IFC Survey: $2.7 Billion Extra Investment Required to Empower African SMB Digital Transformation

Susan Lund, Vice President, International Finance Corporation: Photo Source: https://www.ifc.org/en/about/leadership/susan-m-lund

The International Finance Corporation (IFC) has projected that Africa will need to double its annual expenditure to $6 billion in order to expand its digital infrastructure and bridge the connectivity gap between people and businesses on the continent.

This projected investment is targeted at deploying more fiber optic cables from the sea to the cities and homes in Africa, a move that is expected to facilitate improved Internet connectivity, foster digital inclusion, and unlock the continent’s vast economic potential

Susan Lund, IFC’s vice president of economics and private sector development, underscored the importance of the proposed $6 billion expenditure, stressing that it is just the tip of the iceberg in terms of the funds needed to develop digital infrastructure in Africa.

According to Lund, this $6 billion amount solely covers the capital expenditure associated with building out the necessary digital infrastructure, excluding the operational expenses required to manage and maintain the infrastructure.

Despite substantial investments made by the World Bank Group in digital development projects across sub-Saharan Africa over the past decade, with a total of $2.8 billion committed to various initiatives like fibre optic cable deployment, data centres, internet service providers, technological tools, and digital education initiatives, the IFC, a member of the World Bank Group, has set a new investment target of $10 billion for the continent by 2024.

These investments will primarily target innovative businesses that facilitate digital adoption across various industries.

According to a survey of firms across 54 countries, despite the growing trend of online business transactions, the majority of firms have not yet fully tapped into the digital marketplace. In nations such as Ethiopia, Ghana, Kenya, Nigeria, South Africa, and Uganda, only 5 percent of businesses with fewer than five employees have computers connected to the internet.

The inaccessibility of high-speed internet, often caused by a lack of fibre optic cables in many regions, and the prohibitive cost of smartphones for digital payments are major hurdles hindering the digital transformation of small businesses in these countries.

As a result of these challenges, the survey indicated that an additional $2.7 billion is needed to empower small and medium-sized businesses in Africa to undergo digital transformation. This funding, if invested wisely, could significantly benefit firms in the manufacturing and agriculture sectors, where digital technology is essential for carrying out specialized tasks, surpassing the current digital capabilities of the majority of firms on the continent.

The IFC views the arrival of new submarine cables on the African continent as a positive step towards closing the infrastructure gap. With around 30 submarine cables with hundreds of terabytes of internet capacity already making landfall in Africa, the potential for widespread connectivity is enormous.

However, the challenges are not insignificant. Transmitting the internet capacity from the submarine cables to cities and regions where businesses and individuals can use them remains an expensive and complex task.

The IFC report highlights the critical role of small businesses in Africa’s economy, noting that by ensuring they have access to digital infrastructure, productivity improves and employment opportunities are sustained.

The report estimated that these small businesses employ around 70 percent of the African labour force, accounting for approximately 400 million workers. This emphasises the importance of targeted investments in digital transformation for small businesses, as it not only enhances their productivity but also helps to secure the employment prospects of millions of people across the continent.

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