The rise of Africa’s digital economy The European Investment Bank’s activities to support Africa’s transition to a digital economy The rise of Africa’s digital economy The European Investment Bank’s activities to support Africa’s transition to a digital economy The rise of Africa’s digital economy – The European Investment Bank’s activities to support Africa’s transition to a digital economy February 2021 (EIB Staff paper) By: Digital Infrastructure Division, Projects Directorate. Author: Benoit Denis Supervisor: Harald Gruber Contributions from: Isabelle Cabos, Enrico Canu, Carmelo Cocuzza, Romain Constant, Christian Lotz, Mary O’Mahony, Analisa Pinto, Olivier Cusworth, Olivier Edelman, Christian Elias and Nina Van Doren. Expert consultant review: Roland Berger For further information on the EIB’s activities, please consult our website, www.eib.org. You can also contact our Infodesk, [email protected]. © European Investment Bank, 2021. 98 -100, boulevard Konrad Adenauer – L-2950 Luxembourg 3 +352 4379-1 U [email protected] www.eib.org twitter.com/eib facebook.com/europeaninvestmentbank youtube.com/eibtheeubank Disclaimer All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, the European Investment Bank. The data and analysis within this report is driven by European Investment Bank from its own primary and secondary research of public and proprietary sources. The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that the European Investment Bank delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such, the European Investment Bank can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect. Published by the European Investment Bank. Printed on FSC® Paper. pdf: QH-03-20-786-EN-N ISBN 978-92-861-4909-2 doi:10.2867/135126 Contents Executive summary 8 Introduction 12 Chapter 1 The EIB delivering on policy objectives 16 1.1. European policy 17 1.2. African policy 21 1.3. Delivering on policy objectives 22 Chapter 2 EIB digital economy financing 24 2.1. Digital economy financing by the EIB 25 2.2. Macroeconomic context 26 2.3. High performance standards, technology neutrality and network expansion 28 2.4. Security best practices in a digital world 28 2.5. Free flow and protection of data 29 2.6. Contribution to climate action 30 2.7. Providing additionality 31 2.8. Contributing to the Sustainable Development Goals 32 Chapter 3 Investing in Africa’s digital economy 34 3.1. Transition to a digital economy 35 3.2. Connectivity 36 3.3. Investment models 37 3.4. Generating impact 39 3.5. Digital solutions to tackle COVID-19 41 3 Chapter 4 The EIB’s approach to financing Africa’s digital economy 44 4.1. Advocacy 45 4.2. Technical assistance 46 4.3. Financial support 46 Chapter 5 Areas of intervention of the EIB’s Africa digital economy financing 48 5.1. Digital infrastructure 49 5.1.1. Performance of digital infrastructure technologies 50 5.1.2. Submarine cables 50 5.1.3. Mobile services and smartphone adoption 52 5.1.4. Fixed broadband 58 5.1.5. Satellites 59 5.1.6. Data centres 61 5.2. Financial inclusion 63 5.2.1. Digital transformation of established banks 63 5.2.2. FinTech 63 5.2.3. InsureTech 64 5.3. Entrepreneurship 66 5.3.1. Intermediated lending 67 5.3.2. Microfinance 69 5.3.3. Venture capital 70 5.3.4. Tech private equity 73 5.3.5. Telecom infrastructure funds 74 5.4. Adoption of e-services 74 5.4.1. e-government 75 5.4.2. Corporates 78 5.5. Cybersecurity 82 5.6. Energy efficiency 84 4 The rise of Africa’s digital economy Chapter 6 Working together 86 6.1. European institutions 87 6.2. Team Europe 88 6.3. EIB trust funds 89 6.4. Partner financing community 90 6.5. Private investors 91 5 Acronyms and abbreviations ACP African, Caribbean, and Pacific AfCFTA African Continental Free Trade Area AUDA-NEPAD African Union Development Agency-New Partnership for Africa’s Development CEMAC Central African Economic and Monetary Community D4D Digital 4 Development DETF Digital Economy Task Force DG DEVCO Directorate-General for International Cooperation and Development DG NEAR Directorate-General for Neighbourhood and Enlargement Negotiations DSM Digital Single Market for Europe EBRD European Bank for Reconstruction and Development EEAS European External Action Service EFSD European Fund for Sustainable Development EGDI E-Government Development Index EIB European Investment Bank EU European Union G7/G20 Group of Seven/Group of Twenty GAFAM Google, Apple, Facebook, Amazon, Microsoft GDP gross domestic product GDPR General Data Protection Regulation GSMA GSM Association (Global System for Mobile Communications) H1, H2 first/second half-year ICT information and communications technologies IMF International Monetary Fund 6 The rise of Africa’s digital economy ITU International Telecommunication Union JICA Japan International Cooperation Agency KES Kenyan Shilling Mbps megabytes per second MSME micro, small and medium-sized enterprises NDICI Neighbourhood, Development and International Cooperation Instrument Q1, Q2, Q3, Q4 first/second/third/fourth quarter SDGs United Nations Sustainable Development Goals SMEs small and medium-sized enterprises Tbps terabytes per second UN United Nations UNDP United Nations Development Programme Unesco United Nations Educational, Scientific and Cultural Organization Unicef United Nation Children’s Fund US United States WHO World Health Organization 7 Executive summary Africa’s digital transformation is underway, generating transformational changes across all economic sectors and providing much-needed social upsides. On several market growth parameters for telecommunications the continent has recorded the highest growth rates globally. However, while the growth figures are impressive, a stark digital divide remains. An estimated 900 million people are still not connected to the internet; for those who are connected, connectivity prices remain mostly high and bandwidth is severely limited in many areas. At the time of a global pandemic that takes lives daily and calls for economic resilience, digital technologies and solutions that can substantially mitigate its effects must be made available to all. According to the World Health Organization (WHO), the COVID-19 pandemic has triggered unprecedented demand for digital health technology solutions and revealed successful solutions for population screening, tracking infections, prioritising resource use and allocation, and designing targeted responses. The purpose of this paper is to present the EIB’s support for the African continent’s transition to a digital economy, particularly in response to the challenges raised by the COVID-19 crisis and with the aim of building inclusive, long-term economic resilience. This paper is composed of six main sections which individually address a fundamental theme to understanding the Bank’s analysis and vision of Africa’s digital economy. Section 1 of the report reviews European and African Union policy objectives for digital transformation and the addresses how the EIB has delivered and will continue to deliver on those policy objectives. Section 2 outlines the EIB’s analysis of the development potential of Africa’s digital economy looking into the sector’s macroeconomic context, technology adoption and financing trends. This section also highlights the standards and best practices deemed important to support the emergence of an open, democratic and sustainable digital society within the framework of a fair and competitive digital economy. Finally, this section provides visbility on the digital economy-driven impact; in particular contributing to achieving the United Nations Sustainable Development Goals, and building sustainable economic growth. Section 3 addresses Africa’s digital economy investment requirements and their scope for furthering economic development in detail, including considerations on fostering economic resilience against shock such as a pandemic. Africa’s population is young and growing fast, with rapid technology adoption making the continent a fertile ground for innovation. Africa will account for most of the world’s population growth over the coming decades, and the working- age population will grow faster than other age groups, creating opportunities for accelerated economic growth. However, the confluence of urbanisation, which is fast growing across the continent, and the rapidly increasing labour force poses risks if the employment market does not grow commensurately. This scenario could generate social and political instability that could destabilise many countries in the region, creating a significant challenge to reaping the demographic dividend. At the same time, an estimated 900 million people across Africa are not connected to the internet, which is evidence of marked social and territorial inequalities in access to digital technologies and the promises of development that such access entails. Consequently, a huge proportion of Africa’s population finds itself excluded from the progress expected from digital technologies in pursuit of the Sustainable Development Goals. This situation worsens in times of crisis: the COVID-19 pandemic