African Businesses Need to Invest more in Innovation. Here's Why!

In recent times, African economies, particularly those in the Sub-Saharan region have consistently operated below global innovation index (a yearly ranking of countries by their capacity for, and success in, innovation). As an illustration, the value-added per worker in the services sector of Sub-Saharan African countries staggered around $7,261 (₦2,613,960) in 2018, while the world's average was $23,736 (₦8,544,960).

How can innovation help productivity?

It is well established that business innovation has immense benefits for productivity in the work place. However, evidences till date only cover for developed economies, while findings remain inconclusive for businesses in developing economies. This makes it difficult to implement related policy solutions in several parts of Africa.

Hanan Morsy and Amira El-Shal, both macroeconomic experts at the African Development Bank (AfDB) in Cote d’Ivoire, recently conducted a study that provided more insight into the relationship between innovation and productivity in developing economies. They mainly use data on over 80,000 firms in 15 developing African countries amongst other regions from Worldbank’s enterprise survey between years 2006 - 2019, and a generalized structural equation model (a set of mathematical models, computer algorithms, and statistical methods used for analysis of data).

The key findings therein are summarised below:

  • Innovation, in both business processes and products, can lead to large productivity gains for all businesses globally (including African businesses). But, product innovation yields the most benefit.

  • Two of the most predominant drivers/determinants of innovation globally are: access to external knowledge (usually via information and communication technology or ICT) and research & development or R&D.

  • Despite being a major determinant in other countries outside Africa, R&D spending has the weakest effect on innovation for African businesses. Access to finance is the biggest factor that determines whether a business (especially African businesses) will invest in R&D.

  • Of all the drivers of innovation, access to external knowledge via ICT is the most essential for African businesses.

  • On-the-job training is likewise instrumental to process or product innovation in all countries and, interestingly, its effect on African businesses is double that of businesses in emerging markets.

In all, this study suggests that innovation (both in processes and products) has lasting benefits for business productivity in Africa and other developing economies. The benefits can be achieved with access to finance; access to external knowledge via ICT adoption; and skill development via on-the-job training.

Going forward, it is beneficial for African countries to increase business productivity by adopting new technologies developed elsewhere, rather than introducing radical innovations (that are more costly and time-consuming) -- since most African countries currently operate below maximum efficiency.


Still craving? Explore: AfricanDevelopmentBank

Article Credit: Michael Adesanya

Tags: #economy, #africa, #innovation, #ICT

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