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High Costs Impeding Digital Adoption Among African Businesses (IFC)

The International Finance Corporation (IFC) has stated that the high cost of digital equipment and software in Africa is hindering businesses from digitising their operations.

In a report titled ‘Digital Opportunities in African Businesses’, the IFC indicated that African firms could better leverage digital technologies to enhance their productivity and profitability.

The report stated, “Digital equipment and software are more expensive in Africa, in terms of US dollars, compared to other regions, thereby deterring firms from adopting them. Using novel datasets with item-level information, this research finds that machinery and equipment, both digital and analogue, are 35–39 percent more costly in Sub-Saharan Africa, in absolute terms, than in the United States, and 13–15 percent more expensive in North Africa.

“This research also finds that standard software is more expensive in Africa. Other factors that complement technology adoption, such as digital infrastructure, electricity, and specialised, highly skilled workers, are also relatively scarce and expensive in Africa compared to other regions worldwide. Trade frictions—including high tariffs on imported digital goods, lack of infrastructure, and market concentration—hail technology affordability and diffusion on the continent,” the report stated.

Suggesting ways to unlock funding that could boost digitalization, the report noted, “High costs of digital adoption can lead to opportunities for digital business providers and the financial sector. Firstly, improving the coverage of digital infrastructure can enhance the quality of digital enablers (for example, internet connection and the use of cloud computing) and facilitate access to advanced applications (for example, business administration software with a lower cost of implementation and maintenance).”

It added that this could also increase the expected value of adopting computers and other devices.

“Secondly, digital tech providers, especially start-ups, can design novel applications and digital platforms that offer affordable, user-friendly solutions for performing specific business functions.

“Thirdly, financial sector providers can expand their markets to fund these new digital solutions, as well as finance digital technologies that leverage information on businesses and reduce risks and transaction costs for their operations, improving coverage and reducing the cost of capital involved in digital upgrading,” the report further stated.

The report also recommended that reducing tariffs on digital goods and facilitating market integration of digital business solutions would make technology more affordable.

“African countries have consistently imported nearly 70 percent fewer digital goods relative to other manufacturing imports than the rest of the world. Tariffs on digital goods are higher in Africa than elsewhere. The African Continental Free Trade Area is set to reduce tariffs on technology goods imported from member countries, but its impact might be limited because most imports of digital goods come from outside the region,” it explained.

According to the IFC, import-weighted tariffs on these products would decrease by only 0.3 percentage points on average across countries.

“Simulation exercises suggest the AfCFTA negotiations should consider including tariff concessions on digital goods imported from non-member countries, potentially curbing costs more significantly, especially in countries that currently have the highest tariffs,” the IFC remarked.

The IFC is the largest global development institution focused exclusively on the private sector in developing countries.

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