Economists across the globe are warning of another world recession in 2020. But, compared to the 2007 recession, the impact is likely to be grimmer because of trade wars, anti-immigration policies, the ending of global stimulus packages, aging populations in some countries who are not able to pick the slack, and in others an under-educated youth bulge.

World Bank says investing in digital transformation and human capital will have a massive knock-on effect on poverty reduction and boosting economic growth in Africa

In Africa, the impact will most likely be felt even more. There are increasing debt levels, a decline in exports, current account deficits are rising, most governments cannot deliver basic services, civil wars, and poverty and inequality continue to rise, despite some economic growth. A case in point is South Africa. The country’s GDP for the first quarter of the year fell to its lowest in 10 years due to a number of reasons, including regular power outages, low investment confidence, and manufacturing production remaining flat.

While this picture is gloomy, a World Bank Africa Pulse report focusing on the digital economy which was published in April 2019, argues that ways to tackle the fragility of Sub-Saharan Africa are stronger institutions, enhanced policy environments, and improved services. With these measures, it believes that the digital economy can unlock new pathways for inclusive growth, innovation, job creation, service delivery, and poverty reduction.

It says while the region has made great strides in mobile connectivity, it has not kept pace with the rest of the world in accessing broadband. This is compounded by only 27% of Africa’s population having access to the internet, few citizens have digital IDs, and businesses are painfully slow at adopting digital technologies.

Also, only a few governments are investing strategically in developing digital infrastructure, services, skills, and entrepreneurship. In South Africa, this has been acknowledged by the government and other stakeholders – and is a reason for the 4IRSA initiative. But like other countries, there needs to be an investment in human capital and access to connectivity cannot only be in urban areas.

The report argues that a digital transformation will raise growth per capita by 1.5 percentage points and reduce the poverty headcount by 0.7 percentage points per year. If there is an investment in skilling and upskilling, it believes these figures can double. It says while access to broadband is critical, it is not enough to ensure these digital dividends.

“The digital economy also requires a strong… foundation, consisting of regulations that create a vibrant business climate and let firms leverage digital technologies to compete and innovate; skills that allow workers, entrepreneurs, and government officials to seize opportunities in the digital world; and accountable institutions that use the internet to empower citizens,” the report reads.

It, however, warns that closing the gaps in the digital economy is not sufficient. Countries need to have a strong “analog foundation” such as regulations that foster connectivity and competition, digital skills that are technology-augmenting, and labour and product market policies that help with labour reallocation as technological opportunities emerge. Policies and institutions that enforce cybersecurity are also essential.

“Education, skills, and labour market policies play a key role in securing that the available skills of individuals in the labour market support the adoption and use of digital technologies. As digital technologies continue to become more sophisticated, the skills mix necessary to succeed in the labour market will change dramatically. It is imperative that education and training systems keep up with the rapid pace of innovation,” the report reads.

It argues that evidence shows that stringent labour regulation restricts the flexibility of firms in hiring low-skilled workers to perform routine and manual tasks. Instead, business-relevant education and training programmes should enhance workers reallocation across tasks, as technological opportunities expand or change, and workers need to become more mobile across firms and industries.

By: Amy Musagrave