Africa’s digital content and services sector is growing in most African leading markets. But money is tight and it’s hard to make it mass market rather than a privilege reserved for the elite. Russell Southwood looks at what African governments and operators are doing to encourage this fledgling industry.
The digital content and services sector covers everything from social media like WhatsApp and Facebook to online media (podcasts, videos and text) to digital services like Uber and Taxify.
It matters for Africa because it has the potential to: make people’s lives easier; make services more accessible; allow citizens to take part in a conversation about what they want; increase efficiencies in the public, private and development sectors; and generate new jobs and investment. So whatever happens in terms of Government or regulatory action has to ensure that these positive social and economic impacts are maintained.
It’s a young industry so what might be sensible in tax terms in Europe may simply kill off its growth potential in the early stages in Africa. It is attracting investment from both international brands like Facebook and Opera and investment in innovation and start-ups from venture capital funding that was almost non-existent ten years ago.
It benefits a range of different stakeholders including: companies selling online and the advertising agencies that help them do this; telecoms operators selling data; African start-ups launching their own OTT services; Government, aid agencies and through more efficient online delivery of services; citizens who have the potential to be better informed.
Encouraging an industry to grow that will have benefits for the competitiveness of the overall economy is usually rewarded with tax incentives for a period to speed things up. But the reverse is actually happening in a number of countries in Africa where new taxes are actually being introduced that discourage internet use.
Uganda, Zambia and Benin have all introduced taxes on the use of new apps or the just the use of the internet itself. Luckily in Benin citizen protests led to the scrapping of the tax. African Governments have a set of very mixed motives for introducing this taxation.
Firstly, they want to generate more tax revenues and without understanding that Africa’s digital sector is still in its early growth stage want to tax it like they already tax mobile operators. Kenya’s plans to tax Netflix (see Film and TV News below) reflect this thinking. Secondly, the use of social media means that media and ideas are no longer under the tight control of the Government and the “big men” Presidents. For example, the elderly President Museveni can see how he will be outmaneuvered by younger opponents. Tanzania’s authoritarian President Magufuli can’t bear being publicly challenged by bloggers.
Last but not least, they argue it as a way or creating a level playing field for the heavily taxed telecoms operators, some of which are owned by the Government. It is argued that these new players are not paying the kind of burden traditional telecoms operators are. No African Government has the good sense to take some of the taxes off those operators now that the telecoms sector is under financial pressure.
The overall impact on digital content and service use and by extension, overall use of the internet has been negative. So for example, whilst the Government of Uganda has a Digital Vision 2040 which seeks to encourage internet use, in the first three months following the introduction of the tax in the country in July 2018, internet penetration dropped from 47 percent to 35 percent.
Also since the internet (via mobile) is now one of the most widely used ways of reading media, it is effectively a tax on knowledge. This intention is also much clearer in Tanzania where charging TZS900 to register for permission to operate a blog is clearly a threat to freedom of speech.
According to Access Now, an independent monitoring group in 2018, there were 21 instances of partial or total internet shutdowns, compared with 13 in 2017 and 4 in 2016. An example of a partial shutdown was Chad closing off access to various social media sites. Other countries have included: Burundi, Cameroon, Congo-Brazzaville, Cote d’Ivoire,DRC, Ethiopia, Gabon, Ghana, Niger, Sudan, Togo and Uganda.
In early September, Ventures Africa published an overview of internet shutdowns in Africa and calculated that the daily cost of these internet shutdowns – which are often associated with elections – as costing anything between US$166,416 (Burundi) to US$1.9 million a day (Ethiopia).
These shutdowns now impact the jobs of everyone in the economy and worst of all, the struggling digital start-up has to forgo days worth of income at a time when they are trying to grow their income base.
So what are African Governments doing on the positive side? Tunisia has pioneered a positive approach to encouraging start-ups. Although there has been much hat-doffing to this development, no other African Government has passed anything similar. Some have sought to create the right mood music by supporting start-up spaces but the resources involved are tiny. The problems of weak infrastructure, inconsistent regulation across borders and the inefficiency of cross-border payments remain.
It’s time African Governments pivoted from focusing on retaining power and access to their own wealth generating opportunities to creating frameworks that allowed their citizens happier lives and encourage the growth of their talents.