How Africa’s Digital Economy Is Being Restricted by the High Cost of Internet
Today, the Internet is as important as oxygen! Individuals, businesses, banks, economies, governments, etc. depend on the Internet in one way or another to survive. Two decades ago, the Internet was not as important as it is now to people and organizations with diverse interests in Africa. Individuals, businesses, and even governments have relied on manual, time-consuming methods to perform their daily operations.
The increasing use, application, and advancement of the Internet have led to what is now known as the “Digital Economy”. According to Wikipedia, the digital economy is an acronym for digital computing and digital economy and is an umbrella term describing how traditional economic activities (production, distribution, and trade) are transformed by the Internet, the World Wide Web, and blockchain technologies.
What does the term digital economy mean?
The term “digital economy” has been used interchangeably with the Internet economy, the web economy, the crypto economy, the new economy, etc. According to Investopedia, the digital economy refers to “new, high-growth industries that are at the forefront of technology and are believed to be the driving force for economic growth and productivity.” An economy that relies on manufacturing and raw materials to industries that use technology to create new products and services at a rate that a traditional manufacturing economy cannot match.”
The digital economy is a term that means or represents the economy to the extent that it depends on and/or works in tandem with technology. Therefore, with the development of technology, the economy also develops. The wave of technology brought with it many changes in almost everything and the economy was not far behind. According to an article published in Harvard University, “It is widely accepted that technology is the main driver of economic growth for countries, regions, and cities.
Technological progress enables more efficient production of more and better goods and services, on which prosperity depends.” Technological progress means a lot to any country. A country is made up of individuals, companies, legal entities, etc., who make up its economy in their own way. It is the aggregate activities of all these “threads” that make up the economy, and if they are improving, so does the economy. Technology has been shown to increase sales and profits for businesses, corporate operations, and even governments. Today, the digital economy in many African countries is a major contributor to GDP.
Where is Africa in terms of digital development?
Africa is still in its early stage of digital development, notwithstanding that there are many factors that could make this growth fast. According to the World Bank, “Internet access remains out of reach for most people on the continent, with only 22% reporting access in 2017. Very few citizens have digital IDs or transaction accounts, preventing access to critical services. Digital startups struggle to attract funding and “traditional” companies are slowly embracing digital technologies and platforms to increase productivity and sales. Few governments are investing strategically and systematically in developing digital infrastructure, services, skills, and entrepreneurship.” This highlights many issues with digital development in Africa, but we will look at one of the most troubling: Internet access.
In Africa, internet access is still low and one of the reasons for this is how expensive the internet connection is. While smartphone use has increased over the years, there is still a huge gap to fill on the continent. Regardless of the adoption of mobile phones, the high cost of the Internet is a major obstacle to Internet access. Africa, especially the sub-Saharan parts, ranks as one of the most expensive regions with the highest internet cost per 1 GB of data, according to a 2021 Business Insider report.
A more recent report by Cable Co UK, ‘Worldwide Mobile Data Pricing 2022’, surveyed 233 countries, territories, and sub-Saharan Africa, and five of the world’s 10 most expensive countries to purchase mobile data are located in Sub-Saharan Africa. The high cost of data has hampered the development of Africa’s digital economy. The World Bank said Africa has the opportunity to harness the digital economy as an engine of growth and innovation, but if it fails to bridge the digital divide, its economies are isolated and stagnant. Let’s look at some of the ways in which the high cost of the internet is hampering the growth of Africa’s digital economy.
How the high cost of the internet is hindering the growth of the digital economy in Africa?
The high cost of the Internet is slowing down the transformative effect on social and economic development. Technology and the Internet reduce the cost of doing business and reduce the gap between businesses and their customers. Let’s look at an example. Today, Amazon is one of the largest platforms for accessing goods and services, and while the company has a few physical stores, its online business is its primary business.
Buyers and sellers are connected online and business is conducted without the need to meet. This saves many costs; The cost of owning and operating a physical location, the cost of advertising, the cost of maintaining employees in your physical location, etc. The high cost of the Internet reduces the reach, which in turn reduces the transformation that the economy can go through.
Today, many individuals and businesses are communicating with their loved ones and their customers via the Internet. Collectively, a lot of money is spent. This affects the country’s GDP (taxes are collected by the government), jobs are created and businesses can maintain long-term relationships with their customers. Increased Internet access leads to greater gains for the economy and vice versa.
The Internet has proven to increase business productivity, competitive advantage, efficiency, and growth for businesses. For government bodies, the Internet has helped increase management, efficiency, decision-making processes, the interaction between governments and their citizens, etc. The high cost of the Internet is just a setback for all these benefits.
In addition, the Internet and technological advances have proven to be helpful in improving the social and economic development of small and large enterprises. Today we have seen many companies either fully evolve into e-commerce or adopt e-commerce practices along with their core operations. Experts believe that switching to e-commerce or adopting e-commerce practices is very important for companies in Africa to be able to compete efficiently.
While factors like infrastructure availability, smartphone adoption, government policies, etc. can make or break a country’s digital economy, the cost of internet access is one of the important factors to always consider. Last week, the Nigerian Federal Government announced a new 5 percent tax on GSM calls, SMS, and data usage – Nigerians will now pay a 12.5 percent tax on telecom services. Since Nigeria is already one of the African countries with the most expensive internet, this decision will have a dire impact not only on businesses but also on consumers who will bear most of the burden.
What can the government do?
Since it can be concluded that the high cost of the Internet affects the digital transformation and the economy of a country, the importance of maintaining Internet access cannot be overemphasized. The World Bank argues that “to become the innovators, entrepreneurs, and leaders of tomorrow, Africa’s youth must be empowered with digital skills and access to technology and markets that are essential to thrive in an increasingly digital global economy.”
The role of government in building your digital economy is awesome. The government has to provide the necessary infrastructure and enabling environment, adopt the right policies and recommendations, and the tables can turn to the digital economy of that country. “Governments must find more flexible and efficient ways to deliver services and interact with citizens. Companies must use digital central business models to connect with hundreds of millions of customers who were previously out of reach due to geography or low income.
Major development trends around the world, especially in more developed countries, can be studied by African countries and the results can be used to make informed decisions. Due to many factors, cell phones are very expensive in Africa. The government can work, either through partnerships or through a review of floating factors, to ensure that the rate of smartphone use increases in their country. African governments may also need to review their stance on cryptocurrencies.
Today, cryptocurrencies have become an engine of growth. Governments can take advantage of this. However, what is evident in Africa is a strong aversion to cryptocurrencies. Governments believe that cryptocurrencies pose a threat to their financial systems, as well as fueling crimes such as terrorism and money laundering. The Central African Republic thinks differently about cryptocurrencies. Bitcoin is not only legal in the country, but the country has also launched a native cryptocurrency called Sango Coin.
In conclusion, the importance of increasing Internet access by reducing the cost of access cannot be overstated. For individuals, businesses, and even the government, the high cost of internet access hampers their operations, which also determines how far a nation’s digital economy can go in terms of growth.
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