An Introduction to the Digital Economy

The digital economy is the economic activity that occurs when society has access to a digital environment. It can be seen as an extension of the familiar economy, such as when people sell online in addition to selling at a flea market. It can be a rival to traditional economic models. Another example is when people access banking services through an app instead of going to a financial institution. This is best exemplified by platforms that allow people to rent out their cars or rooms in their home for a modest transaction fee, allowing private individuals to challenge the taxi and hotel industries. The digital economy is certainly transforming the world, and it is doing so in a variety of ways.  

The Future Is Here – but Unevenly Distributed  

Significant attention has been turned to the impact of the digital economy on India, largely services like software development, tech support and call centers offering customer service to businesses in the West. The impact of the digital economy is even more revolutionary, though it receives far less attention. For example, areas with access to smartphones and cellular networks have GDP growth one full point higher than those that don’t. Access to information is beneficial to society.  

The Impact of the Digital Economy on Africa  

Digital technology like smartphones is spreading rapidly in Africa because of the near absence of telephone landlines. They’re essentially skipping that middle step in infrastructure development. The ability to call family and friends in the cities or send a text message to the family on the other side of the world improves quality of life, but this hardly has an impact on the economy of Africa since so few people had phones before.  

One of the biggest benefits of accessing the digital economy for those in Africa is access to affordable financial services. They can receive remittances from family abroad with far lower fees, giving them more money to send. They can receive money and use it almost immediately to pay for goods and services instead of traveling hours to an office of Western Union. They can save money in banks and receive interest instead of dealing with cash that could be stolen. Owning a phone allows you to receive payments via text messages and instant messages, reducing the risk vendors face dealing with cash. It opens up the door to receiving payments from people in a variety of currencies without having to pay currency conversion fees. In other places, phone cards and mobile minutes are traded as a de facto currency.  

The same financial service providers are providing affordable loans to those who traditionally had no access to credit with reasonable fees and interest rates. Instead of paying 50% or higher interest to a local landlord or loan shark, people can seek out loans from financial institutions that may not have a brick and mortar location. As they receive payments digitally, they can make payments on their loan. Their regular cell phone bill payments and financial records with their online bank are proof of creditworthiness. This is especially useful for the more than a billion people in the world who lack proof of identity through documents like birth certificates.  

The ability to check prices for goods is incredibly valuable. Farmers can find out which town is paying more for their products, allowing them to choose where to take products for sale. Increasing income by a few percents each time truly adds up. Access to news via text messages and streaming media prevents the poor from being taken advantage of. They can find out whether or not something is true.  

The developing world faces a double bind. They have a higher disease burden, due to their poverty, and they have fewer resources available to provide care. People who are chronically ill with diseases like malaria and intestinal parasites struggle to work, and yet their families are the least able to afford medicine and care for someone who used to be productive. Advances in technology are allowing healthcare aides to run diagnostic tests via smartphones and basic test strips, providing accurate diagnoses for a fraction of the cost and far faster than a trip to the local hospital. The “matternet” is an innovative system being set up in places that lack roads that would allow these medical professionals to order drugs delivered to treatment centers. This would save lives at a minimum, while faster and more accurate care will improve quality of life.  

One NGO set up crop insurance for farmers utilizing advanced technology and a simple methodology. Farmers bought seeds, and they could enter a text message to sign up and pay for crop insurance when they did so. They paid for the insurance as part of the purchase price. Satellites monitored weather in the areas the farmers lived in. If someone said their new crop had failed and requested replacement seeds as a result of this, the software behind the app checked the weather and authorized new seed to be given to the farmer if that was true. This allowed farmers to plant a new crop and getting a harvest in while minimizing the need to have workers on the ground monitoring conditions. It reduced local hunger because loss of the first crop didn’t equal a total crop failure. And it kept farmers working on the land, whereas total crop failure often drove many to the cities. Nor is this the only service seeking to provide insurance to those who cannot afford catastrophic losses.  

The digital economy is starting to allow people to connect with customers via apps and online marketplaces. Notably, Rwanda has rolled out online e-government.  

Summary  

The digital economy is bringing affordable financial services and information to people who can benefit most from it. However, we’re only just starting to see how this can impact the African continent.