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### 3.1 Channels of Transmission from Digitalization to Diversification and Growth
- Core argument
  - Digitalization promotes economic diversification and growth in Sub-Saharan Africa (SSA) through two complementary roles:
    - As an enabler: alleviating barriers to diversification (limited human capital, low access to finance, weak governance, market access).
    - As a driver: creating new sectors, new products, and new jobs (e.g., e-commerce, e-services, artificial intelligence).
  - The enabler and driver channels are mutually reinforcing and can strengthen resilience in the post-COVID-19 recovery.

- Empirical evidence and correlations (select findings reported)
  - Expanding internet access in SSA by an extra 10 percent of the population could increase real per capita GDP growth by 1 to 4 percentage points (IMF, 2020; Simione and Li, 2021).
  - Mobile money transactions exceeded 50 percent of GDP in Kenya, Mozambique and Uganda in 2021 (IMF Financial Access Survey).
  - Internet penetration in the region has increased tenfold since the early 2000s, compared with a threefold increase in the rest of the world.
  - Average mobile download speed in SSA is more than three times slower than in the rest of the world.
  - The Enhanced Digital Access Index (EDAI) shows broad improvements from 2015 to 2020 in: Quality; Internet Usage; Knowledge; IT Infrastructure; Affordability.
  - A striking positive correlation is documented between digitalization (EDAI) and diversification (Economic Complexity Index) across SSA and non-SSA countries (chart based on Economic Complexity Index 2021 and EDAI 2020). The chart depicts correlation, not causality.

- Transmission channels (mechanisms highlighted)
  - Lowering entry costs and expanding market reach: digital tools lower firm entry costs and connect firms to wider, more global markets, boosting competition and efficiency.
  - Productivity and public-sector efficiency: automation of routine administrative tasks (business registration, tax payments) and rapid scaling of services (education) can boost revenues and improve public service delivery.
  - Financial inclusion and firm dynamics: digital financial services (e.g., mobile money) strengthen financial inclusion, increase access to loans and savings, and enable larger and more frequent financial transactions, supporting firm entry, productivity, employment, and exports.
  - Transparency and governance: digitalization can increase transparency and reduce rent-seeking, contributing to anti-corruption efforts.
  - Diffusion of information and new industry composition: faster diffusion of information connects people and firms, facilitating participation in the economy and shifting industrial structure toward services and immaterial products.

- Observed digitalization strengths and gaps in SSA
  - Strengths:
    - Some SSA countries are global leaders in mobile money transactions; notable country-level innovations in pandemic responses (e.g., ride-hailing apps adapted for goods delivery, e-passport portals, NOVISSI in Togo, contact-tracing apps, central bank relaxations of mobile money rules).
  - Gaps:
    - Digital depth remains uneven outside finance; public sector digitalization remains low relative to non-SSA regions (evidence from E-Government Development Index averages).
    - Rural and gender disparities: rural areas less connected; women tend to be less connected.
    - Infrastructure and speed constraints: mobile download speed more than three times slower than rest of world.

- Policy framing implied by the channels
  - Policies to leverage digitalization for diversification should be integrated into broader diversification strategies and be mutually reinforcing.
  - Policy organization around five areas:
    - (i) human capital;
    - (ii) the business environment and regulatory framework;
    - (iii) redistributive capacity;
    - (iv) infrastructure building and international cooperation;
    - (v) cybersecurity, privacy protection, and risk management.
  - Policy design principles:
    - support leapfrogging of traditional infrastructure gaps;
    - adopt frontier technologies where appropriate;
    - create niche markets to attract investment;
    - promote inclusiveness;
    - avoid undermining multilateralism while encouraging multilateral integration.
  - Operational guidance and policy advice must be tailored to country specifics.

- Noted limitations and research gaps
  - Limited empirical evidence on the direct impact of digitalization on diversification because digitalization is a relatively new phenomenon and successful recent diversification experiences remain scarce.
  - Existing correlations (EDAI vs. Economic Complexity Index) do not establish causality; causal estimation is beyond the scope of this section.

### 3.2 Digitalization: An Enabler of Economic Growth by Overcoming the Challenges for Diversification in SSA Countries
- Digitalization strengthens human capital
  - Increases worker productivity, labor supply, and narrows the gender gap by expanding access to education, skill building, and knowledge diffusion.
  - Digital learning can be less costly and more scalable than physical infrastructure (classrooms and universities), broadening learning outlets (special learning applications, YouTube, social media).
  - Country examples of digital education and health initiatives:
    - Cote d’Ivoire, Kenya, Sierra Leone: leveraging digital technology for education services, teacher upgrading, and recruitment.
    - Angola, Burkina Faso, Cameroon, Madagascar, Malawi, Sierra Leone: introduced educational television and radio programs.
    - Cote d’Ivoire, Ghana, Kenya, Liberia, Uganda: launched virtual campus apps and websites providing free study materials.
    - Kenya, Rwanda: focus on basic skills and financial literacy.
    - Niger: coding academy at tech center; Kenya: more tertiary training in software development and entrepreneurship.
    - Mali: UNDP-led SanDi telemedicine project to bridge specialized care to remote regions.
  - Caveats:
    - Digitalization supports inclusion and can reduce gender gaps and integrate informal workers; however, SSA lags global digital access and faces a wide gender gap, with pandemic-related school closures disproportionately risking girls’ permanent loss of human capital.

- Digitalization supports greater financial inclusion and financial depth
  - Digital financial services mitigate liquidity issues (example: during the pandemic) and are expected to remain important during recovery.
  - Fintech growth:
    - Between 2020 and 2021, the number of tech startups in Africa tripled to around 5,200 companies, of which nearly half are Fintech (McKinsey & Company, 2022).
  - Digital financial technology can reduce gender gaps in access to finance and improve SME access to tailored financial solutions using digital payment data and big data analysis.
  - Global Findex Database trends: positive trends in increasing access to mobile money for both men and women from 2014 to 2017, with SSA countries leading; nonetheless, the gap between the percentage of women and men with mobile money accounts increased over the three-year period.

- Digitalization stimulates competition, innovation, public-service quality, and resilience
  - Market concentration impedes diversification; more than 70 percent of the countries in the region fall below the global median in domestic and foreign competition indicators (IMF, 2020).
  - Digitalization reduces barriers to firm entry and lowers business startup costs and time (Tchamyou, 2017).
    - Examples: Eswatini, Nigeria, Zimbabwe: simplified business startup via online platforms.
    - Ethiopia: fast internet significantly increases manufacturing productivity.
    - South Africa: ICT benefits finance sector productivity.
  - Govtech and e-government:
    - E-government reduces cost/time, increases transparency, and can stimulate FDI (Al-Sadiq, 2021), increase trust in tax officials (Ouedraogo and Sy, 2020), and reduce corruption (IMF, 2018).
    - Examples: Côte d’Ivoire, Kenya: electronic tax filing and payment systems; Cabo Verde: georeferencing for construction permits; Kenya: online availability of construction requirements; Togo: online portal for submission of applications.
  - Digitalization increases resilience and supports continuity of business and public services during shocks:
    - Kenya, Nigeria: online orders and e-commerce uptake.
    - Senegal: e-commerce platforms for SME market access.
    - Kenya: e-citizen portal for civil and vehicle registration.
    - Rwanda: judiciary videoconferencing for court proceedings.
    - Benin, Côte d’Ivoire, The Gambia, Lesotho, Madagascar, Namibia, Togo, Uganda, Zambia, Zimbabwe: deployment of targeted social protection using digital platforms.
  - Digital technologies contribute to SDGs and sustainability through energy and waste solutions:
    - Guinea: solar-powered mobile telecom antennas reduced grid diesel consumption.
    - Mobile money used to pay for solar energy and bike-sharing.
    - Nigeria, Kenya: digital waste management and startups improving water-use efficiency and reducing fuel use via navigation apps (South Africa, Kenya).

- Digital infrastructure and integration with the international digital ecosystem
  - Modern economies require data centers, high-speed internet networks, and digital platforms integrated with international systems to attract FDI and support international business.
  - Many SMEs rely on global cloud service providers; ensuring similar local services requires fast internet and easy integration with international platforms.

- Digitalization as a driver of diversification, new sectors, and job creation
  - The digital sector is the fastest growing sector in leading SSA countries (Nigeria, South Africa, Kenya, Ghana), outpacing manufacturing in some cases.
  - Digital technologies enable new products and improve resource allocation across sectors (examples in agriculture):
    - Platforms and tools cited: Hello Tractor (Nigeria, Ghana, Kenya), Digital Green, Plantix, Value4Her.
    - Mobile phones improve access to finance and knowledge for women in agriculture.
    - Drones and other technologies can attract youth into agriculture (example: Cote d’Ivoire).
  - Creation of new sectors enabled by technologies: mobile networks, internet of things, blockchain, AI, big data, cloud computing; activities include business-offshoring, IT outsourcing, gig economy, platform economy.
  - Innovation hubs and tech-hub ecosystem:
    - AfriLabs: network of more than 200 innovation centers across 47 African countries.
    - As of October 2021, Africa had 1,031 operational tech hubs (accelerators, incubators, university-linked labs, maker parks, co-working sites).
    - Growth over 60 percent compared to 2019 (AfriLabs and Briter Bridges, 2021).
    - Examples: Lagos (Yaba) tech hub; Rwanda FinTech hub and regulatory sandbox in Kigali International Financial Center.
  - Job creation evidence:
    - Firms using email have higher real annual sales and employ more workers (Hjort and Poulsen, 2019).
    - Digitalization contributes to higher net job creation; mobile broadband coverage increases labor force participation and employment, particularly among women (Bahia et al, 2020).
  - Policy implication: building fast and reliable internet infrastructure is highlighted as a high-potential policy option for job creation in SSA.

- Mutual reinforcement and preconditions for digital-diversification synergies
  - Enabling and driving forces reinforce each other via access to finance and trade integration:
    - Digital technologies allow smallholder farmers access to financial services and international markets, facilitating insertion into international value chains (Lanz et al., 2018).
    - E-government upgrades reduced export/import times (Nigeria) and improved trading across borders (Sierra Leone).
    - AI integration into trade can improve efficiency; digitalization and AI are complementary.
  - Preconditions required to fully realize benefits of digitalization:
    - (i) adequate level of education (Donou-Adonsou, 2018);
    - (ii) enabling business environment and access to electricity and good infrastructure (Apulu and Ige, 2011);
    - (iii) enabling ICT-related laws and policy environment (Pick and Sarkar, 2015).

### 4. Policies to Support Digitalization and Diversification
- 4.1 Policy Areas (high-level priorities)
  - i. Strong, skilled, and adequately specialized human capital:
    - Horizontal: broad-based adequate basic education; high and gender-balanced labor force participation (LFP); appropriate social and job protection.
    - Vertical: targeted job training and skill building on digital technologies.
    - Forward-looking alignment of education with labor market needs.
  - ii. Enabling business environment and digital regulatory framework conducive to innovation:
    - Vertical: empowering and agile frameworks incentivizing entrepreneurship, R&D, and investment in digital activities.
    - Horizontal: fair access to financing, adequate digital connectivity, one-stop shop information portals, adequate bankruptcy laws, fair competition, and good governance.
  - iii. Redistributive capacity:
    - Taxation of digital activities is an ongoing discussion.
    - Expansion of digital activities can boost fiscal space to finance redistributive initiatives.
    - Taxation must be conducive to job creation.
  - iv. Infrastructure building, international cooperation, coordination, and collaboration:
    - Investment needed in basic infrastructure: electricity, broadband coverage, roads, buildings, water.
    - Sector-specific infrastructure: high-speed internet in targeted areas, service hubs, and networks.
    - Use of public-private partnerships (PPPs) and better coordination among development partners to avoid duplication and efficiently deploy scarce resources, especially in fragile contexts.
  - v. Cybersecurity, privacy protection, and risk management:
    - Promote awareness and capacity to address digital crimes and cyber wars.
    - Digital regulatory frameworks should evolve to manage risks without discouraging innovation.
  - Integration requirement:
    - Policies should be integrated and mutually reinforcing within a broad growth and diversification strategy.
    - Many SSA countries have separate national development strategies and digital strategies; integration can enable a big push for required investments.
    - Prioritization must be country-specific, tuned to policy gaps, sectoral distribution, structural bottlenecks, and political economy constraints.

- 4.2 Examples of horizontal and vertical policies for short-term economic resilience and long-term economic diversification
  - General: governments used digitalization to improve coverage and delivery of social safety nets (SSNs) and government services (notably during COVID-19).
  - Short-term horizontal (resilience and transparency):
    - Government digital cash transfers, national ID systems, digital tax payment, greater access to services and transparency.
    - Examples:
      - Togo: NOVISSI all-digital end-to-end cash transfer program for contactless emergency cash transfers.
      - Togo: setting up a digital identification system (Unique Identification Number, NIU).
      - Kenya, South Africa, Senegal: digital tax platforms for filing and payment.
      - Kenya, South Africa, Madagascar, Uganda, Mauritius: e-procurement portals and e-government improved transparency and quality of public services.
  - Short-term vertical (resilience and sectoral tools):
    - Digital payments and digitally-enabled climate resilience tools supported structural transformation.
    - Examples:
      - Kenya, Nigeria, South Africa, Madagascar: mobile payment platforms and launch of digital currencies to strengthen payments and financial inclusion.
      - Mauritius, Kenya, Madagascar: satellite technology and management systems for anticipating and mitigating natural disasters.
  - Long-term horizontal:
    - Digitalization enhances broader horizontal diversification policies underpinning long-run growth.
    - Examples:
      - Kenya: Digital Literacy Program (basic education level).
      - Rwanda: Saving and Credit Cooperative Society promoting financial inclusion via digital tech.
      - Togo: NIU expected to improve access to finance (previously only 3 out of 8 million Togolese had a national ID card).
    - E-government and climate tech measures support both short-run resilience and long-run growth; can improve governance and reduce corruption.
  - Long-term vertical (structural transformation):
    - Digital sector development channels:
      - Creates demand for digital skills prompting investment in basic education.
      - Acts as gateway to international collaboration due to rapid diffusion of digital technologies.
      - Integrates into agriculture to improve productivity, supply chain barriers, and move products up the value chain.

### 5. Policy Players
- Cross-country collaboration (regional and international)
  - Digitalization requires heavy, often cross-border investment (e.g., marine cables) and evolves quickly, so regional/international collaboration supports interoperability and avoids duplication.
  - MNCs could play a leading role.
  - Collaboration in R&D (e.g., Public Research Institutes with donor help) and leveraging the diaspora can accelerate digitalization.
  - Example note: East African Payment System and West African Monetary Zone Payment System have limited interoperability; Pan-African Payment and Settlement System (PAPSS) can offer significant improvements.

- Role of the public sector
  - Choose supportive public investments, establish enabling environment for private investment, set up cross-country and cross-institutional collaboration frameworks.
  - Policies must embody good governance, transparency, and trust; e-government can enhance policy impact on diversification and structural transformation.

- Concluding policy opportunities and enablers
  - Digital money can revolutionize access to financial services and formal economy participation.
  - Digital identification systems can enhance access to public services, financial inclusion, and targeted social welfare delivery; contribute to improved governance, data management, and cybersecurity.
  - Supportive Intellectual Property rights environment needed to promote local innovation, attract investments, and build an ecosystem for digital solutions tailored to country needs.

### Annex II — The Enhanced Digital Access Index (EDAI): purpose, data, indicators, and computation
- Purpose and scope
  - The EDAI is a multidimensional index that seeks to gauge the level of digital connectivity across counties over time (IMF, 2020).
  - It complements other digital-related datasets and focuses on foundational dimensions of digitalization (the enabling factors) rather than end-products.

- Data: time coverage and treatment of missing values
  - All indicators were collected from a time-period of 6 years prior (for example, the 2015 database includes data from 2009-2015).
  - The 6-year band was chosen to allow for the creation of the most complete dataset (at least one data point per indicator per region) in the shortest band.
  - This range was then extended to capture at least one variable per indicator per region until 2006 and any older variables were discarded.
  - Total number of data points: 3700; number of countries: 185; and number of regions: 17.
  - In the case of missing data, an average of the indicator for that region was used.
  - The year of each existing indicator was not accounted, so for example, 2014 data may have been averaged with 2011 data to produce a missing data point for 2015.

- Indicators of the EDAI (Indicator / Sub-Indices)
  1. Fixed broadband Internet monthly subscription price % GDP Per Capita — Affordability
  2. Mobile cellular prepaid - price of SMS (off-net) % GDP Per Capita — Affordability
  3. Mobile-cellular prepaid - price of a one-minute local call (peak; off-net) % GDP Per Capita — Affordability
  4. Mobile-cellular prepaid connection charge % GDP per Capita — Affordability
  5. USB_1GB; prepaid; price of the plan % GDP per capita — Affordability
  6. Fixed-telephone subscriptions 100 inhabitants — Infrastructure
  7. Mobile-cellular suscriptions per 100 in habitants — Infrastructure
  8. Percentage of the population covered by a mobile-cellular network — Infrastructure
  9. Percentage of the population covered by at least a 3G mobile network — Infrastructure
  10. Percentage of the population covered by at least an LTE/WiMAX mobile network. — Infrastructure
  11. Gross Enrollment Ratio — Knowledge
  12. Adult Literacy (%) — Knowledge
  13. Expected Year of Schooling — Knowledge
  14. Mean Year of Schooling — Knowledge
  15. Active mobile-broadband subscriptions per 100 inhabitants — Internet Usage
  16. Fixed broadband subscriptions per 100 inhabitants — Internet Usage
  17. Internet users (%) — Internet Usage
  18. Fixed (wired)-broadband speed; in Mbit/s — Quality
  19. International bandwidth per Internet user — Quality
  20. USB_1GB; postpaid; Speed; in Mbit/s — Quality

- Computation: methodology and formulas
  - The index is based on the Adjusted Mazziotta-Pareto Index (AMPI).
  - Polarity determination:
    - The polarity of each indicator in relation to its sub-index is determined (impact on the phenomenon being measured).
    - All indicators have a positive polarity except for those of the sub-index Affordability.
  - Normalized Matrix Construction (presented as formulas in the source) and Delta computation:
    - Delta is defined as (Highest value−lowest value) / 2.
    - Ref value selected are the average values in 2015 for each indicator to allow comparison of EDAI values over time.
    - Depending on polarity, the normalized value of each indicator is calculated with the AMPI-normalization formulas (as provided).
  - Sub-Index calculation:
    - Each sub-index was calculated using the AMPI formula.
    - M is the mean of all the normalized indicator values in a sub-index.
    - S is the respective standard deviation.
    - cv is the coefficient of variation (S/M).
    - The subtraction is used to penalize countries which have unbalanced indicators in their sub-indices with a lower index value.
  - Final EDAI calculation and rescaling:
    - The final EDAI is calculated from the sub-indices using the final AMPI calculation once again.
    - Then the EDAI and all the sub-indices are rescaled between 0 and 100 using the formula: (x−min(x)) / (max(x) − min(x)) ×100.
    - The rescaling is to allow for noticeable variation between the sub-indices as otherwise values clump together with very small differences.

- Key methodological design choices and implications
  - Six-year rolling band for data collection to maximize completeness (example: 2009-2015 for the 2015 database).
  - Regional averaging used to impute missing indicator values; years of underlying data are not aligned when averaging.
  - Use of AMPI to penalize imbalance within sub-indices and to aggregate to a final composite index.
  - Use of 2015 average values as Ref (goalposts) to enable time comparison.

*Source: IMF staff (excerpt from IMF Working Paper "A Conceptual Policy Framework for Leveraging Digitalization to Support Diversification in Sub-Saharan Africa"; Annex II. The Enhanced Digital Access Index (EDAI)—versions of 2015 and 2019).*

### 3.1  Channels of Transmission from Digitalization to Diversification and Growth __________________ 9

### 3.1  Channels of Transmission from Digitalization to Diversification and Growth __________________ 9

### Summary of core argument
- Digitalization can promote economic diversification and growth in Sub-Saharan Africa (SSA) through two complementary roles:
  - As an enabler: alleviating barriers to diversification (limited human capital, low access to finance, weak governance, market access).
  - As a driver: creating new sectors, new products, and new jobs (e.g., e-commerce, e-services, artificial intelligence).
- The enabler and driver channels are mutually reinforcing and can strengthen resilience in the post-COVID-19 recovery.

### Empirical evidence and correlations (select findings reported)
- Expanding internet access in SSA by an extra 10 percent of the population could increase real per capita GDP growth by 1 to 4 percentage points (IMF, 2020; Simione and Li, 2021).
- Mobile money transactions exceeded 50 percent of GDP in Kenya, Mozambique and Uganda in 2021 (IMF Financial Access Survey).
- Internet penetration in the region has increased tenfold since the early 2000s, compared with a threefold increase in the rest of the world.
- Average mobile download speed in SSA is more than three times slower than in the rest of the world.
- The Enhanced Digital Access Index (EDAI) shows broad improvements from 2015 to 2020 in: Quality; Internet Usage; Knowledge; IT Infrastructure; Affordability.
- The paper documents a striking positive correlation between digitalization (EDAI) and diversification (Economic Complexity Index) across SSA and non-SSA countries (chart based on Economic Complexity Index 2021 and EDAI 2020). The chart depicts correlation, not causality.

### Transmission channels (mechanisms highlighted)
- Lowering entry costs and expanding market reach:
  - Digital tools lower firm entry costs and connect firms to wider, more global markets, boosting competition and efficiency.
- Productivity and public-sector efficiency:
  - Automation of routine administrative tasks (business registration, tax payments) and rapid scaling of services (education) can boost revenues and improve public service delivery.
- Financial inclusion and firm dynamics:
  - Digital financial services (e.g., mobile money) strengthen financial inclusion, increase access to loans and savings, and enable larger and more frequent financial transactions, supporting firm entry, productivity, employment, and exports.
- Transparency and governance:
  - Digitalization can increase transparency and reduce rent-seeking, contributing to anti-corruption efforts.
- Diffusion of information and new industry composition:
  - Faster diffusion of information connects people and firms, facilitating participation in the economy and shifting industrial structure toward services and immaterial products.

### Observed digitalization strengths and gaps in SSA (state of play context)
- Strengths:
  - Some SSA countries are global leaders in mobile money transactions; notable country-level innovations in pandemic responses (e.g., ride-hailing apps adapted for goods delivery, e-passport portals, NOVISSI in Togo, contact-tracing apps, central bank relaxations of mobile money rules).
- Gaps:
  - Digital depth remains uneven outside finance; public sector digitalization remains low relative to non-SSA regions (evidence from E-Government Development Index averages).
  - Rural and gender disparities: rural areas less connected; women tend to be less connected.
  - Infrastructure and speed constraints: mobile download speed more than three times slower than rest of world.

### Policy framing implied by the channels
- Policies to leverage digitalization for diversification should be integrated into broader diversification strategies and be mutually reinforcing.
- The paper discusses policy options across horizontal and vertical domains and organizes them around five areas (as later expanded in the paper):
  - (i) human capital;
  - (ii) the business environment and regulatory framework;
  - (iii) redistributive capacity;
  - (iv) infrastructure building and international cooperation;
  - (v) cybersecurity, privacy protection, and risk management.
- Policy design should: support leapfrogging of traditional infrastructure gaps; adopt frontier technologies where appropriate; create niche markets to attract investment; promote inclusiveness; and avoid undermining multilateralism while encouraging multilateral integration.
- Operational guidance and policy advice must be tailored to country specifics.

### Noted limitations and research gaps
- There is limited empirical evidence on the direct impact of digitalization on diversification because digitalization is a relatively new phenomenon and successful recent diversification experiences remain scarce.
- Existing correlations (EDAI vs. Economic Complexity Index) do not establish causality; causal estimation is beyond the scope of this section.

*Source: IMF staff (excerpt from IMF Working Paper "A Conceptual Policy Framework for Leveraging Digitalization to Support Diversification in Sub-Saharan Africa")*

### 3.2 Digitalization: An Enabler of Economic Growth by Overcoming the

### 3.2 Digitalization: An Enabler of Economic Growth by Overcoming the Challenges for Diversification in SSA Countries

### Digitalization strengthens human capital
- Digitalization increases worker productivity, labor supply, and narrows the gender gap by expanding access to education, skill building, and knowledge diffusion.
- Digital learning can be less costly and more scalable than physical infrastructure (classrooms and universities), broadening learning outlets (special learning applications, YouTube, social media).
- Country examples of digital education and health initiatives:
  - Cote d’Ivoire, Kenya, Sierra Leone: leveraging digital technology for education services, teacher upgrading, and recruitment.
  - Angola, Burkina Faso, Cameroon, Madagascar, Malawi, Sierra Leone: introduced educational television and radio programs.
  - Cote d’Ivoire, Ghana, Kenya, Liberia, Uganda: launched virtual campus apps and websites providing free study materials.
  - Kenya, Rwanda: focus on basic skills and financial literacy.
  - Niger: coding academy at tech center; Kenya: more tertiary training in software development and entrepreneurship.
  - Mali: UNDP-led SanDi telemedicine project to bridge specialized care to remote regions.
- Digitalization supports inclusion and can reduce gender gaps and integrate informal workers; however, SSA lags global digital access and faces a wide gender gap, with pandemic-related school closures disproportionately risking girls’ permanent loss of human capital.

### Digitalization supports greater financial inclusion and financial depth
- Digital financial services mitigate liquidity issues (example: during the pandemic) and are expected to remain important during recovery.
- Fintech growth:
  - Between 2020 and 2021, the number of tech startups in Africa tripled to around 5,200 companies, of which nearly half are Fintech (McKinsey & Company, 2022).
- Digital financial technology can reduce gender gaps in access to finance and improve SME access to tailored financial solutions using digital payment data and big data analysis.
- The Global Findex Database shows positive trends in increasing access to mobile money for both men and women from 2014 to 2017, with SSA countries leading; nonetheless, the gap between the percentage of women and men with mobile money accounts increased over the three-year period.

### Digitalization stimulates competition, innovation, public-service quality, and resilience
- Market concentration impedes diversification; more than 70 percent of the countries in the region fall below the global median in domestic and foreign competition indicators (IMF, 2020).
- Digitalization reduces barriers to firm entry and lowers business startup costs and time (Tchamyou, 2017). Examples:
  - Eswatini, Nigeria, Zimbabwe: simplified business startup via online platforms.
  - Ethiopia: fast internet significantly increases manufacturing productivity.
  - South Africa: ICT benefits finance sector productivity.
- Govtech and e-government:
  - E-government reduces cost/time, increases transparency, and can stimulate FDI (Al-Sadiq, 2021), increase trust in tax officials (Ouedraogo and Sy, 2020), and reduce corruption (IMF, 2018).
  - Côte d’Ivoire, Kenya: electronic tax filing and payment systems.
  - Cabo Verde: georeferencing for construction permits.
  - Kenya: online availability of construction requirements.
  - Togo: online portal for submission of applications.
- Digitalization increases resilience and supports continuity of business and public services during shocks:
  - Kenya, Nigeria: online orders and e-commerce uptake.
  - Senegal: e-commerce platforms for SME market access.
  - Kenya: e-citizen portal for civil and vehicle registration.
  - Rwanda: judiciary videoconferencing for court proceedings.
  - Benin, Côte d’Ivoire, The Gambia, Lesotho, Madagascar, Namibia, Togo, Uganda, Zambia, Zimbabwe: deployment of targeted social protection using digital platforms.
- Digital technologies contribute to SDGs and sustainability through energy and waste solutions:
  - Guinea: solar-powered mobile telecom antennas reduced grid diesel consumption.
  - Mobile money used to pay for solar energy and bike-sharing.
  - Nigeria, Kenya: digital waste management and startups improving water-use efficiency and reducing fuel use via navigation apps (South Africa, Kenya).

### Digital infrastructure and integration with the international digital ecosystem
- Modern economies require data centers, high-speed internet networks, and digital platforms integrated with international systems to attract FDI and support international business.
- Many SMEs rely on global cloud service providers; ensuring similar local services requires fast internet and easy integration with international platforms.

### Digitalization as a driver of diversification, new sectors, and job creation (summary from adjacent section 3.3)
- The digital sector is the fastest growing sector in leading SSA countries (Nigeria, South Africa, Kenya, Ghana), outpacing manufacturing in some cases.
- Digital technologies enable new products and improve resource allocation across sectors (examples in agriculture):
  - Platforms and tools cited: Hello Tractor (Nigeria, Ghana, Kenya), Digital Green, Plantix, Value4Her.
  - Mobile phones improve access to finance and knowledge for women in agriculture.
  - Drones and other technologies can attract youth into agriculture (example: Cote d’Ivoire).
- Creation of new sectors enabled by technologies: mobile networks, internet of things, blockchain, AI, big data, cloud computing; activities include business-offshoring, IT outsourcing, gig economy, platform economy.
- Innovation hubs and tech-hub ecosystem:
  - AfriLabs: network of more than 200 innovation centers across 47 African countries.
  - As of October 2021, Africa had 1,031 operational tech hubs (accelerators, incubators, university-linked labs, maker parks, co-working sites).
  - Growth over 60 percent compared to 2019 (AfriLabs and Briter Bridges, 2021).
  - Examples: Lagos (Yaba) tech hub; Rwanda FinTech hub and regulatory sandbox in Kigali International Financial Center.
- Job creation evidence:
  - Firms using email have higher real annual sales and employ more workers (Hjort and Poulsen, 2019).
  - Digitalization contributes to higher net job creation; mobile broadband coverage increases labor force participation and employment, particularly among women (Bahia et al, 2020).
- Building fast and reliable internet infrastructure is highlighted as a high-potential policy option for job creation in SSA.

### Mutual reinforcement and preconditions for digital-diversification synergies
- Enabling and driving forces reinforce each other via access to finance and trade integration:
  - Digital technologies allow smallholder farmers access to financial services and international markets, facilitating insertion into international value chains (Lanz et al., 2018).
  - E-government upgrades reduced export/import times (Nigeria) and improved trading across borders (Sierra Leone).
  - AI integration into trade can improve efficiency; digitalization and AI are complementary.
- Preconditions required to fully realize benefits of digitalization:
  - (i) adequate level of education (Donou-Adonsou, 2018);
  - (ii) enabling business environment and access to electricity and good infrastructure (Apulu and Ige, 2011);
  - (iii) enabling ICT-related laws and policy environment (Pick and Sarkar, 2015).

*Source: IMF Working Paper — 3.2 Digitalization: An Enabler of Economic Growth by Overcoming the Challenges for Diversification in SSA Countries*

### 4. Policies to Support Digitalization and Diversification

### 4. Policies to Support Digitalization and Diversification

### 4.1 Policy Areas
- Policies must address multidimensional needs and challenges to support digitalization-driven diversification:
  - i. Strong, skilled, and adequately specialized human capital:
    - Horizontal: broad-based adequate basic education; high and gender-balanced labor force participation (LFP); appropriate social and job protection.
    - Vertical: targeted job training and skill building on digital technologies.
    - Forward-looking alignment of education with labor market needs and reciprocal benefits between education and digitalization.
  - ii. Enabling business environment and digital regulatory framework conducive to innovation:
    - Vertical: empowering and agile frameworks incentivizing entrepreneurship, R&D, and investment in digital activities.
    - Horizontal: fair access to financing, adequate digital connectivity, one-stop shop information portals, adequate bankruptcy laws, fair competition, and good governance.
  - iii. Redistributive capacity:
    - Taxation of digital activities is an ongoing discussion.
    - Expansion of digital activities can boost fiscal space to finance redistributive initiatives.
    - Taxation must be conducive to job creation.
  - iv. Infrastructure building, international cooperation, coordination, and collaboration:
    - Investment needed in basic infrastructure: electricity, broadband coverage, roads, buildings, water.
    - Sector-specific infrastructure: high-speed internet in targeted areas, service hubs, and networks.
    - Use of public-private partnerships (PPPs) and better coordination among development partners to avoid duplication and efficiently deploy scarce resources, especially in fragile contexts.
  - v. Cybersecurity, privacy protection, and risk management:
    - Promote awareness and capacity to address digital crimes and cyber wars.
    - Digital regulatory frameworks should evolve to manage risks without discouraging innovation.
- Integration requirement:
  - Policies should be integrated and mutually reinforcing within a broad growth and diversification strategy.
  - Many SSA countries have separate national development strategies and digital strategies; integration can enable a big push for required investments.
  - Prioritization must be country-specific, tuned to policy gaps, sectoral distribution, structural bottlenecks, and political economy constraints.

### 4.2 Examples of horizontal and vertical policies for short-term economic resilience and long-term economic diversification
- General:
  - Governments used digitalization to improve coverage and delivery of social safety nets (SSNs) and government services (notably during COVID-19).
- Horizontal policies (resilience and transparency):
  - Government digital cash transfers, national ID systems, digital tax payment, greater access to services and transparency.
  - Examples:
    - Togo: NOVISSI all-digital end-to-end cash transfer program for contactless emergency cash transfers.
    - Togo: setting up a digital identification system (Unique Identification Number, NIU).
    - Kenya, South Africa, Senegal: digital tax platforms for filing and payment.
    - Kenya, South Africa, Madagascar, Uganda, Mauritius: e-procurement portals and e-government improved transparency and quality of public services.
- Vertical policies (resilience and sectoral tools):
  - Digital payments and digitally-enabled climate resilience tools supported structural transformation.
  - Examples:
    - Kenya, Nigeria, South Africa, Madagascar: mobile payment platforms and launch of digital currencies to strengthen payments and financial inclusion.
    - Mauritius, Kenya, Madagascar: satellite technology and management systems for anticipating and mitigating natural disasters.
- Horizontal policies (long-term diversification):
  - Digitalization enhances broader horizontal diversification policies underpinning long-run growth.
  - Examples:
    - Kenya: Digital Literacy Program (basic education level).
    - Rwanda: Saving and Credit Cooperative Society promoting financial inclusion via digital tech.
    - Togo: NIU expected to improve access to finance (previously only 3 out of 8 million Togolese had a national ID card).
  - E-government and climate tech measures support both short-run resilience and long-run growth; can improve governance and reduce corruption.
- Vertical policies (long-term structural transformation):
  - Digital sector development channels:
    - Creates demand for digital skills prompting investment in basic education.
    - Acts as gateway to international collaboration due to rapid diffusion of digital technologies.
    - Integrates into agriculture to improve productivity, supply chain barriers, and move products up the value chain.

### 5. Policy Players
- Cross-country collaboration (regional and international) is critical:
  - Digitalization requires heavy, often cross-border investment (e.g., marine cables) and evolves quickly, so regional/international collaboration supports interoperability and avoids duplication.
  - MNCs could play a leading role.
  - Collaboration in R&D (e.g., Public Research Institutes with donor help) and leveraging the diaspora can accelerate digitalization.
  - Example note: East African Payment System and West African Monetary Zone Payment System have limited interoperability; Pan-African Payment and Settlement System (PAPSS) can offer significant improvements.
- Role of the public sector:
  - Choose supportive public investments, establish enabling environment for private investment, set up cross-country and cross-institutional collaboration frameworks.
  - Policies must embody good governance, transparency, and trust; e-government can enhance policy impact on diversification and structural transformation.
- Concluding policy opportunities and enablers:
  - Digital money can revolutionize access to financial services and formal economy participation.
  - Digital identification systems can enhance access to public services, financial inclusion, and targeted social welfare delivery; contribute to improved governance, data management, and cybersecurity.
  - Supportive Intellectual Property rights environment needed to promote local innovation, attract investments, and build an ecosystem for digital solutions tailored to country needs.

### Annex I — Examples of Policies (selected highlights from Table 1)
- Short-term horizontal:
  - Government cash transfers: Togo NOVISSI; Madagascar Tosika Fameno.
  - Digital identification: Kenya Huduma Namba; Ghana and Senegal ECOWAS National Biometric Identity Card (ENBIC); Togo NIU.
  - Tax payment portals: Kenya iTax; Senegal M-tax; South Africa eFiling.
  - Transparency and public services: Kenya e-Citizen, Ardhisasa land transactions, E-procurement portal; South Africa eTenders; Madagascar digital budget reports; Uganda E-Procurement portal; Mauritius Digital Government Transformation Strategy 2018-2022.
- Short-term vertical:
  - Digital payment systems: Kenya M-Pesa (launched in 2007); Nigeria e-Naira; South Africa Fintech Unit pilot and participation in Dunbar pilot; Madagascar e-Ariary project.
  - Climate resilience tech: Mauritius satellite launched in 2021; Kenya satellite and mobile spectrophotometry against army worms and locusts; Madagascar Identity Management system to reduce vulnerability to natural disasters.
- Long-term horizontal:
  - Legal frameworks: Kenya Computer Misuse and Cybercrimes Act (2018) and Data Protection Act (2019).
  - Invest in basic education: Kenya Digital Literacy Program (launched in 2016); Rwanda basic digital skills in national competency-based curriculum and OLPC/SMART Classrooms; Senegal vocational training in digital technologies.
  - Business environment: Kenya private investment in network infrastructure leading to four undersea fiber optic cables; Rwanda study on consumer payment behavior and pricing of digital payment services.
  - Access to finance: Rwanda retail interoperability project and SACCO automation; Togo NIU expected to increase access to finance.
  - Investor attraction: Kenya one-stop shop for Special Economic Zones; Namibia NIPDB one-stop shop.
  - Regulatory enhancements: Kenya Unmanned Aircraft Systems Regulation (2020); Senegal Code of Electronic Communications (2018).
  - Enabling digital sector policies: Kenya ICT in Kenya Vision 2030; Senegal Digital strategy (SN 2025); Rwanda NST1 recognizing ICT; Mauritius Ebene “Cyber” City.
  - Digital skills and jobs: Mauritius Early Digital Learning Program and National Training Fund; Kenya Ajira program to provide one million youth with digital jobs; climate-tech start-ups (KCIC, KCV), and digital agriculture start-ups like Twiga Foods.

*Source: IMF WORKING PAPERS — A Conceptual Policy Framework for Leveraging Digitalization to Support Diversification in Sub-Saharan Africa, Chapter 4.*

### Annex II. The Enhanced Digital Access Index (EDAI)—versions of 2015

### Annex II. The Enhanced Digital Access Index (EDAI)—versions of 2015 and 2019

### Purpose and scope
- The EDAI is a multidimensional index that seeks to gauge the level of digital connectivity across counties over time (IMF, 2020).
- It is intended as a complement to other digital-related datasets (World Bank’s Digital Adoption Index, ITU Digital Access Index and Global Cybersecurity Index, UN E-Government Development Index (EGDI), among others).
- The EDAI focuses on foundational dimensions of digitalization (i.e., the enabling factors) rather than on end-products such as access to e-commerce, e-government, and other e-services.

### Data: time coverage and treatment of missing values
- All indicators were collected from a time-period of 6 years prior (for example, the 2015 database includes data from 2009-2015).
- The 6-year band was chosen to allow for the creation of the most complete dataset (at least one data point per indicator per region) in the shortest band.
- This range was then extended to capture at least one variable per indicator per region until 2006 and any older variables were discarded.
- Total number of data points: 3700; number of countries: 185; and number of regions: 17.
- In the case of missing data, an average of the indicator for that region was used.
- The year of each existing indicator was not accounted, so for example, 2014 data may have been averaged with 2011 data to produce a missing data point for 2015.

### Indicators of the EDAI (Table 1)
- Indicator / Sub-Indices
  1. Fixed broadband Internet monthly subscription price % GDP Per Capita — Affordability
  2. Mobile cellular prepaid - price of SMS (off-net) % GDP Per Capita — Affordability
  3. Mobile-cellular prepaid - price of a one-minute local call (peak; off-net) % GDP Per Capita — Affordability
  4. Mobile-cellular prepaid connection charge % GDP per Capita — Affordability
  5. USB_1GB; prepaid; price of the plan % GDP per capita — Affordability
  6. Fixed-telephone subscriptions 100 inhabitants — Infrastructure
  7. Mobile-cellular suscriptions per 100 in habitants — Infrastructure
  8. Percentage of the population covered by a mobile-cellular network — Infrastructure
  9. Percentage of the population covered by at least a 3G mobile network — Infrastructure
  10. Percentage of the population covered by at least an LTE/WiMAX mobile network. — Infrastructure
  11. Gross Enrollment Ratio — Knowledge
  12. Adult Literacy (%) — Knowledge
  13. Expected Year of Schooling — Knowledge
  14. Mean Year of Schooling — Knowledge
  15. Active mobile-broadband subscriptions per 100 inhabitants — Internet Usage
  16. Fixed broadband subscriptions per 100 inhabitants — Internet Usage
  17. Internet users (%) — Internet Usage
  18. Fixed (wired)-broadband speed; in Mbit/s — Quality
  19. International bandwidth per Internet user — Quality
  20. USB_1GB; postpaid; Speed; in Mbit/s — Quality

### Computation: methodology and formulas
- The index is based on the Adjusted Mazziotta-Pareto Index (AMPI).
- Polarity determination:
  - The polarity of each indicator in relation to its sub-index is determined (impact on the phenomenon being measured).
  - Example: internet users has a positive impact on the sub-index Internet Usage.
  - All indicators have a positive polarity except for those of the sub-index Affordability.

- Normalized Matrix Construction (as presented):
  - 푥
    푖,푗
    +/−
    =
    {
    푥
    푖,푗
    +
    −푀푖푛
    푖,푗
    푀푎푥
    푖,푗
    − 푀푖푛
    푖,푗
    ×60+70
    푀푎푥
    푖,푗
    −푥
    푖,푗
    −
    푀푎푥
    푖,푗
    − 푀푖푛
    푖,푗
    ×60+70
    (1)

  - Δ=
    (퐻푖푔ℎ푒푠푡 푣푎푙푢푒−푙표푤푒푠푡 푣푎푙푢푒)
    2
    (3)

  - Explanatory notes:
    1. The Delta is the difference between the highest and the lowest value of an indicator in each individual time-period divided by two.
    2. The Ref value selected here are the average values in 2015 for each indicator. This is the value that allows for a comparison of the EDAI values over time.
    3. Depending on the polarity, the formulas in (1) are used to calculate the normalized value of each indicator.

- Sub-Index calculation:
  - Each sub-index was calculated using the AMPI formula.
  - M is the mean of all the normalized indicator values in a sub-index.
  - S is the respective standard deviation.
  - cv is the coefficient of variation (S/M).
  - The subtraction is used to penalize countries which have unbalanced indicators in their sub-indices with a lower index value.

- Final EDAI calculation and rescaling:
  - The final EDAI is calculated from the sub-indices using the final AMPI calculation once again.
  - Then the EDAI and all the sub-indices are rescaled between 0 and 100 using the following formula:
    푥−min (푥)
    max
    (
    푥
    )
    −min (푥)
    ×100(5)
  - The rescaling is to allow for noticeable variation between the sub-indices as otherwise values clump together with very small differences.

### Key methodological design choices and implications
- Six-year rolling band for data collection to maximize completeness (example: 2009-2015 for the 2015 database).
- Regional averaging used to impute missing indicator values; years of underlying data are not aligned when averaging.
- Use of AMPI to penalize imbalance within sub-indices and to aggregate to a final composite index.
- Use of 2015 average values as Ref (goalposts) to enable time comparison.

*Source: IMF staff (Annex II. The Enhanced Digital Access Index (EDAI)—versions of 2015 and 2019, from wpiea2024123-print-pdf).*

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_Source: https://www.imf.org/-/media/files/publications/wp/2024/english/wpiea2024123-print-pdf.pdf_