This article comes in response to recent studies (1) which reveal that: – 45% (2) of African companies have classified Digital Transformation (DT) as a strategic priority.
- The adoption of digital technologies in African companies can increase productivity by up to 20% and profits by up to 25% (3).
However, in Africa, the adoption of DT presents unique opportunities and challenges.
In this article, I invite you to answer the question: What strategies can African companies use to maximise the return on investment (ROI) of their DT projects?
Let’s look at them in turn:
- What is Digital Transformation (DT) in the African context.
- How Return on Investment (ROI) is calculated.
- What strategies to employ to maximise the ROI of DT projects.
1- What is Digital Transformation (DT) in the African context?
In my opinion, and according to the Draft Digital Transformation Strategy for Africa (2020-2030) (4), Digital Transformation consists of:
- An articulated set of initiatives: For example, by 2030, all African citizens should be digitally enabled and able to safely and securely access at least 6 Mb/s [megabits per second of Internet bandwidth] anywhere on the African continent, at an affordable price not exceeding 1 cts USD per Mb, via a smart device manufactured on the continent, at a price not exceeding 100 USD, to benefit from all basic electronic services and content, of which at least 30 per cent are developed and produced in Africa.
- Initiatives aimed at replacing analogue technologies (5).
- Actions based on digital technologies: for example, artificial intelligence, robotics, blockchain, drones, the Internet of Things, 3D printing, Big Data, 5G.
- And which are promoted by different entities: for example, the African Union, African states, companies and organisations, and even individuals.
In order to maximise the ROI of TD projects, it is crucial to adopt strategies that simultaneously address investment reduction, revenue increase and cost reduction
- However, such initiatives or actions face several challenges: For example, in terms of digital connection infrastructures, almost 300 million Africans live more than 50 km from a fibre or cable broadband connection.
- But such actions benefit from opportunities: for example, the youth demographic. Africa’s young, tech-savvy population enthusiastically embraces digital technologies, creating a demand for innovative digital solutions.
- They benefit from the goal of transforming African individuals, companies and organisations, societies and economies – for example, with the promotion of Africa’s trade integration (i.e. the African Continental Free Trade Area).
Digital solutions in agriculture guarantee increased productivity
2- How is the Return on Investment (ROI) calculated?
Return on Investment (ROI) (6) is a basic calculation that measures the percentage return on an investment in relation to its initial cost and can be represented by the following equation:
- Simple ROI = (Net Profit/Initial Investment) x 100
- Net Profit = Revenues-Costs (7).
3. What strategies should be employed to maximise the ROI of TD projects?
Consequently, any strategy for maximising ROI, also for DT projects, will involve working on all three dimensions simultaneously:
- Initial investment: The recommended general strategy is to reduce this;
- Revenues: The recommended generic strategy is to increase them;
- Costs: The recommended generic strategy goes towards reducing them.
3.1 Initial Investment Reduction Strategies (ERI)
a) ERI in the agricultural sector
Optimising production: With TD, agricultural companies can adopt precision farming practices such as soil mapping, nutrient monitoring and targeted application of inputs. This helps to optimise the use of resources and reduce the need for investments in fertilisers and agricultural inputs.
Stock and supply chain management: The use of stock tracking and management technologies makes it possible to improve the management of the agricultural supply chain, reducing the costs associated with excessive or obsolete stocks.
b) ERI in the education sector
Physical infrastructure: Incorporating digital technologies into education can reduce the need for investment in physical infrastructure, such as classrooms, extending facilities and traditional equipment.
Remote access: The use of online learning platforms and digital resources makes it possible to offer courses and training at a distance, eliminating the need to invest in additional physical spaces.
3.2 Revenue Enhancement Strategies (RAS)
a) TEA in the agricultural sector
Improved productivity: Adopting digital solutions in agriculture can increase crop productivity, resulting in greater production and, consequently, increased revenue.
Access to new markets: Through DT, agricultural companies can expand their reach and access new markets through e-commerce, online sales platforms and partnerships with distributors.
Precision agriculture: The application of precision technologies allows for more efficient and high-quality agricultural production, meeting the growing demand for sustainable and traceable food. This can lead to greater valorisation of agricultural products and increased revenue.
b) EAR in the education sector
Expanding the offer: TD can enable educational institutions to offer online learning programmes to a wider audience, expanding the student base and generating new sources of revenue.
Personalised courses: With the use of digital technologies, it is possible to develop personalised courses tailored to students’ individual needs. This approach can attract more students and increase revenue through specialised programmes.
3.3 Cost Reduction Strategies (CRS)
a) ERC in the agricultural sector
Automation of agricultural processes: Application of technologies such as sensors, drones and remote monitoring systems to optimise agricultural activities such as irrigation, fertiliser application and pest control. This can result in resource savings, waste reduction and cost savings.
Efficient resource management: Using digital solutions to monitor the use of water, energy and agricultural inputs allows for more precise and efficient management of these resources, reducing operating costs.
Forecasting and risk management: Analysing agricultural data and using technologies such as artificial intelligence can improve forecasting of weather conditions, disease and pest risks, enabling proactive management and reducing losses.
b) ERC in the education sector
Paper savings: Adopting digital solutions can reduce dependence on printed materials such as books and physical documents, resulting in cost savings related to printing, transport and storage.
Administrative efficiency: Digitising administrative processes such as enrolment, grade registration and document management can simplify and streamline operations, reducing the costs associated with manual and bureaucratic tasks.
Digital Transformation (DT) in Africa offers the opportunity to boost growth and improve efficiency in several key sectors.
However, in order to maximise the ROI (Return on Investment) of DT projects, it is crucial to adopt strategies that simultaneously address investment reduction, revenue increase and cost reduction.
These strategies are based on the use of digital technologies such as artificial intelligence, robotics, blockchain, drones and the Internet of Things (IoT).
By implementing these strategies, African companies will not only create the conditions to achieve positive results in terms of productivity, profit and sustainability, but will also boost the objectives of “Agenda 2063 – The Africa We Want”.
1 McKinsey & Company (2021). “Digital Transformation in Africa: Unlocking the Potential”; World Bank. (2021). Digital Transformation for Inclusive Growth in Africa.
2 Deloitte. “Driving Digital Transformation in Africa: Challenges and Opportunities”.
3 Digital Transformation in Africa: Cost Savings and Efficiency Gains.
4 An African Union initiative, part of Agenda 2063: https://au.int/sites/default/files/documents/38507-doc-ie25718_dts_-_portuguese.pdf
5 Examples of DT projects in Africa: Kenya – “mFarm” platform; Nigeria – “Lifesaver” app; Senegal – “Agrisoko” platform.
6 However, there are other more complex ways of calculating ROI: Annualised ROI; ROI with Net Cash Flow, etc.
7 Costs in the broad sense, i.e. encompassing (Costs + Expenses).