Wednesday, June 23

Is Digitization a solution for sustainable development in Kenya?

The process of digitization can contribute to the growth of developing countries, such as Kenya, particularly by promoting the development of the private sector and financial inclusion. The deployment of high-speed Internet access improves productivity and therefore the growth potential of businesses. The spread of mobile financial services encourages the fluidity of transactions, entrepreneurship and the formal sector, facilitating the mobilization of fiscal resources, a major challenge for developing countries. For its effects on development to be sustainable, the risks associated with digitalization must be controlled.

See also: Kenya EOR

By default, the development of new information and communication technologies (NICT) increases the productivity of businesses.

The use of the Internet significantly increases the performance of companies in developing countries. Using World Bank enterprise data (World Bank Enterprise Survey) aggregated by location, Cariolle, Le Goff, and Santoni (2019) show that a 10% increase in internet use increases the average sales of DC firms by about 37% and their average sales per worker by about 22%. These positive effects are mainly driven by the service sector.

These productivity gains come from better transmission of information. Access to the Internet makes exchanges with the different interlocutors of the company (customers, suppliers, etc.), sometimes very distant, less costly and faster, leading to a reduction in transaction costs. Access to more information, faster and less expensive, encourages the transmission of knowledge, which is conducive to an increase in worker productivity and innovation. However, these positive effects are only fully felt to the extent that companies adapt their processing capacities to this massive influx of additional information.

Finally, the publication of online job offers and the development of digital professional networks broaden the pool of jobs available to companies, thus increasing their chances of recruiting staff with the right skills. This is particularly important for companies in developing countries, for which the recruitment of skilled personnel is often an obstacle to the development of their activity. Finally, the emergence of new online services, such as tax and customs payment services, banking services, etc., which are developing rapidly in Sub-Saharan Africa, represent additional efficiency gains for companies.

In the financial sector, digitization promotes the financial inclusion of SMEs, the formalization of the economy and the mobilization of fiscal resources.

Financial digitization allows developing countries to benefit from significant catch-up effects. DCs lag far behind in the development of banking infrastructure and networks, and have lower levels of access to credit for businesses (33%, compared to over 75% in advanced countries). Mobile financial services (MFS) have taken advantage of the low-cost deployment of cell phone networks to offer a growing range of financial services to businesses: payment, credit, insurance, and savings. Financial inclusion of businesses is an important source of productivity.

By promoting financial inclusion, MFIs are also helping to formalize the economies of developing countries, where the informal sector accounts for a significant share of economic activity (35% of GDP on average according to the IMF). The use of mobile means of payment allows companies to achieve significant productivity gains compared to the use of cash through security and lower transaction costs. The use of MFS generates huge amounts of data (big data) that simplifies the assessment of borrowers’ creditworthiness. By reducing information asymmetries, the deployment of MFS improves firms’ access to credit, which is a powerful incentive for them to enter the formal sector. Keneck, Jacolin and Noah (2019) show that the arrival of MFS has led to an average reduction in the share of the informal sector of between 2 and 4 percent of GDP over the 2000-2015 period. These effects could be amplified with the diffusion of these services and their diversification.

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