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Digital economy poised to contribute trillions to Africa

Read time 3min 20sec

The African Internet economy, one of the largest overlooked investment opportunities of the past decade, has the potential to contribute $180 billion (R2.8 trillion) to Africa’s gross domestic product (GDP) by 2025.

This is according to e-Conomy Africa 2020, a newly released report conducted by Google and the International Finance Corporation (IFC), which provides an analysis of Africa’s current Internet landscape. The report points out the continent’s Internet market is proving resilient, as digital start-ups across the continent devise innovative solutions to problems in a fast-changing world.

According to the report, the projected potential for the continent’s Internet economy contribution could reach $712 billion by 2050. Driving this growth is a combination of increased access to faster and better quality Internet connectivity, a rapidly expanding urban population, a growing tech talent pool, a vibrant start-up ecosystem, and Africa’s commitment to creating the world’s largest single market under the African Continental Free Trade Area agreement.

The agreement was established by the African Union and requires members to remove tariffs from 90% of goods, allowing free access to commodities, goods and services across the continent.

According to the report, the mobile Internet is transforming life across the continent with the support of growing local connectivity and mobility, and a dynamic, young urban population.

With a potential to add up to 5.2% to Africa’s GDP by 2025, depending on the usage intensity of digital technologies by businesses, the Internet economy is improving productivity and efficiencies across large swathes of the economy, including agriculture, education, financial services, healthcare and supply chains, it notes.

“The digital economy can and should change the course of Africa's history,” says Stephanie von Friedeburg, interim managing director, executive VP and COO of IFC.

“This is an opportune moment to tap into the power of the continent’s tech start-ups for much-needed solutions to increase access to education, healthcare and finance, and ensure a more resilient recovery, making Africa a world leader in digital innovation and beyond.”

Investments in infrastructure, consumption of digital services, public and private investment, and new government policies and regulations will play an important role in supporting Africa’s digital growth. The report notes investment in digital skills will also need to increase in order to help drive technology usage and continue to grow the continent’s talent pool.

Start-up innovation growth

The report further states that currently, Africa is home to 700 000 developers, and venture capital funding for start-ups has increased year-on-year for the past five years – with a record $2.02 billion in equity funding raised in 2019.

Digital start-ups in Africa are driving innovation in fast-growing sectors, including fintech, healthtech, media and entertainment, e-commerce, e-mobility and e-logistics.

“The COVID-19 pandemic has demonstrated that digital start-ups in Africa are able to provide innovative solutions when they are needed most. For example, public sector partnerships with private healthcare start-ups are increasing the availability of testing and have expanded the capacity for medical recordkeeping,” according to the report.

“The continued operation of the informal sector – a major portion of Africa’s economic activity − is supported by e-logistics and e-commerce supply chain start-ups. New partnerships and business models like these will likely continue to influence start-ups across all industry sectors, even beyond the COVID-19 pandemic.”

An analysis within the report, conducted by Accenture, found that in 2020, the continent’s Internet GDP may contribute approximately $115 billion to Africa’s $2.554 trillion GDP (4.5% of total GDP). This is up from $99.7 billion (3.9% of total GDP) in 2019, with the potential to grow as the continent's economies develop.

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