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8 World Economic Forum January 2023


Internet platforms could enable African countries to leapfrog to more effi cient systems, but better policies are needed to support local digital enterprises, says Addisu Lashitew.

Better policies are needed t o s upp o r t A f r ic a’s d ig it a l businesses

The share of Africa’s population connected to digital technologies is growing rapidly. In 2020, almost half a billion Africans – three-quarters of the continent’s adult population – had access to mobile phones. A growing share of the continent is also connected to the internet, although often through mobile data networks that have limited bandwidth.

Expanding access to digital technologies is opening up vast business opportunities in a continent otherwise characterised by bureaucracy, corruption and state failure. Digital technologies circumvent the institutional failures that have long suffocated business growth and dynamism.

Digital platforms that connect service providers with Africa’s consumers are particularly flourishing in sectors as diverse as banking, agriculture, transportation and other services.

Platforms for everyone Africa is known for its booming mobile money markets, which have supplanted bank branches for money-transfer purposes. Using digital tools for coordinating transactions, mobile money platforms have significantly reduced the cost of sending and receiving money while also extending these services to remote areas that used to be neglected by banks.

This is not confined to money transfer, but also

Addisu Lashitew is a non-resident fellow in the Global Economy and Development programme at the Brookings Institution.

other arenas of banking. M-Pesa in East Africa, Bank Zero in South Africa and FirstMobile in Nigeria offer a plethora of financial services including dedicated saving accounts and microfinance lending. Tens of millions of businesses and individuals around the continent now have access to small, short-term loans from mobile money platforms such as M-Shwari in Kenya and Branch in Nigeria. Peer-to-peer lending applications such as KiaKia in Nigeria and crowdfunding platforms such as M-Changa in Kenya are also linking African businesses that seek financing with investors from around the world.

In agriculture, digital platforms such as M-Farm and Twiga in Kenya are gearing towards connecting urban consumers with millions of rural farmers. These platforms remove middlemen – who used to exploit informational gaps to increase transaction costs – by directly linking buyers and sellers, and by actively providing both sides with reliable, verified price and quality information.

In other services industries, the vast potential of digital platforms is only beginning to take shape. Retail platforms such as Jumia and Takealot have already made important headway in introducing a culture of e-commerce. Local ride-hailing businesses are competing head-to-head with global giants like Uber, from Ethiopia to Egypt and South Africa.

Indeed, the “sharing economy” seems to be perfectly suited to the needs of African consumers, who have limited spending power. “Uber for Tractors” platforms, such as Hello Tractor of Nigeria and Trotro Tractor of Ghana, have enabled hundreds of thousands of African smallholder farmers to access affordable tractors for rent.

Digital platforms are also helping consolidate fragmented markets, such as the labour market for informal works and artisans. The Kenyan firm Lynk, for example, helps connect households and businesses with informal technical workers – such as carpenters, plumbers and electricians – through a digital platform that verifies and rates these workers.

Challenging digital monopolies These benefits of digital platforms come, however, with a number of challenges that introduce policy dilemmas. One of the challenges is that digital platforms tend to end up with one dominant player, due to the “network advantage” which means that new users join the largest platform. Like many other businesses with monopoly power, dominant platforms could be tempted to use bare-knuckle approaches to entrench themselves.

For example, the mobile banking application of M-Pesa, which currently has 50m active users around the world, has been accused of limiting the interoperability of its platform with other platforms, to reduce competition. Fortunately, Kenyan regulators compelled Safaricom, Kenya’s largest telecom firm, which also runs M-Pesa, to make its application interoperable with other mobile banking services.

The presence of a dominant platform is not without some merits. In African markets, where the infrastructure for supporting businesses is typically missing, a dominant firm with suffi cient resources can play a state-like role by building such an infrastructure.

Safaricom, for example, invested significant re-

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