WEF advocates Start-up Acts to boost Africa’s digital economy
Africa is trailing behind the world in developing a knowledge-based digital economy.
However, passing legislation such as a Start-up Act, designed to spur private sector innovation, can change this by fuelling growth for tech start-ups through incentives and investment in workforce skills.
This is according to the World Economic Forum’s (WEF’s) latest report: Attracting Investment and Accelerating Adoption for the Fourth Industrial Revolution in Africa.
It analyses the challenges Africa faces in joining the global knowledge-based digital economy and presents a set of tangible strategies for the region’s governments to accelerate the transition.
According to the report, written in collaboration with Deloitte, increased funding and progressive laws for tech start-ups are the key to unlocking Africa’s digital economy.
Compared to the rest of the world, the current adoption and impact of the fourth industrial revolution (4IR) on the continent remains low, and embracing the 4IR also requires investment in digital transformation, artificial intelligence, the internet of things, robotics and 3D printing.
It further points out the biggest challenges in Africa remain inadequate infrastructure and skills, which hamper broad adoption of 4IR solutions by businesses and consumers. However, Africa has an advantage over developed markets: the continent is not impeded by outdated legacy infrastructure and may have little difficulty in embracing change.
The report supports passing legislation such as so-called Start-up Acts, which it says reduce the burden of regulation and promote entrepreneurship, in which Tunisia and Senegal are leading the way.
“African governments urgently need to drive greater investment in the tech sector and the knowledge economy,” says Chido Munyati, head of the Africa division at the World Economic Forum.
“Policy-makers can make a difference by reducing the burden of regulation, embedding incentives within legislation and investing in science and technology skills.”
The Act, notes WEF, if adequately implemented, has the ability to unlock and embed incentives for start-ups, such as start-up grants, rebates on efficiency gains through technology implementation, co-investment of critical infrastructure, tax-free operations for the early years, and incentives for research and development.
The report also shows legislation can propel investments in workforce education and skills development, and improve overall competencies.
Tunisia and Senegal are the continent’s forerunners, having introduced their Start-up Acts in 2018 and 2019, respectively.
In SA, the Start-up Act is currently still at conceptualisation phase. The proposal aims to advance economic development in SA. It seeks to create a framework for the creation and development of local start-ups based on creativity, innovation and the use of new technologies to create strong added value and competitiveness at national and international level.
In October, SA’s Start-up Act committee released a Start-up Act draft position paper, which details research findings, gathered over six months.
The position paper shows legislation would encourage job creation and socio-economic development in SA, while helping to stimulate innovation and the exportation of technology-related products and services.
Rwanda, Kenya, Ethiopia, Uganda and Ghana have initiated discussions with their key government stakeholders to introduce Start-up Acts.
Despite African start-ups raising $1.2 billion of new capital in 2020 – a six-fold increase in five years – this represents less than 1% of the $156 billion raised by US start-ups in the same year, notes WEF. Meanwhile, Africa’s investment in R&D was just 0.42% of GDP in 2019 – less than a quarter of the global average of 1.7%.
Delia Ndlovu, Africa chairman of Deloitte, believes digital transformation promises to boost economic growth in Africa. “Connecting the region to the global digital economy will not only open new avenues of opportunity for small businesses, but will also increase intra-Africa trade, which is low at 16% compared to markets such as intra-European trade, which is approximately 65% to 70%.”