Ease of doing business within the digital economy across African countries…
The World Bank annually publishes the Ease of Doing Business index, which ranks countries from 1 to 190 and calculates an average score for countries and regions based on how favourable the countries’ regulations are for business operations. Year over year, countries work hard to revise regulations in order to increase their Ease of Doing Business scores and overall ranking. Compared to a global average score of of 63.0 in 2020, Sub-Saharan Africa scored 51.8, marking it as one of the weakest regions overall.
A strong digital economy is a precursor to improved ease of doing business. The ‘Digital Economy’ is the economy as it pertains to computing technologies. Although conducting business via the internet has been the biggest growth factor for most (if not all) economies, the digital economy encompasses much more. It consists of the hardware, software, application and telecommunication devices that are used in all aspects of the economy be it private businesses, the government or non-profit organisations. Having a National Digital Economy Strategy document is a sign that a country is ready to put in the effort – through policies and infrastructures, to transition into a digital economy.
It should be noted however, that drawing up a plan is one thing, while executing this plan is another. This transition from idea to implementation is where several countries experience failure. So the question becomes: which African countries provide the best opportunities and favourable regulations for digital economy business operations?
Whilst all African countries have their own advantages for the advancement of digital economy business operations, there are four main metrics postulated by Mbwana Alliy Venture Capitalist from Savannah Fund, to be used in assessing the ease of doing business in digital economies across Africa:
1) Target Audience: digital economy businesses are targeting people who have access to the internet, mobile devices and have at least a certain level of disposable income (middle class population) . As such, countries experiencing increasing GDP, growth in population size, and widespread mobile and internet access are ideal for digital companies, and makes conducting business easier. Such countries include Nigeria, South Africa, Ghana and Egypt.
2) Towers: these are regulations, taxation policies and general processes to ease business operations in the country. Some countries implement policies that make it easier to conduct business by reducing registration and licensing costs, encouraging transparency in processes, providing convenient methods for tax payment, and making cross-border trade easier. These countries include Mauritius, Rwanda, Morocco, Kenya, Botswana, South Africa, Zambia, Tunisia and Seychelles. In contrast, e-hailing taxi service providers in Lagos, Nigeria have to pay an operating fee of $25,814 in order to conduct business. In Tanzania, there is an 18% Value Added Tax (VAT) on all mobile phones sold. This clearly has an impact on the ease of doing business and serves as a deterrent to companies in those markets.
3) Talent: reviewing a country’s exports provides insight into the productivity of the country as well as diversification of the economy. In countries with undiversified economies that are dependent on just a few exports, skilled talent outside of the export product or service is often very difficult to find. Resources are focused on building talent related to the export product or service, thus creating a skill gap in other industries. This affect the ease with which business can be conducted, as a lack of skilled labour is a major cause of business failures. Countries such as South Africa, Mauritius, Egypt, Tunisia, Morocco and Namibia are more diversified which means they have the least skill gap.
4) Entrepreneurial Ecosystem: an enabling system for the digital economy business is also important. For example, ensuring there are hubs spread across the countries that offer spaces where like-minded people can meet, learn, grow and collaborate. Countries such as Nigeria, Kenya and South Africa all have their own “Silicon Valleys”.
Applying all four metrics to the assessment of the ease of conducting business in digital economies within African countries, Kenya holds the top rank. For countries lagging behind, investing in their connectivity infrastructure, providing tax breaks, revamping the educational and incentivizing businesses in the economy will aid in growing their digital economy.
Written by Busola Akin-Olawore