Costly upgrades deny firms digitisation benefits – report

Several businesses in the country are not reaping the full potential benefits offered by improvements in digital infrastructure, as they are not adopting and upgrading the techs for productive tasks.

A recent ‘Digital Opportunities in African Businesses’ report by the International Finance Corporation (IFC) and the World Bank says about 23 per cent of firms are digitally enabled but do not adopt the technologies for productive tasks, such as business administration, planning, sales and payments.

“Moreover, 39 per cent of firms adopt digital technologies for those functions, but not intensively, that is, as the most frequent technology used to perform a task,” the report reads.

This is despite the majority of the firms (86%), with five or more workers, having access to one or more digital enablers; mobile phones, computers, or the internet.

“On average, only 24 per cent of firms make intensive use of the most sophisticated digital technology they adopted in a business function. Bulk of firms continues to regularly rely on manual methods.”

Nevertheless, the report says only 11 per cent make intensive use of advanced digital technologies for general business functions such as enterprise resource planning.

Additional novel data show that this gap follows similar patterns and is wider among microbusinesses, those with fewer than five employees.

The report says this could be a result of the vast barriers to digital adoption such as the increasing digital upgrade costs.

A background study in the country shows there are steeply increasing costs to technological sophistication.

“The average price of a computer in Kenya is $1,555 (Sh205,000). Equipping a computer with standard software brings the total cost to $2,059 (Sh271,000), a 32 per cent increase,” the report reads.

It adds that for firms in Kenya that want to upgrade to specialised software applications, the total investment cost is $9,370 (Sh1.2 million), more than three times the cost of a computer with standard software.

“The cost of digital upgrade generally increases sharply as technologies become more sophisticated,” the report notes.

The training costs for upgrading to sophisticated software range from five per cent to 50 per cent of the total project budget, indicating that firms with lower capabilities may face disproportionately higher costs for technological upgrades.

In addition, qualitative information from a supplier of sophisticated technologies indicates that cost can directly contribute to incomplete digitalization.

The supplier notes that, to reduce the cost of upgrades, many clients opt to share licenses between employees or opt for a cheaper but less customised solution than would be optimal.

“Doing so prevents firms from fully realising the benefits of digital technologies.”

Adoption of digital technologies is widely acknowledged to boost productivity and employment, stimulate investment and promote growth and development.

IFC acknowledges that some African countries have already benefited from a rapid diffusion of information and communications technology, characterised by the widespread adoption of mobile phones.

The high cost of technology adoption in Africa is not restricted to digital technologies applied to general business functions.

For instance, the average prices in US dollar absolute terms of solar panels and thermostats correlate negatively with GDP per capita, being 47 per cent and 96 per cent higher, respectively, in Sub-Saharan Africa relative to the United States.

In agriculture, the use of digital technologies applied to sector-specific tasks usually relies on machines and equipment that are not digital, such as the tractors or harvesters required to enable the use of GPS for harvesting or irrigation systems to make better use of precision agriculture.

The costs of these technologies are also relatively higher in Africa, having established that cost and affordability pose plausible constraints to adoption.