Next steps for the digital revolution in Africa

Inclusive growth and job creation lessons from Kenya

A customer conducts a mobile money transfer, known as M-Pesa, at a Safaricom agent stall, as he holds Kenyan shillings (KSh) in Nairobi, Kenya October 16, 2018. REUTERS/Thomas Mukoya - RC1C78EE9D90

In recent years, digitization has emerged as a driver for accelerated provision of financial services, starting with retail electronic payments system that is being the entry point for financial services and, thus, enhanced financial inclusion. This has impacted positively on poor and low-income households as well micro, small, and medium firms. The informal economy in Kenya has benefited too, and their transactions are being formalized and slowly they are joining the complexity of the formal system through retail payments, virtual savings and virtual micro-loans applications. Given this growing and dynamic impact, there is potential for a strong link between financial inclusion, raising the level of economic activity, and poverty reduction in developing, frontier, and emerging economies.

Emerging evidence seems to point out that digitization is facilitating employment creation in the affected core financial sector activities as well as cutting across the economy through the entry of fintechs. In this regard, an analysis of digitization and employment creation should start with an analysis of the level of digitization in an economy and the prospects of digital economy taking root.

Digitization has many diverse and dynamic applications. The moment an economy embraces digitization, it allows sustainable business models to be developed that cut across the whole economy. One of the most celebrated outcomes of digitization, especially in Kenya, is how it has encouraged endogenous innovations across sectors of the economy including providing an easier route to design tax payments platforms and targeted social protection programs. These contributions suggest that digitization will have greater impact in the coming years on the economy through the avenues of inclusive finance, growth, and employment. In addition, digitization is allowing the informal markets to slowly enter formality through retail electronic payments platforms and virtual savings and credit supply.

This paper provides examples of such dynamism and links digitization to employment creation, with the hope that, over time, as more sectors and fintechs innovate on the digital platform, the trend will be clearer with more data points to allow deeper analysis and to reach a formidable set of conclusions. So far, it seems that digitization is creating new jobs, generating demand for new skills, making it easier to match jobs and skills, and overall raising productivity for the existing labor force. Survey data and more data points over time will test these conclusions in future. Due to data limitations, this paper only provides on tentative conclusions on the next steps for the digital revolution to provide strong avenues for growth and job creation in Kenya and similar countries in Africa adopting and pushing the digitization frontier.