AI a Major Driving Force for Change in Africa

Promoting Digital Transformation in the Informal Economy

IT in increasingly transforming operations in virtually all economic sectors. However, despite its immense potential, adoption of technology in Africa’s informal sector is fraught with anxiety, particularly with regard to its potential impact on the job market.

The apprehension towards adoption of technology mainly stems from fears of job losses, complexity surrounding its deployment and the associated high cost of integration. In this context, there is a clear dichotomy between the anticipated benefits and the prevailing doubts within the informal sector, which is a significant component of African economies.

Although the informal sector is a significant component of the economy that seeks to provide livelihoods to a sizeable number of workers and informal traders, this sector is consistently underestimated, largely missing from economic policy formulation and analysis, thus, the informal sector is frequently associated with precarious employment, social security, tax evasion and poor governmental support.

The informal sector is often characterised with self-employment, small-scale businesses, and informal employment arrangements. In the informal sector, economic activities are predominantly carried out by individuals or small enterprises, often with limited capital and resources.

These activities can include street vending, home-based businesses, small-scale agriculture, and informal labour arrangements such as casual work or day labour.

However, it’s also a dynamic industry that fosters job growth. For example, according to the International Monetary Fund (IMF), Sub-Saharan Africa (SSA) continues to have one of the highest percentages of informal economic activity worldwide.

More than 60% of the world’s employed population is in the informal sector. A larger proportion of the employed population (85.8%) in Africa work in the informal sector. Africa’s informal economy presents a huge opportunity for the continent to create decent jobs.

Potential Benefits of Digital Deployment in the informal sector

By automating routine tasks, such as scheduling appointments, sending invoices, and processing payments, small businesses can save time and reduce the risk of human error. This leaves more time for business owners and employees to focus on delivering high-quality services to customers. Digital platforms can also increase access to supply chain, reducing costs and building efficiencies.

Technology helps informal retailers improve their connection with their shoppers, enables them to purchase from suppliers more efficiently and cost-effectively, and even facilitates access to credit.

Technology can also help automate manual and repetitive tasks, thereby increasing productivity and efficiency. For instance, AI-powered chatbots can handle customer inquiries and support, freeing up human resources for more value-added tasks. This automation can enable informal businesses, such as small-scale retailers or service providers, to streamline their operations and expand their customer base.

For businesses and workers in the informal economy, digital technologies can help them increase productivity. Through technologies, informal sellers can reach new markets by marketing their goods through digital platforms or messenger apps. Technology can help reduce searching costs for taxi drivers or casual labourers. It can also help workers and businesses easily access physical capital they need to improve their productivity.

Through digitising sales, records, and/or supply chain, traditionally informal microenterprises without ‘historically viable’ data points for credit scoring are now able to gain access to a range of financial services, from inventory financing to growth loans.

Technology can further improve financial inclusion in the informal sector by offering access to mobile banking and payment solutions, enabling informal businesses to conduct financial transactions more efficiently and access formal financing.

According to the IMF, fifty-seven percent of Africans do not have a bank account. Mobile banking and payment solutions provide easy ways to carry out financial transactions online. Digital payments enable cost savings that can benefit micro and small businesses and allow them to access finance through traditional banking methods.

Key areas of technology and AI application in Africa:

Agriculture:

Technology and AI is being used to improve crop yields, combat pests, and adapt to climate change through AI-powered apps and data analysis.

Healthcare:

Technology and AI is helping to bridge the gap in healthcare access by enabling early disease detection, improving diagnostics, and streamlining operations.

Education:

Technology and AI is being used to personalize learning experiences, improve educational outcomes, and provide access to educational resources for underserved populations.

Governance:

Technology and AI is being used to improve public service delivery, strengthen governance structures, and address challenges like corruption and fraud.

Finance:

Technology and AI is helping to improve financial inclusion, access to credit, and trade finance for small and medium-sized businesses.

Transportation:

Technology and AI is being used to improve the efficiency and reliability of transportation systems, reduce traffic congestion, and improve logistics.

Conclusion

Technology is essential to transform the African informal economy and promote decent jobs. With the aid and usage of technological innovations and resources, Micro, Small, and Medium-sized enterprises (MSMEs) can also carry out business activities more competitively. Micro-firms are a large part of the informal economy, and digital transformation can increase their chances of business success by giving them better access to finance, greater access to markets, and improved productivity. 

Recommendations

a. There is a dire need for continuous sensitisation by stakeholders on adoption and utilisation of technology since the fears and threats perceived to be associated with it have not been adequately addressed yet, in the end, its benefits outweigh its drawbacks.

b. African governments also need to initiate policy formulations, stakeholders’ involvement and infrastructure development in readiness for digital adoption.

c. Offer incentives to the informal sector in order to ameliorate some of the challenges experienced in that sector in order to boost its potential for increasing opportunities that may be derived from use of artificial intelligence.

d. There is a need for organisations that adopt artificial intelligence/ deep digital technology to retrain their staff in order to gain the skills that are necessary for utilisation of technology.