Digital IDs could save Africa $50bn annually, report shows

Around 500m Africans have no official ID, which contributes to their exclusion from banking systems; implementing digital ID systems can help to overcome this problem.

Economic Commission for Africa’s economic report on Africa 2019 shows that digitising tax administration and investing in data collection could help to broaden the tax base.

Around 500m Africans have no official ID, which contributes to their exclusion from banking systems. Implementing digital ID systems can help to overcome this problem, the report showed.

“By improving tax assessments and administration, [digital identification] enhances the government’s capacity to mobilise additional resources. Digital ID systems yield gains in efficiency and convenience that could result in savings to taxpayers and government of up to $50 billion a year by 2020,” the report showed.

Rwanda managed to boost revenue collection by 6 per cent of GDP by introducing e-taxation while South Africa used online tax payments to trim compliance costs by 22.4 per cent.

Highlighting how digital identification can help identify and track taxpayers, Vera Songwe, said: “Without IDs, people can’t participate in financial activities provided by banks. With digitalisation, they can receive a digital identity for use in their banking – all they have to do is own a smartphone, while biometrics will do the rest.”

Songwe pointed to countries in the East African Community that are growing at almost double the rate of those in the rest of the continent on the back of their investment in technology, infrastructure and better fiscal policies that help startups to flourish.

“Despite the fact that the continent as a whole is only growing at 3.2 per cent, the East African horn is growing at 6.2 per cent.

“They are one of the highest competitors of information technology that we can see. They are investing in fiscal policies, and they are collecting revenues better,” she said.

These policies have seen Nairobi’s tech hub grow into a $1bn Silicon Savannah that is home to 200 startups and tech giants such as Microsoft and Intel.

Entrepreneurs from across the continent’s startup spectrum took part in a side-session led by the African Fintech Network that gathered fintech companies from across 20 countries to thrash out how governments can promote policies that advance innovation and lift the continent’s rising tech hubs.

Songwe said that companies such as M-Pesa and Nigeria’s Flutterwave were building the blocks for Africa’s silicon-shaped future.

Flutterwave recently partnered with Visa to create the continent’s very own equivalent of PayPal, called GetBarter. In another first they allowed Visa cardholders on the continent to send and receive funds at home or internationally, helping to process $1bn in transactions in 2018.

“There is enough evidence that Africa can be digitally transformed. But what is holding us back?” Nigeria’s former ICT minister Omobola Johnson asked.

It’s not funding, as startup investment in Africa jumped to record levels in 2018, increasing almost four-fold to raise $725.6m across 458 deals, according to WeeTracker’s 2018 venture investment report.

Most of this funding came not from philanthropists, but from hard-nosed investors seeking strong returns in the continent’s budding technology sector.

“In 2018 alone venture capitals and funds invested $350m-$700m into mobile tech companies that are solving African challenges, and it’s literally doubling every year,” said Johnson, who now works as a senior partner at tech-focused venture capital firm TL Capital.

She said that what was stopping African innovators from competing with the world’s tech giants was poor regulation and a lack of understanding on the part of banks: “The biggest challenge for fintech companies today is regulation policy and the fact that many central banks do not innovate and do not understand what it takes to scale and build a technology company.”

Another stumbling block for Africa’s digital revolution is infrastructure and basic access to electricity, phones and the internet.

Connectivity loops societies into emerging technologies from the banking sector to education, agriculture, and finance. It will also be a core driver of productive employment opportunities and future healthcare.

Only 43 per cent of the continent has access to electricity, less than half the global access rate of 87 per cent, according to the latest survey by the World Bank. The number of people without electricity is also expected to snowball with Africa’s population boom.

Another issue is the affordability of the internet. “The internationally agreed target is for 1GB of data to cost no more than 2 per cent of the average national monthly income. In Africa this currently stands at 8.76 per cent, compared to 3.5 per cent in Latin America or 1.54 per cent in Asia,” Songwe noted.