Digitalisation could boost Africa’s poorest countries, says World Bank

Digitalisation could improve fiscal policy, the quality of public administration and the fortunes of the private sector in some of Africa’s poorest countries, according to a report from the World Bank.

The annual Country Policy and Institutional Assessment (CPIA) report, which rates countries eligible for support from the International Development Association (IDA) on their policies and institutional arrangements, said that high-speed internet in sub-Saharan African countries “increases the probability of employment by between 6.9 and 13.2% as well as increasing the growth of output per worker and reducing poverty”.

“On the digital side, expansion of information technology has the potential to be transformational in the region, potentially allowing for significant structural changes across economic activity,” the report states.

IDA-eligible countries are those with a gross national income per capita below a certain threshold – in fiscal year 2024, this was $1,315.

The report says that digital technology can boost job creation through a variety of channels, including matching firms to workers, enabling productivity-enhancing activities, improving market access and sales, and reducing informational frictions.

Greater digitalisation could also enable the integration of customs procedures across multiple authorities in the region. It would allow for knowledge transfer and sharing, boosting the potential of intraregional trade, which the report says is a major opportunity for IDA-eligible countries.

“Trade integration through one-stop border crossings has grown considerably in recent years, often taking advantage of digital technologies for rapid processing and coordination of trade administration,” the report states.

Boosting fiscal policies and the quality of administration

Digitalisation has the potential to improve ratings on a number of CPIA criteria, such as fiscal policy.

The automation of revenue collection has the benefit of reducing human intervention in tax collection, crowding out opportunies for bribery solicitation, and allowing for extensive data collection leading to better analysis and detection of tax irregularities. 

“In addition to direct impacts on private sector activity, digital infrastructure offers the opportunity to address binding policy constraints, including reducing corruption and enhancing domestic revenue.”

Another potential area of improvement is the rolling out of taxation on a wider scale. Estimates suggest that sub-Saharan African countries could raise additional domestic revenue totalling $60bn per year if they could achieve similar levels of property tax collection to industrialised countries.

Recently, Togo instituted a digital fiscal cadaster– a property register – and reduced land registration fees from 5% to 1.5% of the estimated value of the property, in conjunction with a communication strategy about the benefits of paying property taxes.

Quality of public administration is another area that can be enhanced with digitalisation. Ghana and Nigeria have introduced electronic procurement, while Kenya and Tanzania are experimenting with using technology in the justice system. Burundi has digitalised about 80% of public sector personnel files; and the Central African Republic has introduced mobile payments for government services. 

“The emergence of technology critically enables improvements in public administration in many countries. Across the region, these reforms are anchored in efforts to improve property and contract rights, strengthen public sector performance, and increase executive accountability, including through strong civil society engagement.”

A lack of supporting infrastructure remains a crucial problem in supporting digital uptake in the continent, however; half of Africans are burdened by a lack of electrification, and though Africa accounts for one-fifth of the world’s population, the region currently attracts only 3% of global energy investment, according to the International Energy Agency (IEA). 

“Successful implementation of a digital transformation will require widespread access to affordable energy. Electricity outages in the region reduce the entry of both domestic and foreign firms and have a negative impact on the productivity of existing firms,” the report states.

Credible economic and social reforms

Overall, the report finds that countries in sub-Saharan Africa weathered 2023 relatively well thanks to credible economic and social policy reforms. CPIA scores kept the same aggregate as the previous two years; but more countries saw improvements in their overall scores than received downgrades, and fewer countries’ scores declined compared to the previous year’s CPIA assessment. 

That being said, improvements are not universal, and governments facing budget constraints linked to high debt service costs will need to work harder to attract private sector investments to stimulate economic growth. The report indicates that debt replaced international shocks as the key threat to economic stability in the region. 

“Private sector investments will need to pick up after years of investment growth coming from the public sector. High interest rates and public debt mean that the public sector can’t continue to do the heavy lifting, but there are huge opportunities around trade and the digital economy,” said Nicholas Woolley, the report’s main author.