GSMA warns SA is at risk of losing regional leadership in digital development

International telecommunications body, the GSMA has warned that SA may be losing its edge as a regional leader in digital development.

Over the decades, SA has emerged as a significant economic force on the African continent. With a nominal GDP estimated at R7-trillion (about $400bn), it accounts for a large portion of Africa’s total GDP, having positioning itself as the continent’s largest economy. This position is often contested with the continent’s most populous nation, Nigeria.

This economic strength is a testament SA’s diverse industrial base, advanced infrastructure and an advanced financial systems.

However, in a new report, the GSMA said the country may be losing ground to East and West Africa when it came to technology.

“Compared with Brics or other middle-income countries, it is clear that SA faces a number of key challenges in developing its digital economy,” the body said in its report titled “Driving Digital Transformation of the Economy in South Africa”.

“Even in the context of Sub-Saharan Africa, there are indications that SA may be losing its position as regional leader in some areas of digital development. The success of Kenya and Nigeria in attracting investment into tech start-ups is a forward-looking indicator of the dynamism and potential future growth of the digital economy in those countries. If these challenges are not addressed, SA will continue to fall behind its global peer group of countries.”

The telecom body’s findings are backed by flows of funding to tech startup businesses.

While venture funding grows in SA, the country has continued to trail behind Kenya and Nigeria in attracting capital, despite having the continent’s most developed economy and industrial ecosystem.

Data from the African Private Capital Association (Avca) shows that in 2023 West Africa attracted the largest proportion of venture capital deal volume in Africa, at 26%, driven by Nigeria, which was the most active country by volume, at 19%.

GSMA blames much of this on ineffective policy implementation.

“Despite the well-developed sector policy environment in SA, implementation of government policy and strategy can often lag behind. This creates uncertainty and risk for investors which is adversely affecting sector development.”

Finally, “the sector regulatory framework needs updating to reflect the many developments that have taken place in the market since it was designed”.

According to GSMA, SA’s telecommunications operators are the foundation for the digital economy.

Together, these companies generate about R200bn a year in revenue and account for 4%-5% of the country’s total GDP. In addition, they generate an estimated 3%-4% of the total tax revenue collected by the government and are responsible for about 30,000 jobs.

Even then, “telecom services account for only around one-third of the total digital economy”, which accounts for 105-15% of total GDP.

The country’s mobile operators were “critical players at the heart of the digital economy”, it said. Combined, they generated R120bn in revenue for 2023, 58% of the total telecommunications sector revenue, and invested an average of R15bn a year on capital expenditure.

Among a list of recommendations to improve the outlook, the GSMA suggested some of the following measures to boost SA’s digital economy efforts: 

• Support for digital adoption through revising the tax on imported devices and accelerating digital skills training;
• Implementation of the Digital Masterplan and other components of the sector policy framework; and
• Reform of the sector regulatory framework to support growth of the digital economy, including a level playing field and collaborative approach to newer technologies, for example: over the top (OTT) players, low earth orbit (LEO) satellites, AI and cloud computing.

gavazam@businesslive.co.za