A Conceptual Policy Framework for Leveraging Digitalization to Support Diversification in Sub-Saharan Africa

AConceptualPolicyFrameworkforLeveragingDigitalizationtoSupportDiversificationinSub-SaharanAfrica MameAstouDiouf,LeonardoPioPerez,FélixFernandoSimione,ArinaViseth,JiaxiongYao WP/24/123 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. 2024 JUN ©2024InternationalMonetaryFundWP/24/123 IMFWorkingPaper AfricanDepartment AConceptualPolicyFrameworkforLeveragingDigitalizationtoSupportDiversificationinSub-SaharanAfrica PreparedbyMameAstouDiouf,LeonardoPioPerez,FélixFernandoSimione,ArinaViseth,andJiaxiongYao1 AuthorizedfordistributionbyVitaliyKramarenko June2024 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. ABSTRACT:TheneedforSub-SaharanAfrican(SSA)countriestodiversifytheireconomiesismoreurgentthanever.However,despiteitsestablishedeconomicbenefits,severalchallengeshaveprecludeddiversificationinSSA.Againstthisbackdrop,interestinginitiativestofurtheradoptdigitaltechnologies,particularlyduringtheCOVID-19pandemic,suggestthatdigitalizationisapromisingavenuetoovercomebarrierstodiversification.Fast-pacedadvancesinthediffusionofdigitaltechnologiesandknowledgehavethepotentialtotransformSSAeconomiesthroughseveralchannels.Byconnectingpeopleandfacilitatingtherapiddiffusionofinformation,digitalizationalsopromisestoreshapetheindustrialstructureofactivitiesinnewandunprecedentedways.Therefore,digitalizationhasthepotentialtopromotediversificationandgrowthinSSAbyactingbothasanenableranddriverofeconomicactivities,helpingsupportresilience.Yet,whiletheempiricalliteratureonSSAsuggeststhatdigitalizationcanprovidenewopportunitiesforgrowth,employment,productivity,andinclusion,theimpactondiversificationhasnotbeenstudied.Thispaperaimstofillthisimportantgapintheliterature.ItalsoaimstostrengthenIMFengagementwithSSApolicymakersbyprovidingaconceptualpolicyframework,encompassingbothhorizontalandsectoralpolicies,onhowtoleveragedigitalizationtosupportdiversificationandboostresilienceinapost-COVIDworld. JELClassificationNumbers: O33,O38 Keywords: digitalization;diversification;growth;industrialpolicy Authors’E-mailAddresses: MDiouf@imf.org,LPioPerez@imf.org,FSimione@imf.org,AViseth@imf.org,JYao@imf.org. 1TheauthorswouldliketothankAbebeSelassieandCatrionaPurfieldfortheiroverallguidanceandCorinneDelechat,KarenOngley,andChrisPapageorgioufortheirsupport.SpecialthanksgoalsotothemembersoftheIMFAfricanDepartment(AFR)’sDiversificationWorkingGroupandDigitalNetwork,includinginparticularRedaCherif,LisaKolovich,AndrewTiffin,andMarthaWoldemichaelfortheirvaluablecomments,suggestions,andinputsatvariousstagesoftheproject,aswellasDavidZeledonFarrandandSandrineOurigoufortheirexceptionaleditorialassistance.Theauthorsalsothanktheinterdepartmentalreviewers,notablyAndreaManera,SoheibNunhuck,FrankosiligiSolomon,HerveTourpe,andCarlosvanHombeekfortheirvaluablecommentsduringreviewmeetings,andmembersoftheAFR’sResearchAdvisoryGroupandparticipantsatanAFRseminar. WORKINGPAPERS AConceptualPolicyFrameworkforLeveragingDigitalizationtoSupportDiversificationinSub-SaharanAfrica MameAstouDiouf,LeonardoPioPerez,FélixFernandoSimione,ArinaViseth,JiaxiongYao Contents 1.Introduction5 2.DigitalizationinSub-SaharanAfrica:StateofPlay8 3.DigitalizationasaTooltoSupportEconomicDiversificationandStructuralTransformation9 3.1ChannelsofTransmissionfromDigitalizationtoDiversificationandGrowth9 3.2Digitalization:AnEnablerofEconomicGrowthbyOvercomingtheChallengesforDiversificationinSSACountries12 3.3Digitalization:ADriverofEconomicDiversificationandGrowththroughthe CreationofNewSectorsandNewJobs15 3.4MutuallyReinforcingForcesforaDigitalandInclusivePostCOVID-19Economy17 4.PoliciestoSupportDigitalizationandDiversification17 4.1PolicyAreas17 4.2.ExamplesofHorizontalandVerticalPoliciesforShort-TermEconomicResilience andLong-TermEconomicDiversification19 5.PolicyPlayers20ANNEXES I.ExamplesofPolicies21 II.TheEnhancedDigitalAccessIndex(EDAI)—versionsof2015and201922 References25 1.Introduction Economicdiversificationistheprocessofaneconomymovingtowardsadiverseproductionandtradestructure.Oftenseenasastrategytofostergrowthandencouragedevelopment,itisintricatelylinkedtoareallocationofresourcesandeconomicactivityacrosssectors,anemergenceofnewmarkets,andanincreaseinproductivity.Boththeintroductionofnewsectorsandtheincreasedvalue-addedfromactivitiesinexistingsectorscancontributetoaneconomy’saggregateemploymentandoutput.Also,thediversificationofexportsgenerallyentailsamovefromtheexportofoneorafewprimarycommoditiestothatofawidersetofmanufacturedgoodsandservicestoawidermarket(UsmanandLandry,2021).MorediversifiedeconomiestypicallyexhibithigherlevelsofGDPwhilelessdiversifiedonesareoftenassociatedwithhighervulnerabilitytoshocks(Papa