WORLD BANK POLICY BRIEF Economic Transformation through Digital Technologies Will Africa Make the Right Decisions? Who is this policy brief for? Why was it prepared? Ministers and parliamentarians responsible for To inform deliberations on policies and programs policies on ICT and innovation, the development of for job creation and economic growth through the informal sector, and broader economic growth digital technologies by presenting the best available and equality issues, education, finance, and labor evidence and policy implications based on this and social protection. evidence. Full report The evidence summarized in this Policy Brief is described in detail in the report The Future of Work in Africa: Harnessing the Potential of Digital Technologies for All. This report is available on the World Bank Open Knowledge Repository. FOUNDATIONS OF ECONOMIC TRANSFORMATION THROUGH DIGITAL TECHNOLOGIES The three Cs - What needs to be done Promote Competition to spur Invest in Capital to build skills Increase Capacity of government and enable rival businesses to that strengthen entrepreneurial to make the necessary public invest- adopt new technologies and ex- and worker human capital and to ments in social protection to allow for pand production at affordable build physical infrastructure capital, greater risk-taking by entrepreneurs prices, generating demand for including digital infrastructure, and and to support workers in transition jobs of most skill types. reliable electricity and transport. between jobs. The three Es – How to do it Enable entrepreneurship so that Enhance productivity of informal Extend social protection cover- African innovators build apps workers and businesses by le- age by improving revenue col- and other solutions that are then veraging low-skill-biased digital lection, rebalancing government scaled to enable workers to build technologies. spending and better coordinat- their skills as they work. ing development assistance. THE AFRICAN EXCEPTION mobile payments for the unbanked, voice and vid- eo-based e-extension services for farms and firms, The World Development Report 2019: The Changing Nature of and Uber-like platforms that do not require reading Work highlights that, globally, the nature of work will be charac- and numeracy skills create economic opportunities terized by tension between losses in “old” manufacturing sec- for lower-educated, lower-skilled workers. tors that are susceptible to automation, and job gains driven by product innovation in “new” sectors. Making the informal sector work better Is this the future of work in Africa? The short answer is no, due primairly to underlying conditions in the region, including per- for Africa The informal sector in Sub-Saharan Africa is large, ac- sistently low levels of human capital, an exceptionally large in- counting for almost 90 percent of total employment, formal sector, and insufficient and inefficient social protection most of it in agriculture, comprising not only small but systems. also large firms. Farms, firms, and workers in the infor- mal sector typically have poor access to information on Most African countries also face different development chal- input, knowledge, and output markets, suffer from lower lenges such as lower levels of technology adoption, a smaller productivity, and have limited revenues. manufacturing base, and more under-employed people than in other regions. Policies that focus solely on formalization have not worked for Africa and an approach that seeks to in- Fortuitously, these conditions also represent opportunities for crease productivity is needed. African governments to forge a different path from the rest of the world. If widely adopted, digital technologies hold the prom- Digital technologies can be utilized more intensively ise of helping firms grow and, most importantly, create more by informal firms and workers, especially women. They jobs for everyone, not just a privileged few. help access information and credit markets, increase financial inclusion, and boost productivity. They also Why lower-skilled workers in Africa may make formalization easier over time. benefit more from digital technology than the rest of the world How social protection can encourage About 60 percent of the Sub-Saharan Africa labor force com- innovation and entrepreneurship and prises adults who are ill-equipped for jobs, a cloud that hangs over the region. The silver lining is that lower-skilled workers in why it is important The limited coverage of social protection systems in Sub-Saharan Africa may benefit more from digital technology African countries increases vulnerability and inequali- than workers in other regions. There are at least three possible ty, especially among the poorest, and stifles innovation reasons for this: and entrepreneurship. Increasing risks from climate • Digital technologies that automate tasks in the manufactur- change, conflict and trade integration will only increase ing sector are not likely to displace many workers over the the need for social protection. Digital technology can coming years. In Africa, the manufacturing sector is small, help. About 8 in 10 Africans are not covered by any accounting for 8 percent of employment on average, and safety net. Digital technology can be used to establish there has been little automation to date. Most workers are early warning systems and digital identification systems engaged in the informal sector, in agriculture and services. and help reduce remittances transfer costs to effective- • Greater responsiveness of consumers to price reductions from ly mitigate risks. Social protection schemes can foster technology adoption should translate into jobs. The opportuni- entrepreneurship and risk-taking, especially for workers ty comes from cost and price reductions from new technology in the informal sector and in transition. adoption by farms and firms. In an environment of pent-up demand for higher-quality products, price reductions are ex- About pected to make these products affordable for mass consump- tion. This, in turn, should allow for sufficiently large increases 60 PERCENT in production to create more jobs, provided the products can be competitively produced in Africa. of the Sub-Saharan Africa labor • Low levels of human capital and high levels of informality force comprises adults who are provide ample scope for worker-enhancing digital tech- ill-equipped for jobs, a cloud that hangs nologies in both formal and informal sectors. For instance, over the region. SPOTLIGHT ON POLICY - WHAT The informal sector in Sub-Saharan Africa YOU NEED TO KNOW NOW accounts for almost In Africa, faster internet helps create jobs across education levels. Urgent investment in digital infrastructure is neces- 90 percent sary to reach the African Union’s goal of universal and af- of total employment, most of it in fordable internet for all. At the same time, there is a critical need to equip workers with digital skills and to address uni- agriculture. versal basic digital literacy for all. Moreover, governments need to invest in complementary assets, such as reliable electricity and transport, and improve the overall business environment. Informality is not limited to individuals and small businesses. Large firms are also partially or fully informal and should be Moving forward, short- to medium-term policies better utilized for job creation. should focus more on pro-productivity and skills up- grading interventions for informal, small-scale firms Social protection schemes are not just about mitigating risks and unskilled workers. for workers in the formal sector. They are needed to also provide safety nets for workers in the informal sector and in transition. This is key to creating a supportive business environment for innovators and entrepreneurs. ers) and digital skills (for more specialized careers). Governments and their development partners will need to • Invest in “analog” complementary assets. Public-private rebalance public investments to expand the coverage of investments are required in electricity and transport and social protection systems. This means moving away from logistics infrastructure. Favorable trade policies and some distortionary fiscal incentives that harm productivity broader business environment reforms remain crucial to growth and investing in social protection for workers, the enhance Sub-Saharan African firms’ participation in glob- urban poor, young people and individuals in transition. al value chains and foreign direct investment attraction. Build human capital What are the right decisions for Africa? • Use targeted measures to train a critical mass of in- From our research, we recommend that policy makers focus ventors and entrepreneurs to develop and scale digital on four objectives: technologies to boost the productivity of all workers, es- pecially low-skilled workers in current and new occupa- Improve the availability of digital technologies tions, and to strengthen the delivery of education and • Close the current gap in digital infrastructure and en- health services. hance affordable broadband access with improved reg- • Enable inventors and entrepreneurs by fostering these ulatory frameworks. Further regional harmonization, ecosystems and mitigating appropriate risks that the pri- supported by increased regulatory capacity through re- vate sector faces in funding them. gional hubs, should allow (i) more effective subsidization • Promote universal basic digital literacy to enable broad- to support universal access and thereby boost poverty er participation of all segments of the population in the reduction, combined with (ii) more effective pro-compe- digital economy. tition regulation of digital infrastructure to create bigger markets. The positive interactions between subsidies (to boost demand) and lower costs (spurred by asset Address informality differently sharing and trading and greater economies of scale and • Focus on pro-productivity and skills-upgrading interven- scope) should allow larger markets to sustain more oper- tions for small, informal farms and firms and unskilled ators—with competition spurring innovation and access workers. Leverage low-skill-biased digital technologies for all. to boost productivity, job creation, access to credit, and financial inclusion. • Support the accumulation of digital skills. Public-private partnership support could include education and worker • Target traditional formalization policies on larger informal training programs focused on digital literacy (for all us- firms that aggressively compete with formal firms. Extend social protection coverage WHY IS IT URGENT TO ACT • Create the enabling environment to establish effective early warning systems, including insurance markets, to NOW? identify risks in time for effective mitigation. As Africa sits on the precipice of digital transformation, • Increase public investments in social protection and governments will need to make some bold choices. Glob- labor systems by improving revenue collection, using al risks emanating from climate shocks, fragility, economic public expenditure reviews to justify the need for rebal- integration, and population transitions are transforming the ancing government spending, and coordinating devel- work landscape. The growing youth population makes it opment assistance. more urgent for Africa to invest in technologies that will create more and better jobs. The continuing high levels • Integrate social protection and labor policies into lon- of poverty make it imperative to invest in ways that reduce ger-term national and regional strategies for economic rather than exacerbate the digital divide. The African ex- transformation, employment, and poverty reduction. ception means that there is still time for governments to • Coordinate regional organizations, financial regulators, make the right decisions now and pave the way for the and development partners toward common objectives next generation of African workers, inventors and entrepre- on tax policy, reducing remittances costs, and provid- neurs to innovate and thrive. Importantly, the commitment ing development assistance to enhance social protec- of the African Union to promote digital technologies pro- tion coverage. vides a window of opportunity to broaden the policy de- bate. Acting now should be a stimulus to facilitate all types of technology adoption to generate the jobs and economic transformation that Africa needs. Zipline uses drone technology to save lives Launched in October 2016, the drone delivery project made Rwanda the first country in the world to use the drone technology at the service of saving lives. The drone delivery project is a partnership between the Government of Rwan- da and the California based robotics company, Zipline, Inc. With the help of these drones, patients no longer have to wait for blood for hours to get to remote clinics and hospitals. They can now receive blood transfusions in minutes. Photo: Sarah Farhat / World Bank A DVA NC E ED I T I ON The Future of Work in Africa Harnessing the Potential of Digital Technologies for All Jieun Choi, Mark Dutz, and Zainab Usman A Companion to the World Development Report 2019 on the Changing Nature of Work Website: https://openknowledge.worldbank.org/handle/10986/32124 Offic of th Chi f Economist, Afric R ion