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Accelerating Digital Integration in Africa

In 2021, the combined GDP of Africa’s 54 countries was less than 15% of the United States’ GDP. The continent consists of many relatively small countries, economies, and markets, which is a disadvantage on the world stage, where countries with huge populations and GDPs wield the most influence.

Deeper economic integration in Africa offers a pathway to shared prosperity and increased global influence. Regional integration, similar to the European Union’s, has been cited as a key to creating stability, growing economies, improving market efficiency, sharing the costs of large infrastructure projects, and addressing peace and security. And since the world is becoming more digital every day, digital integration is vital to successful regional integration.

In this context, “digital integration” refers to creating shared systems and standard rules for digitalization across Africa. It entails digital cooperation, particularly in finance, governance, and security. In practice, digital integration will feature concepts such as a harmonized digital financial system, consistent continent-wide laws for digital activities, and shared regulatory technology like identity verification, electronic taxation, and business registration systems. Among other things, digital integration will facilitate optimal trade, resulting in cost savings, better information flow for improved participation in global commerce, and greater market access, particularly for small businesses, which dominate trade in Africa.

Private sector partnerships, building interoperable systems, and focusing on the infrastructure for power and the internet are three key ideas that could help accelerate this digital integration.

Private Sector Collaboration

Many private African organizations have successfully established themselves across national boundaries, driven by profit-making ambitions and unrestricted by bureaucracy or politics. Despite inherent challenges, corporations like NaspersMTN Group, and Ecobank, for example, have found ways to expand across national borders. They can serve as reference points and potential partners for the digital integration of Africa’s economies.

Fostering digital integration requires collaborations between these private players, governments, and regional bodies. The Pan-African Payment and Settlement System (PAPSS) demonstrates that this approach is feasible. While PAPSS is the product of a partnership between the African Union and the African Export-Import Bank, it depends on a network of some of Africa’s largest private commercial banks.

A centralized payment and settlement system for intra-African commerce, officially introduced in January 2022, PAPSS facilitates continental commerce and deeper economic integration. It enables payments for intra-African trade transactions in local currencies (Africa has roughly 42 currencies), reducing expenses and accelerating trade settlement and payment. Before PAPSS, the typical payment route between two African countries required that an African currency be first exchanged for dollars, pounds, or euros and then swapped a second time for a different African currency. This raises the cost of intra-African currency transactions by an estimated $5 billion each year.

Building for Interoperability

Building continent-wide digital systems will take time and significant resources, but immediately prioritizing interoperability could create the foundation for digital integration. Thus, public digital systems being built in African countries should be interoperable — that is, have capabilities for the exchange and use of information with other similar systems in other countries. Inevitably, some economies and sectors move faster than others with digitalization. Therefore, building with interoperability in mind will allow for easy integration in the near future.

With identity systems, for example, an ideal scenario would be for ID obtained in Nigeria to be easily digitally verifiable by a bank in Namibia. This would be possible if Nigeria’s digital identity system had the capacity for interoperability. Moreover, interoperable ID systems across the continent would allow for continent-wide know-your-customer systems, enabling access to financial services anywhere in Africa and thus making intra-African commerce easier.

Of course, interoperable public systems require significant policy and regulatory interventions. Governments and regional bodies must address challenges such as harmonizing standards, enhancing current legal frameworks, and adopting cybersecurity, consumer, and data protection regulations to facilitate successful interoperability.

Power and Internet

Digital integration has no chance if digital services are only accessible to a fraction of the population, as in many African countries. While physical infrastructure like roads, rails, and ports connecting the continent is critical to Africa’s physical integration, power and the internet will determine the success of digital integration.

Many African countries still have less than half of their population as internet users, with countries such as Burundi and the Central African Republic having less than 15% internet penetration. Similarly, 600 million people, or 43% of the entire African population, do not have access to electricity, with the majority living in sub-Saharan Africa. Therefore, accelerating universal access to power and the internet should become a priority.

Source : Harvard Business Review