital Workforce
In the above section, we briefly mentioned that the lack of digital skills is a significant challenge in adopting digital technology. This is directly related to the region’s need for digital literacy and ensuring digital skill development.
In simple terms, digital literacy is the ability to use information and communication technologies to find, evaluate, create, and communicate information, requiring cognitive and technical skills. In this way, digital literacy works hand in hand with digital inclusion and ensures that individuals can use and access information and services using communication technologies.
With digital penetration within the region still relatively low, low digital literacy is also common. This is slowly changing as schools, institutions, private businesses, governments, and NGOs are pushing to bridge this digital divide and increase digital literacy in the region. For example, a US company called Andela has set a goal to train 100000 African software developers by 2024. This is being done put providing free online tools to software developers to help reduce the labour gaps and help young people build careers within the field of software development.
Programs like the above assist in giving individuals within the region the digital skills needed to be successful in a modern digital workforce. As accessibility and mobile subscriber adoption increases, so does the need for digital literacy and skills development. This provides a significant opportunity for economic growth upliftment, especially where the creation of digital businesses and jobs is concerned.
Economy: Implications of Digital Transformation
Digital transformation within the region has seen greater adoption and use of digital services across economic sectors, especially in finance. This has had several positive effects on the economy as it has increased investment interest, created new accessible markets, and improved efficiency and inclusion. In many ways across the region, digitisation has been the main driver for financial inclusion, starting with retail electronic payments and now expanding to include services such as insurance, savings and crediting services. This evolution has significantly impacted previously unbanked medium and low-income households and MSMEs.
Digital solutions have also been at the centre of increased productivity in sectors such as agriculture, financial services, transport, and public services. Over and above this, the emergence of East Africa’s digital economy is bringing new products and services into the region, potentially creating jobs for young people.
Adopting and using these digital solutions also generate social benefits through improved quality of life. Those benefits generate political support for transitioning to a digital economy and attract impact investors and entrepreneurs.
With so many economic benefits, governments need to implement policies and regulations that support the development of more digital solutions geared to people’s skills and needs while building broader awareness and education. These policies are essential to ensure that more individuals can use the Internet for jobs and learning, leading to higher living standards.
When digital technologies can meet the needs of people within the region, the demand for their use will also increase, resulting in a market for internet expansion and advanced connectivity. This will then create a cycle of technology-led transformation.
From the above, we can answer the question, “Is East Africa adequately prepared for a comprehensive digital transformation and ready to become a digital economy?”. The answer is twofold. East Africa is already experiencing digital transformation across all sectors, but moving towards becoming a completely digital economy is a distant dream. Although the region is fast becoming a digital innovation hub with several successful digital technologies, the usage gap is a significant barrier. With only half of the region connected, there is immense potential in the future to drive even more digital innovation. However, this will require Telcos, private businesses, governments etc., to come together and invest in building the infrastructure required to truly transform the region into a connected digital economy. The innovations and digital technologies developed within the region are constantly evolving, making this an exciting space to watch.
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Steven Sutherland experienced Adapt IT Divisional Executive, dynamic business leader for their Telecoms Division with a demonstrated 25-year history in the telecommunications and IoT sectors. Strong global marketing, sales, and business development professional with 15 plus years focused experience in the Southern and Rest-of-Africa markets and a unique blend of entrepreneurial spirit combined with a passion for both technology and business.
At Adapt IT Steven is responsible for building and growing the Telecoms Division on top of its industry-proven software competencies including but not limited to Customer Experience and Self Service, NextGen VAS, IoT, FINTECH, and Advanced Analytics. Steven is always looking forward to an opportunity to demonstrate the value that his 20 plus years of experience in these disciplines can bring to your business