NEIL COLE: Bridging the digital divide between the public and private sectors

The gulf between the public and private sectors in digital transformation is a stark reality in SA.

While the private sector has flourished with innovative, integrated, and efficient systems — particularly in digital banking — the public sector remains constrained by outdated processes and fragmented financial management systems.

Outstanding questions regarding the flawed procurement and implementation of an integrated financial management system in SA underscores these shortcomings, revealing a lack of co-ordination, transparency and accountability.

The digital divide raises pressing questions. Why has digitalisation progressed so slowly in the public sector, particularly in financial management? What obstacles hinder these advancements, and how can lessons from the private sector help overcome them?

The government Integrated Financial Management System (IFMS) scandal highlighted severe mismanagement and wastefulness. Despite repeated attempts to implement an IFMS, the project remains incomplete, costing billions and delivering little in terms of streamlined or transparent financial management.

This scandal exposed systemic issues in the public sector’s approach to digitalisation: misaligned objectives, lack of accountability, weak project management, and challenges in co-ordination among various government departments. These problems have only widened the digital gap between the public and private sectors, where integration and innovation are prerequisites for growth.

In contrast, digital banking has transformed financial services across Africa, including SA, by leveraging technology to improve efficiency, expand access and enhance user experience. Through mobile banking, digital wallets and seamless online transactions, banks have provided convenience and accessibility to millions, including those in underserved rural areas.

SA’s major banks, such as Standard Bank, FNB and Capitec, have established sophisticated digital platforms and embraced cutting-edge technologies like artificial intelligence, blockchain and big data analytics. By integrating these technologies they can offer customers real-time services, advanced security features and efficient financial management tools, setting an example of what efficient, transparent and responsive systems can achieve.

Obstacles in advancing public sector digitalisation

The stark difference in digital maturity between the private and public sectors stems from several key obstacles:

The public sector is heavily reliant on legacy systems that are costly to maintain and challenging to upgrade. Unlike private institutions, which can prioritise innovation, public sector organisations often struggle to break free from bureaucratic processes that slow decision-making and hinder rapid technological adoption. Transitioning from these outdated systems to modern platforms requires significant financial resources and political will, which are often in short supply.

Changes in leadership and shifting priorities within government departments mean long-term projects such as implementing an IFMS are often sidelined or abandoned midcourse. Political instability, such as the almost decade-long period of state capture during the Jacob Zuma years, and the lack of a coherent digital transformation policy, have stalled efforts to modernise public sector processes, contributing to a cycle of inefficiency and often corruption.

Another pressing issue is the skills gap within the public sector. While the private sector invests heavily in training employees on new technologies and hires specialised talent, the public sector often lacks resources to recruit and retain the necessary capability. Digital literacy is crucial for implementing and managing advanced systems like IFMS, and without skilled personnel even the best technological solutions will underperform.

With increased digitalisation the risk of cyberthreats grow, and the public sector often lags behind in establishing robust cybersecurity frameworks. While the private sector is more agile in adopting sophisticated security measures, the public sector grapples with regulatory constraints and limited resources to ensure data privacy and system integrity. Security concerns can lead to hesitation in fully embracing digital systems, slowing down digital transformation efforts.

The digitalisation of public sector financial management requires substantial investment, which can be challenging given competing demands on the national budget. Unlike the private sector, where returns on investment are quantifiable and immediate, the public sector struggles to justify the initial costs, making it difficult to secure funding for large-scale digital transformation projects.

Lessons from the private sector and steps to bridge the divide

Despite these obstacles, the public sector can leverage insights from the private sector’s success to drive its own digital transformation, especially in financial management systems.

The private sector benefits from dedicated leadership that champions digital transformation, a model that the public sector could replicate. By establishing a clear governance structure, appointing a chief digital transformation officer and promoting accountability, the public sector can foster a conducive environment for digital innovation. This leadership could ensure that digitalisation efforts align with the broader goals of transparency, efficiency, and service delivery.

One of the key success factors in the private sector is agile project management, where projects are broken down into manageable phases, enabling flexibility and continuous improvement.

By applying an agile approach to public sector projects like IFMS, government can mitigate risks, quickly identify problems and adapt solutions over time rather than pursuing a rigid, “all-or-nothing” approach.

Weak project management has plagued, and continues to plague, digitalisation efforts across Africa, often exploited by unscrupulous service providers.

Collaborating with the private sector offers the public sector access to technical expertise, resources and best practices in implementing and managing digital systems in ways that can enable knowledge transfer, reduce financial burden and accelerate digitalisation.

For example, private firms with experience in banking and fintech could support the public sector in designing secure, user-friendly and scalable digital platforms.

To ensure the sustainability of digital transformation the public sector must invest in training programmes that build digital literacy and technical skills. By equipping employees with the knowledge to manage and operate modern systems, the public sector can reduce its reliance on external consultants and foster a culture of continuous improvement.

Digital banking’s success rests on transparent and accountable practices. These attributes are equally essential in public sector financial management. By developing clear protocols and setting accountability standards, the public sector can prevent misuse of funds, enhance public trust and create a system where every digital transaction is traceable, promoting greater financial integrity.

Upcoming Cabri conference

An upcoming conference on public finance in the digital era, co-hosted by the Collaborative Africa Budget Reform Initiative (Cabri) and the Overseas Development Institute, will offer a platform to examine ways to bridge the gap between the public and private sectors by fostering a collaborative dialogue on digital transformation.

As governments worldwide strive to meet the growing public demand for efficient, transparent and responsive services, digital public infrastructure has emerged as a crucial tool in the global development agenda.

However, the challenges of costly technology failures have tempered optimism, highlighting the need for more than just new technology. Governments will need to adopt innovative approaches and frameworks for digital governance.

At the conference, leaders in public finance, digital policy and development will explore strategies for using digital tools not only to enhance financial management but also to drive comprehensive digital transformation across government functions, ultimately aligning public sector practices with the technological advancements seen in the private sector.

By addressing both the technical and strategic roles of ministries of finance in this transition, the conference aims to empower finance ministries to lead the way in integrating digital systems, fostering accountability, and catalysing societal progress through effective digital governance at local, national and regional levels.

SA’s digital divide between the public and private sectors is a complex challenge, but it is not insurmountable. By drawing lessons from the private sector’s digital successes government can take meaningful steps towards a digital, integrated and transparent public financial management system.

This journey requires overcoming entrenched bureaucratic hurdles, building skills, embracing agile practices and committing to a culture of transparency.

With these changes, SA’s public sector can transform from the current reactive and paperbound system towards bridging the digital divide and ensuring public resources are managed efficiently, transparently and equitably.

• Cole is a former chief director: expenditure planning at the National Treasury and executive director at the Collaborative Africa Budget Reform Initiative.