South Africa Private Digital Platform Assessment April 2023 Page i Table of Contents Acknowledgments ...................................................................................................................... 4 Abstract...................................................................................................................................... 5 Acronyms ................................................................................................................................... 6 Executive Summary ................................................................................................................... 8 1. Introduction ............................................................................................................................ 1 1.1. Approach ..................................................................................................................... 3 2. Snapshot of Private Digital Platforms ..................................................................................... 5 2.1. Private Digital Platforms in South Africa: An Overview..................................................... 5 Benchmarking South Africa Platforms against International Peers ...................................... 5 Mapping of South African Platforms .................................................................................... 8 South African Platform Emergence ....................................................................................11 Entry and Exit of South African Platforms...........................................................................14 Investment and M&A Trends of South African Platforms ....................................................15 Business Model Analysis ...................................................................................................17 3. Impact of Private Digital Platforms ........................................................................................29 3.1 Direct Contribution to Employment and Income Generation.............................................30 3.2. Impact on Economic Inclusion ........................................................................................33 3.3 Economic Spillovers ........................................................................................................35 3.4. Townships and Underserved Segments .........................................................................36 Barriers to Digital Platform Adoption in Townships .............................................................37 Impact of Platforms in Townships ......................................................................................41 4. Preliminary Policy and Regulatory Considerations for Private Digital Platforms ....................48 4.1. Government as Enabler: Policy Enablers of Platform Business Models ..........................50 4.2. Government as Regulator: Safeguards and Regulations that Improve Contestability......57 4.3. Sector-Specific Regulations ............................................................................................60 Annex 1: Analytical Framework - Impacts by Platform Business Models Type ............................. i A1.1. Impact Potentials of Platform Usage ............................................................................... i A1.2. Inclusion Potentials ........................................................................................................ ii Annex 2: Overview of Mergers and Acquisitions of South African Private Digital Platforms ......... v Annex 3: Glossary..................................................................................................................... vii Annex 4: List of Private Platform Stakeholders Consulted ........................................................... x Annex 5: Digital Platforms Survey Questionaire. ........................................................................ xi Page ii References .............................................................................................................................. xiv List of figures Figure 1: Types of digital platforms ............................................................................................ 1 Figure 2: Number of private digital platforms relative to GDP in 2020 (per US$ 1 trillion) .......... 6 Figure 3: Share of platform-based firms among all digital businesses (in percent) ..................... 7 Figure 4: Comparison of Digital Business Gap and Digital Platform Gap Scores........................ 7 Figure 5: Country of origin of active platforms in South Africa (percent share) ........................... 8 Figure 6: Number of active platforms in South Africa by sector .................................................. 9 Figure 7: Share of firms investing in digital technologies ...........................................................10 Figure 8: Regional footprint of South Africa's digital platforms...................................................11 Figure 9: Heatmap for the geographical distribution of township platforms in South Africa ........14 Figure 10: Number of Digital Platforms Launched in South Africa per Year...............................14 Figure 11: Country of origin of investors in South African digital platforms (n=100) ...................16 Figure 12: Types of investors in South African digital platforms (n=100) ...................................16 Figure 13: Share of digital platforms that exited up until 2020 ...................................................16 Figure 14: Mapping of digital platform providers in agriculture...................................................24 Figure 15: Benefits, enablers and risks of digital platforms in agriculture...................................25 Figure 14: Mapping of digital platform providers in tourism .......................................................27 Figure 15: Benefits, enablers and risks of digital platforms in tourism .......................................28 List of tables Table 1: RecoMed case study ...................................................................................................23 Table 2: Aerobotics case study .................................................................................................26 Table 3: Jurni case study ..........................................................................................................35 Table 4: Vuleka case study .......................................................................................................44 Table 5: Boxshop Case Study ...................................................................................................45 Table 6: Summary of Key Preliminary Policy Priorities on Digital Platforms for South Africa ....50 Table 7: Digital platform impact potential through usage ............................................................. ii Table 8: Digital platform inclusion potential ................................................................................ iii Table 9: Typical value creation and capture outcomes for local domestic versus transnational digital platforms .......................................................................................................................... iv Page iii Acknowledgments This report was researched and prepared by a team from the World Bank Group led by Justine White (Senior Private Sector Development Specialist, EAEF2), and including Toni Eliasz (Senior Digital Development Specialist), Digital Development Global Practice; Juni Tingting Zhu and Ana Paula Cusolito (Senior Economists), Philip Grinsted, Hangyul Song, Sara Nyman, Claudia Garcia Gonzalez, Nicolas Friederici, Tlhalefang Moeletsi (Private Sector Development and Digital Development consultants), and Ganesh Rasagam (Lead Private Sector Development Specialist), under the guidance of Douglas Pearce (Practice Manager), Finance, Competitiveness and Innovation. The team also wishes to thank peer reviewers: Paul Seadan (Senior Digital Development Specialist), Ami Dalal (Senior Investment Officer, IFC), and Maja Andejelkovic (Senior Private Sector Specialist) for their valuable comments to finalize the report. The team is grateful for Rejoice Nokuthula Ntuli’s copy-editing of the final report. Comprehensive national stakeholder consultations of digital platforms and ecosystem players were undertaken in preparing and finalizing the document, and the private digital platform stakeholder list is provided in Annex 5. The core research team is also grateful for comments received during a stakeholder validation workshop on November 10, 2022, attended by the South African government and the private sector. Page iv Abstract Digital platforms have the potential to support the sustained creation of economic value and foster jobs and economic inclusion in South Africa. This assessment examines private digital platforms in South Africa with a focus on three development impacts: (a) jobs and direct income generation; (b) inclusive effects through platforms’ specific focus on marginalized groups and underserved communities; and (c) economic spillovers. An analytical framework was developed for each type of impact to capture impact potentials and provide evidence to show current traction. The diagnostic uses the World Bank FCI Digital Business Database of over 200 000 digital platforms, a primary database of 256 South Africa-specific digital platforms, desk research and primary data collected through interviews. The analysis shows that South Africa has two parallel segments in the digital platform space, much like the broader economy. On the one hand, South Africa’s upmarket is dominated by several large domestic and foreign platforms that are also operating in other countries in the region, creating a significant number of jobs. On the other hand, the township economy has several smaller local platforms that serve marginalized groups and create much-needed jobs. But these local platforms serve niches and have thus far struggled to reach minimum efficient scale. On the demand side, digital divides and limited digital skills drive limited readiness. On the supply side, access to finance, inadequate entrepreneurship support and an uneven playing field constrain the entry and growth of platforms. The government’s policies and regulations, therefore, have an important role to play. On the one hand, interventions to enable platform business models, including supporting MSME development and de-risking financing are warranted. Parallel to that, the government could usefully monitor, develop and enforce safeguards and regulations around competition, data privacy and sharing, and taxation of digital platforms to level the playing field and ensure a healthy platform ecosystem. More specific to improving digital inclusion, actions to monitor labor aspects related to platform and gig workers along with continuing to improve connectivity and digital skills to increase the market size and potential demand are also crucial. Page v Acronyms 12J Section 12J of the Income Tax Act which allowed for the creation of VCCs 4IR Fourth Industrial Revolution AI Artificial Intelligence API Application Program Interface AU African Union B2B Business-to-business B2B2C Business-to-business-to-customer B2C Business-to-customer C2C Customer-to-customer CPSD Country Private Sector Diagnostic CSIR Council for Scientific and Industrial Research CSIRT Computer Security Incident Response Teams DBE Department of Basic Education DE4A Digital Economy for Africa DFS Digital Financial Service DSBD Department of Small Business Development DSI Department of Science and Innovation DTI Department of Trade and Industry DTPS Department of Telecommunications and Postal Services FCI Finance Competitiveness and Innovation FRAND Fair, Reasonable and Non-discriminatory GCIS Government Communication and Information Services GDP Gross Domestic Product ICT Information, Communication and Technology IDC Industrial Development Corporation IFWG Intergovernmental Fintech Working Group IP Intellectual Property IPO Initial Public Offering IT Information Technology ITU International Telecommunication Union FAO Food and Agriculture Organization KYC Know Your Customer M&A Mergers and Acquisitions MICT Media, Information and Communication Technologies MIOS Minimum Interoperability Standards MSME Micro, Small Medium Business NDP National Development Plan NPS National Payments System OECD Organisation for Economic Co-operation and Development OTA Online Travel Agency Page vi PBO Parliamentary Budget Office PE Private Equity POPIA Protection of Personal Information Act PPP Public-Private Partnerships or Purchasing Power Parity R&D Research and Development SITA State Information Technology Agency SSA Sub Saharan Africa TTGIIP Tourism Technology Grassroots Innovation and Incubation Programme TVET Technical and Vocational Education and Training USA United States of America UMIC Upper-middle Income Country USD United States Dollar VAT Value-Added Tax VC Venture Capital VCC Venture Capital Company as defined by 12J of the Income Tax Act WBG World Bank Group WEF World Economic Forum WOAN Wireless Open Access Network ZAR South African Rand Page vii Executive Summary Digital platforms are new firm-market hybrid structures that facilitate transactions and social interactions between two or more interdependent user groups– individuals or firms. They mediate or broker relationships between firms (B2B), between firms and consumers (B2C) and between consumers (C2C). For profit, private companies have established the lion's share of platforms. Leading platform companies emerged from the United States and later from China, demonstrating unprecedented enterprise growth and global reach. Many other platform companies have also emerged worldwide, with notable successes in specific sectors. Government-driven platforms have typically remained confined to public service provision. Private Digital platforms hold potential for some areas at the top of South Africa’s economic development agenda. They can support the sustained creation of economic value and foster jobs and economic inclusion. The digital economy provides opportunities in the tradable sector and can generate employment and raise incomes in the domestic economy. Many of the benefits of participating in the digital economy can be unlocked with modest levels of digital skills. Platforms also enable services to reach previously underserved communities and open market access for previously excluded Micro, Small and Medium Enterprises (MSMEs), an area of priority for South Africa’s government. Approach This assessment examines the landscape of private digital platforms in South Africa, and their socio-economic impact and offers policy considerations. The diagnostic focuses on three development impacts that private digital platforms may have in South Africa: (a) impact on jobs and direct income generation, (b) inclusive effects through platforms’ specific focus on marginalized groups and underserved communities, and (c) economic spillovers from the emergence of platform enterprises. An analytical framework was developed for each type of impact to capture impact potentials and provide evidence to show current traction. It excludes the analysis of public sector (government and parastatal) digital platforms, which were analyzed in the South Africa Digital Economy for Africa (DE4A) report.1 The diagnostic uses data from the Digital Business Database of the World Bank’s Finance, Competitiveness and Innovation (FCI) Global Practice, a South Africa-specific private digital platform firm-level database, desk research, and primary data collected through interviews. Cross-country benchmarking of South Africa’s digital platforms is conducted with data from a new digital business database by FCI. The firm-level database contains information on 200,000 digital solution providers in 190 countries—covering digital businesses such as data- driven firms and platform businesses.2 In addition, a firm-level local database of 256 platforms 1 World Bank (2019a) 2 Digital solution providers are firms that develop and manufacture digital technology products or services in the core digital (IT/ICT) sector or in the narrow scope of digital economy (e.g., all applications of digital technologies and production of those technologies, incl. online platforms, digital services). The definition builds on work by Bukht & Heeks, 2017 and OECD, 2020. Please find further details in World Bank. 2022. A Spiky Digital Business Landscape: What Can Developing Countries Do? Forthcoming. Page viii was developed through desktop research. While the digital business database enabled in-depth cross-country benchmarking, the local database informed the analysis of South African trends, including in townships.3 Fifty-five reports and external databases on South Africa and African platforms were reviewed. Primary data were gathered through 27 interviews with founders or managers of 23 private digital platform organizations and with seven other ecosystem stakeholders. Key findings are summarized in the table below and developed in further detail in what follows. South Africa Private Digital Platform Market – Characteristics and Impacts Upmarket Niche Market Characteristics Dominated by several large Filled with many local platforms that serve domestic and foreign platforms that marginalized groups and townships but are are also operating in other countries characterized by challenges in reaching in the region. minimum efficient scale. Job creation Typically, stable and decent jobs are More inclusive jobs but challenges related created through enhanced market to vulnerability access for MSMEs. Inclusive effects Mainly service upmarket but have Target the marginalized and underserved fostered significant inclusion in communities by enhancing market access, several sectors by linking the driving value addition, and enabling township economy with the efficiency and competitiveness. mainstream economy and creating opportunities for marginalized individuals and firms. Economic spillovers Several large domestic and Several local platforms are creating new transnational platforms are creating revenue sources, but the value-addition significant value by unlocking new levels remain limited overall. sources of revenue. Key policy priorities Enabling Enabling - MSME support and risk financing - MSME support and risk financing - Digital infrastructure and skills to increase Regulatory usage, demand, and market size - Competition policy - Data privacy and sharing policy Regulatory - Taxation - Labor monitoring (data) Overview of South Africa’s Private Digital Platforms Landscape Overall, quantitative and qualitative analysis showed that South Africa’s digital platforms landscape is dynamic. Key findings include:  The FCI database revealed that compared to structural and aspirational benchmark countries, South Africa has an average number of digital firms relative to the size of its economy. Around 6 percent of South Africa's digital businesses have platform-based business models – in line with the average of countries at similar income levels. 3 The FCI global database uses sources that allow for international comparison and may miss some of the niche and domestic platforms that have been captured by the primary national database. Page ix  Of the over 200 digital platforms researched that are active in South Africa, 60 percent are of South African origin. They are typically confined to niches and remain small, with global players dominating the digital platform landscape in both usage and scope .  As a result of significant market differentiation, interviews suggest that South African platforms do not perceive foreign platforms to pose a competitive threat. Achieving minimum efficient scale is a central concern for South African platforms . It is a long process due to various binding constraints to their growth, including skills, financing, infrastructure, and market reach.  Almost half of the investors in South African platforms are domestic investors, with the remaining half primarily comprising investors from developed countries. The leading types of investors in South African platforms are VC/PE investors (40 percent), accelerators and incubators (19 percent), while tech companies only account for 10 percent.  Relative to benchmark countries, few South African digital platforms have exited, for example, through mergers and acquisitions (M&A) or initial public offerings (IPOs). Acquisitions of South African platforms mainly occur by investors from South Africa or Europe and tend to be in the same or adjacent sector.  Among digital platforms headquartered in South Africa, 79 percent only operate domestically, whereas 21 percent also have regional operations.  For local platforms that target underserved and marginalized communities, Gauteng and Western Cape, and, to a minor degree, KwaZulu-Natal, were the most prevalent provinces in terms of location of launch and areas serviced. Job creation, Inclusion and Economic Spillovers Based on available evidence, this report finds that the impact of digital platforms in South Africa has been positive overall. Indeed, some evidence illustrates the benefits of private digital platforms to South African consumers and businesses. Through disruptive technology, business models and market dynamics in several sectors (such as transport, accommodation, health, education and trade) enable new entrants.4 Digital platforms have also resulted in increased consumer benefits in terms of price, quality, variety and improved user experience. By lowering prices and increasing consumer access, digital platforms have also unlocked economic activity. For firms, digital platforms increase productivity, efficiency, and market access 5. Data on South Africa’s digital economy landscape remains scant, particularly on jobs and economic spillovers. Thus, job creation and economic inclusion findings are illustrative and not conclusive. Indeed, as in most countries, while the impacts of private digital platforms on jobs and inclusion are potentially significant, meaningful and large-scale data collection efforts have not kept up with the pace at which the digital platform landscape has been developing. Nevertheless, we find some evidence illustrating the benefits of digital platforms to South African consumers, businesses and workers. 4 OECD (2019) 5 ibid Page x Preliminary evidence shows that digital platforms have created much-needed opportunities for jobs and income generation: in 2018, it was estimated that over 1.3 million jobs had been supported by digital platforms. 6 This is equivalent to 5.5 percent of the labor force and compares favorably to the 0.5 to 2 percent figures in OECD countries.7 A vital caveat is that some of these jobs may not be “new jobs” but jobs that shifted online (potentially with higher wages).8 There is some evidence, however, that many of the jobs may indeed be new. For example, surveys revealed that some of the growth in domestic travel using Airbnb appears to be attributable to latent demand unlocked by the platform, and the associated jobs created new. Findings show that platforms provide paid work opportunities for marginalized groups such as women and people in townships, where the alternative is often unemployment or very precarious work. For instance, international and local digital platforms with traction report strong job creation in South Africa. In mobility tech, Uber and Bolt have created close to 34,000 jobs.9 In food tech, it is estimated that platforms such as UberEats and MrD have created a total of 6 400 jobs.10 In e-commerce, Takealot employs 2000 employees, and in the gig economy, SweepSouth has created 15,000 domestic jobs primarily for low-skilled female workers. 11 Notwithstanding this positive impact of platforms on livelihoods, platform workers still face significant challenges, including a lack of social protection and inconsistent and low pay. Though still nascent, South Africa has one the biggest gig economies on the African continent. It is estimated that there are around 100,000 South Africans actively undertaking gig work.12 Before COVID-19, the figure was growing by above 10 percent yearly.13 In microwork, whereas US platforms like Freelancer, Elance (Upwork), ODesk and Amazon Mechanical Turk have dominated, local platforms such as Kandua are increasingly gaining importance. Anecdotal evidence shows that platforms developed by township MSMEs are often better positioned to leverage their first-hand understanding of township markets and the available niche opportunities. While townships are a significant challenge for platform development in South Africa, the local complexities of townships cannot be understood easily by global platforms and therefore provide potential opportunities for home-grown platforms. In other words, being able to cater for the complexities of local value chains is a substantial barrier to entry for other players and therefore increases the competitiveness of local township-based platforms. In food tech, for example, international platforms such as Uber Eats and Bolt and some of the larger incumbent platforms that were locally established, such as MrD do not service townships. Township-based tech entrepreneurs have identified this as a market gap and believe that their food delivery platforms can adequately cater to the township market's budgets, tastes and needs. These food tech platforms drive inclusion on the supply side by enhancing the market access for township-based restaurants. Beyond food tech, there are other examples of how local platforms can cater to local challenges, such as a logistic platform called Handed. The platform enables 6 Insights2Impact (2018) 7 World Economic Forum (2020) 8 Lack of data has impeded separating the new jobs created from the jobs that have shifted online. 9 Genesis Analytics (2018) 10 Reuters (2021) 11 Business Insider (2019) 12 Fairwork (2020) 13 ibid Page xi customers shopping online to pay for goods on delivery, thus addressing low trust in online shopping among South African consumers. South Africa’s fintech landscape is dynamic, and platforms have emerged that offer integrated services that drive efficiency and inclusion. Many of these cater to MSMEs and informal businesses and help spaza shops—informal convenience stores typically found in South Africa’s townships—to log transactions and establish transaction history. This enables them to better manage inventory, measure performance, track costs, make payments, and make decisions based on data. Indeed, these B2B platforms also play a crucial role in assisting township-based MSMEs with access to finance by creating a platform where transaction records can be created and stored. E-commerce could present a channel with fewer barriers to entry compared to traditional brick-and-mortar retail. The infrastructure set-up cost for accessing a platform or creating an online presence is less than required for a physical shop, particularly in accessing additional markets. Some e-commerce platforms in townships also benefited from the lockdowns imposed by COVID-19 restrictions and several provide market access to township MSMEs. Additionally, analysis of the platforms in our sample demonstrates how platforms give township communities convenience and access to better-quality products. Barriers to Digital Platform Adoption Across business models, stakeholder consultations and desktop reviews highlighted that platform adoption, particularly for inclusion, was hampered by low readiness among targeted users. The low readiness referred mostly to consumers (in other words, platform customers), MSMEs as customers, and individuals along the value chain (for example, drivers for mobility platforms). Readiness was broadly understood to be lower in townships and lowest in rural areas compared to urban centers. Several platform enterprises tried to address low user readiness by offering demos, trainings, and sometimes devices to their specific user groups. Beyond low user readiness as a wide-ranging demand barrier, the most pressing challenge to the inclusive effects of platforms is arguably the long-standing digital divide in South Africa.14 Many platforms require users to have smartphones and be able to use them effectively, confining addressable markets significantly. Despite the improvements discussed earlier, data affordability remains a key concern. Digital literacy is also lagging. Socio-economic divides intersect with digital divides, and low levels of literacy and formalization in the economy further hamper marginalized groups. Addressing these challenges may unlock the potential of digital platforms to address some of the contemporary challenges in townships. Moreover, being able to reach the township market for critical mass and sustainability is key for South African platforms. Policy Considerations The South African government has a critical role to play in digital platform development as both an enabler and a regulator, which it only partially assumes at present. On the one 14 see Gillwald et al. (2018) Page xii hand, the government can play a supporting role in nurturing local platform growth and encouraging the significant positive and wide-ranging benefits that can come from digital platforms, including unlocking access to new markets, lowering transaction costs, ensuring job creation, and fostering economic participation and inclusion. On the other hand, the government’s role encompasses curbing negative externalities from digital platforms, which require targeted regulation, including competition, taxation, and data privacy, among others. However, an optimal ‘policy mix’ continues to remain elusive, compounded by significant data restrictions. Across the globe, there are still important limitations in evidence and research on appropriate regulatory and policy approaches to digital platforms, most notably in emerging market contexts. Additionally, the paucity of existing data stands in large contrast to the rapidly growing economic influence platforms yield. Thus, increasing data on platforms in order to inform policymaking is key. At a national level, policy actions on digital platforms can be grouped into two main policy and regulatory categories: (a) “Policy enablers of platform business models”, which touch on key policies that can facilitate firm entry and scaling of platforms, in order to foster thriving local digital platforms able to complement or compete with larger transnational platforms; (b) “Safeguards and regulations that improve contestability”, which aim at leveling the playing field for digital platforms and increasing competition, in order to ensure a better outcome for consumers, users, and society more widely. This also includes online consumer and supplier protection, which is necessary for a healthy and dynamic platform ecosystem. This report focuses on six key policy and regulatory actions that are necessary to encourage local value creation and increase contestability and competition to level the playing field in South Africa. Policy enablers of platform business models 1. Digital Infrastructure and Literacy: Policies concerning digital infrastructure and literacy are critical to encouraging local digital platform development and have essential inclusion aspects in South Africa. South Africa continues to lag on its national rollout plan in digital infrastructure and access. As extending mobile broadband coverage is becoming a less important issue, the divide is explained more by affordability and is characterized by the uneven quality of access. The South African government has been active in this area. However, further improvements are needed to address the cost of data and access to devices, particularly in townships. With regards to digital literacy, many schools are still without devices and connectivity, many do not offer ICT-related subjects, and there are concerns about teacher training in effective technology use. 2. Growth Financing and MSME Support Programs: Digital platforms in South Africa face significant debt and equity financing constraints throughout most of their growth cycle. When considering the various growth stages, with each corresponding to specific financing needs in terms of amount as much as structure, the availability of finance in South Africa can Page xiii be deemed generally low15. This seems to be hamstringing local digital platform development, which relies on market width and scale to become profitable and raise further funding for growth, including internationally. Some discussions ongoing under the planned South African startup Act may clarify and catalyze this funding. Additionally, there are currently only a few targeted programs to support MSMEs access digital platforms in South Africa, thus inhibiting potential market access. Support programs for MSMEs, particularly those operated by disadvantaged groups (women, previously disadvantaged communities) access relevant platforms, can be a useful complement while tackling significant underlying issues. Programs aimed at increasing MSME use of online platforms, through awareness campaigns, consultancy vouchers, self-assessment tools or training have been used successfully in other countries. 3. Data Policies: Privacy, Security, and Open Data. Data is key to digital platforms’ business model as a competitive and highly valuable asset, allowing them to scale up rapidly. Enabling and judiciously regulating access to public data and allowing merchants access to data generated through platforms will enable enterprises to cater to consumers' preferences. At the same time, data protection is primordial to building trust and ensuring accountability from digital platforms on their use and exploitation of this data, as well as allowing competitors to scale. On Open Data, some obstacles prevent digital entrepreneurs from accessing and monetizing public data in South Africa, which may hold back private investments in business models and innovations. There is currently no specific regulation for the access to and sharing of non- personal data. South African personal data regulation and security is generally seen as robust16. It is enshrined under the Protection of Personal Information (POPI) Act 2013. Safeguards and regulations that improve contestability 4. Taxation: There are two main considerations concerning taxation for digital platforms: (a) The possible adaptation of taxation for young technology-focused digital platform startups under the South African corporate tax requirements. This is being suggested by stakeholders to be included under the potential Startup Act and could encourage the launch and scale of local digital platforms; (b) the taxation of (transnational) digital platform income generation. South Africa, like many other countries, has no specific tax measures that enable taxes to be imposed on income raised by digitized economic activities. The Parliamentary Budget Office (PBO) has signaled that it is considering taxation measures that enable revenue to be raised from digital economic activities. 5. Labor considerations: The “gig economy” has also engendered a radical shift in how work is organized, and, with further data, labor-related considerations could be monitored by the government. On the one hand, digital platforms appear to hold up to their potential of reducing high unemployment and inequality. On the other hand, there is also growing evidence that platform workers can face low pay, opaque algorithmic management 15 Evidence has been provided in previous World Bank reports such as the World Bank (2019b) South Africa Digital Entrepreneurship Background paper and more recently the World Bank (2021a) Early-stage Finance Diagnostic 16 World Bank (2019a) South Africa Digital Economy Diagnostic Page xiv structures, dangerous work conditions, and barriers to collective organization and bargaining. Working with the private sector platforms and with further data, this could be usefully monitored to possibly adopt appropriate regulations, if necessary. 6. Competition and Market Contestability: Emerging monopolistic behaviors that stifle competition in digital platform space include market concentration, vertical restraints, aggressive mergers, envelopment, and collusion, which can all have a detrimental effect on prices and innovation. In line with many international competition authorities, the Competition Commission in South Africa is increasingly active in the digital platform space. The Commission published a market inquiry on digital platforms in July 2022. The Commission also noted other issues such as the international use of local media content. This is in line with international commissions, which are significantly muscling their response to anticompetitive activities and behaviors. The principal policy actions that government may consider are summarized below. Short-term Medium-term Government as an enabler Digital Infrastructure  Prioritize fast-tracking  Update the national broadband policy spectrum assignment for 4G with realistic targets and implementation use to increase network models based on international best capacity. practices.  Ensure the independence and capacity of ICASA.  Promote infrastructure sharing, pro- competition open access principles, and implementation of transparent wholesale pricing and determination. Digital Literacy  Leverage and scale up private-  Explore innovative ways of including sector initiatives for rapid digital skills in the wider basic education digital literacy development curriculum and scaling up private sector- through PPPs. led initiatives.  Foreground equity of access to IT resources.  Emphasize formalized teacher training on digital aspects. Growth Financing  Scale up Fund of Funds  Implement targeted programs that focus structures through Public- on attracting regional and international Private Partnerships to VCs and helping South African Catalyze Early-Stage platforms expand regionally. Financing.  Reform Tax Incentives to Invest in Startups and VC Funds.  De-risk investment targeted to digital early-stage entrepreneurs.  Remove the restriction on exporting intellectual property. Page xv MSME Support  Improve the quality of support  Identify and prioritize a set of digital Programs provided to entrepreneurs. entrepreneurship and platform-specific  Explore a voucher-like system policies, such as voucher schemes for and training for MSMEs to online access, with clear department incentivize digitization and leadership. MSME digital presence.  Strengthen the quality of support  Continue active support to services to digital entrepreneurs. foster more diversity in the digital entrepreneurship sector. Data  Continue with the  Conduct further analysis, for example, implementation and enforcement through the use of the World Bank’s Open of POPIA and ensure that Data for Business Tool, to better smaller players receive support understand the needs of the private that enables them to be sector, current and potential uses of open compliant. data, and the steps required to support  Continue developing public data innovation. awareness and literacy through  Building-up on the Open Government programs such as the UK-SA Partnership and the Department of Digital Literacy for Development Science and Innovation’s upcoming policy (DL4D) programme. framework for sharing data for science and innovation, work toward an integrated national data system (INDS). Government as a regulator Taxation  Continue to participate in  Amend tax legislation to enable digital multilateral consensus startups to defer R&D tax breaks against approaches to taxation of the taxable income for example. digital economy.  Conduct further research to understand the gaps and misalignments between South Africa’s existing tax regime and the business models of digital platforms. Labor  Improve data collection.  Regularly monitor the quality of platform  Explore platform workers' ability work. Asses which labor market to bargain over working regulations may need to be adapted to conditions collectively, for enhance worker protection. instance through bargaining  Clarify the categorization of platform councils. workers and the extent to which existing basic social protection (including unemployment insurance) applies to them. Competition and  Continue research to understand  Regularly review whether the Competition Market Contestability how different sectors may be Commission is adequately accounting for prone to different types of emerging economic features, theories of anticompetitive behavior by harm, and efficiencies associated with digital platforms. digital markets.  Continue collaboration with other competition authorities and Page xvi ensure harmonized interventions. Page xvii 1. Introduction 1. Digital platforms are new firm-market hybrid structures that facilitate transactions and social interactions between two or more interdependent groups of users – that can be individuals or firms. They mediate or broker relationships between firms (B2B), between firms and consumers (B2C), and between consumers (C2C). Beyond their role in linking buyers and suppliers of goods and services, their business model usually depends on the sale of advertisements and cross-subsidizing between two sides of the market (e.g., offering nominally free services to consumers while charging businesses for advertising). Business-to-business-to- consumer (B2B2C) is an e-commerce model that combines business-to-business (B2B) and business-to-consumer (B2C) for a complete product or service transaction. B2B2C is a collaboration process that, in theory, creates mutually beneficial service and product delivery channels. B2B2C is a business model where online, or e-commerce businesses and portals reach new markets and customers by partnering with consumer-oriented product and service businesses. Figure 1: Types of digital platforms Source: Authors 2. Digital platforms have emerged as the defining means of value creation and distribution in the digital economy. Every internet user depends on platforms, as digital products like app stores, social networks, messaging, browsers, or online searches have become part of the foundations of the digital economy. Platforms have also digitally transformed previously analog daily activities, such as transport and navigation, shopping, or socializing. As such, platforms have at the same time, been drivers of digitization and been driven by it, expanding together with the overall diffusion of the internet. Page 1 3. Most platforms have been established by for-profit private companies. A select few platform companies emerged from the United States and later from China, setting never-before- seen standards of exponential enterprise growth and global reach. Government-driven platforms have typically remained confined to public service provision. Platform companies have also emerged worldwide with notable successes in specific sectors, like Spotify for music streaming, MPesa for digital payments, or Jumia for e-commerce. Several American platform companies, as well as Alibaba and Tencent have achieved the status of meta or integrated platforms, combining a range of globally used and mutually synergistic digital platform products. Altogether, digital platform companies have accumulated trillions of dollars in value and created multiple millions of jobs. 4. Private digital platforms hold potential for some of the areas that are at the top of South Africa’s economic development agenda. They can support the sustained creation of economic value and foster jobs and economic inclusion. Digital platforms provide opportunities in the tradable sector and are a key opportunity for employment generation and raising incomes in the wider economy. Platforms help suppliers in the economy connect to a larger number of buyers and lower transaction costs – while often requiring users only to have a moderate level of digital skills. Platforms also make it possible for services to reach previously underserved communities and open market access for previously excluded MSMEs, an area of priority for South Africa. 5. Private Platforms have been growing in number and reach in South Africa more than elsewhere in Africa, and many segments of the platform economy have large employment potential.17 As telecommunications have decreased as a source of digital value addition, opportunities for digital transformation are beginning to be tapped.18 MSMEs can benefit from the availability of platforms, as they are able to formalize and increase productivity and extend their potential market size.19 Those digital platforms that create digital infrastructure can also fuel the emergence of other services and innovations, for instance, where digital payments are made interoperable or where digital building blocks are made available open source for other innovators. 20 Finally, the emergence of local platforms can be a catalyst for the South African entrepreneurial ecosystem, building on successes from the web 2.0 era, such as OLX and other holdings of the Naspers group.21 6. The picture is not only rosy, however; they are also accused of the displacement of local companies and industries and anti-competitive market outcomes, among others. Moreover, as the case of gig economy workers shows, platforms may also lead to workers being in vulnerable circumstances as they lack much of the protection provided to traditional workers under labor regulations and typically receive inconsistent and low pay (as discussed in more detail in Section 3.1). This vulnerability was recently highlighted by the COVID-19 pandemic . 17 Johnson et al. (2020a). 18 UNCTAD (2019, p. 58) 19 ITC (2018) 20 Friederici et al. (2020). 21 David-West & Evans (2015) Page 2 7. A policy and regulatory toolkit for digital platforms remains a work in progress, hampered by a lack of data. This can be seen, for example, in various strategies put forth in response to the sustained dominance of private digital platforms in general and of American and Chinese platforms in particular. Understanding and effectively regulating transnational private platforms has become key for digital policy. Recent evidence suggests that both the degree to which platforms transform the economy and the relative success of local versus transnational platforms are highly sector-dependent and amenable to regulation.22 A deeper appreciation of the multi- faceted development impacts of platforms, as well as a significant and systematic effort on data collection, is needed to maximize local value creation while also being able to steer platform economies towards desired outcomes.23 Through complex interdependencies with local conditions, different kinds of platforms in different kinds of contexts have fundamentally different development outcomes.24 Platforms will remain the most important private sector actors in the digital economy and will continue to expand as infrastructures for economies at large. Thus, consideration is needed on how to stimulate and regulate platforms using a broad range of policy measures, from competition regulation to digital industrial policy.25 8. South Africa's platform economy faces unique opportunities and challenges that are rooted in the country's broader digital economy and economic legacy. The country's strong economic base in financial services and manufacturing, its standing as the most advanced digital entrepreneurship ecosystem in Africa, its population, and its connection to the Southern African Development Community (SADC), present openings for the development of platform enterprises. South Africa's major challenge continues to be socio-economic inequality and divides, which lead to domestic market fragmentation and may thus hamper the scalability of digital platforms resulting in smaller and more fragmented domestic platforms. This diagnostic builds on a 2019 World Bank study of South Africa’s overall digital economy with a focus on private digital platforms. 26 1.1. Approach 9. This Assessment examines private digital platforms in South Africa. The diagnostic focuses on three types of development impacts that private digital platforms may have in South Africa: (a) direct contribution to employment and income generation, (b) inclusive effects through platforms’ specific focus on marginalized groups and underserved communities, and (c) economic spillovers from the emergence of local platform enterprises. For each type of impact, an analytical framework was developed that captures impact potentials. The three frameworks are based on current conceptualizations of private digital platforms within the World Bank, in particular, the Digital Economy for Africa (DE4A) initiative27. The diagnostic then uses primary and secondary data to assess platform impacts, comparing them with potentials. The diagnostic extends the 2019 22 Lehdonvirta et al. (2020). 23 Kashyap & Bhatia (2018) 24 Koskinen et al. (2019) 25 BRICS Competition Law & Policy Centre (2019). 26 World Bank (2019a) South Africa Digital Economy Diagnostic 27 ibid Page 3 World Bank study of South Africa’s digital economy at large, with public sector platforms not treated as they were treated extensively in the Digital economy diagnostic report.28 10. Impact potentials differ by platform business model types. Despite a range of attempts, the academic literature remains inconclusive about meaningful typologies of platform business models.29 While it is apparent that the number, size, and basic forms of platform enterprises in developing countries differ compared to the US and China, no internationally established typology for characterizing and categorizing digital businesses exists. This diagnostic uses categorizations from a new digital business database by the World Bank’s Finance, Competitiveness and Innovation (FCI) Global Practice.30 The categorizations include but are not limited to (1) e-commerce, (2) fintech, (3) travel tech, (4) gig economy, (5) business management tech, (6) mobility tech (7) proptech, (8) logistics tech, (9) HR tech, (10) edtech, (11) health tech, (12) ag tech and (13) insurtech (see Annex 3 for the full definitions of the categories). A deeper analysis of the first 5 subsectors mentioned above was developed following an analytical framework focused on usage impact, inclusion effects, and local platform emergence as detailed in Annex 1, derived in line with current World Bank work in the context of the DE4A initiative. 11. Different business model types have substantively different value propositions and thus varied impact potentials. Economic value creation and capture, at scale, is private digital platforms’ core contribution to development impact. In most cases, platforms create the most value through interconnections of different sides of a market.31 Placed-based gig work platforms create value by connecting individual laborers (supply) with businesses or other individuals that seek their services (demand). E-commerce platforms integrate a virtual marketplace that connects buyers and sellers of goods. Still, they may also establish logistics infrastructure to be able to physically move goods, and they integrate supply chain components to be able to offer goods more readily and seamlessly. Social networks interconnect users and user-generated information. Fintech platforms facilitate monetary and sensitive interactions at a distance and speed. Business management platforms offer interconnected digital product suites and sometimes digital infrastructures. A final contribution of this report is a deep dive into the impact of digital platforms in the agriculture and tourism sectors. These are presented in Annex 3. Data Sources 12. The diagnostic uses data from the World Bank FCI Digital Business Database, desk research, and primary data collected through interviews. Cross-country benchmarking of South Africa’s digital platforms is conducted with data from a new digital business database by the World Bank’s Finance, FCI Global Practice. The firm-level database contains information on 200,000 digital solution providers in 190 countries.32 The database includes digital solutions firms – for 28 ibid. 29 Attempts include Evans and Gawer (2016), Srnicek (2017) and Kenney and Zysman (2016). 30 See World Bank. 2022. A Spiky Digital Business Landscape: What Can Developing Countries Do? Forthcoming. 31 Parker et al. (2016) 32 The database was created using three different proprietary data sources – CB Insights, Pitchbook, Briter Bridges – which use techniques from web-scraping to gathering firm information from entrepreneurship networks, venture capital (VC) / private equity (PE) and other investment deals. They specialize in collecting information on tech start-ups or digital firms that would be attractive for VC/PE investors due to certain innovative elements in their business model or core product offering. See World Bank. 2022. A Spiky Page 4 example, data-driven firms or digital platforms – which develop and manufacture digital technology products or provide digital services. Given the focus is on firms for which digital technologies are at the core of their business, digitalized traditional businesses are not considered. In addition, a firm- level local database of 256 platforms was developed through desktop research. It is important to note that the results from these two databases cannot be directly compared as the sources are different. The FCI global database uses sources that allow for international comparison and may miss some of the niche and domestic platforms that have been captured by the primary national database. 13. While the digital business database enables in-depth cross-country benchmarking, the local database informs the analysis of South African trends, including in townships. Fifty- five reports and existing external databases on platforms in South Africa and Africa were reviewed. Primary data were gathered through 27 interviews with founders or managers of 23 private digital platform organizations and with seven other ecosystem stakeholders, updated in the latter half of 2021 and early to mid-2022.33 To this end, enterprise-level findings are presented for the 23 private digital platform organizations where data was collected through interviews. The inclusion effects and platform emergence sections summarize overall results from qualitative and quantitative primary data analysis. The findings in the following sections reflect patterns observed across several interviews, increasing confidence in the validity given the diverse sampling. The analysis of patterns uses insights from all conducted interviews, while the enterprise analysis draws primarily on the 23 cases of platform organizations. More in-depth analysis from the 27 interviews demonstrating scalable business models and (potential) significant inclusion effects are also presented as case studies across the report (see Table 1 – 6). 2. Snapshot of Private Digital Platforms 2.1. Private Digital Platforms in South Africa: An Overview 14. The following four sections highlight findings from the diagnostic’s assessment of private digital platforms’ contributions to the South African economy and development vis-à-vis peers, using data from the FCI Digital Business Database of over 200,000 companies, from qualitative analysis based on primary interview data as well as desk research, and an analysis conducted of over 250 digital platforms active in South Africa. Benchmarking South Africa Platforms against International Peers 15. Analysis of the FCI Digital Business Database suggests that compared to benchmark countries, South Africa has an average number of digital firms and platforms relative to the size of its economy. Figure 2 shows the number of digital businesses and digital platforms relative to the size of the economy (in GDP) in South Africa and a range of benchmark countries. The Digital Business Landscape: What Can Developing Countries Do? Forthcoming. for further information on the FCI Digital Business database 33 Two interviews yielded information on more than one digital platform. One interview was with the founder of two platforms and another with a manager of a venture capital. Page 5 adjustment by GDP is conducted to ensure better comparability between countries of different sizes, given that the number of digital businesses is strongly correlated with GDP. South Africa has an average performance, fairing slightly higher than the average of all upper middle-income countries (UMIC) but falling behind better-performing countries like Israel, India or Vietnam. It is important to note that this comparison only considers the number of digital platforms in these countries and does not factor in the platforms’ scale (e.g., active users and the volume of transactions), or the character and quality of transactions undertaken on these platforms. For example, Indonesia’s low number of digital platforms relative to GDP may mask the fact that the country has produced platforms like GoJek which is a regionally successful company that combines several platform services (e.g., ride- hailing, food delivery, digital financial services, etc.). Figure 2: Number of private digital platforms relative to GDP in 2020 (per US$ 1 trillion) 250 6000 Platforms per GDP (USD 1 trn) Digital businesses per GDP (USD 1 200 5000 4000 150 3000 100 2000 50 trn) 1000 0 0 Platforms per GDP (left-hand scale) Digital businesses per GDP (right-hand scale) Source: FCI Digital Business Database (mainly CB Insights data); GDP data (2019, current) from World Bank // Note: Income-level income groups include all countries for which data are available and not only the benchmark countries. Only countries are shown with at least 15 online platforms (from CB Insights source). HIC = High-income countries; LMIC = Lower-middle income countries; UMIC = upper-middle income countries based on World Bank classifications. 16. About 6 percent of South Africa's digital businesses have platform-based business models – in line with the average of countries at similar income levels. As displayed in Figure 3, the share of platform-based businesses in South Africa is comparable with those in upper-middle- income countries (UMIC) overall (6 percent vs. 5 percent). The share of digital platforms among all digital firms tends to be negatively correlated with income-levels, suggesting that higher-income countries have a larger number of other specialized types of digital businesses, for example, more sophisticated B2B-type digital solution providers that focus on one product market. A large share of platform-based firms among all digital businesses does therefore not necessarily imply over- performance in platform-based business models but may also indicate an underperformance in the digital business ecosystem overall (see Figure 4 and the next paragraph). Page 6 Figure 3: Share of platform-based firms among all digital businesses (in percent) Source: FCI Digital Business Database Note: Income-level income groups include all countries for which data are available and not only the benchmark countries. Error bars indicate 10 percent confidence intervals (p<0.1) 17. However, based on South Africa’s population and market size, the country significantly underperforms with respect to the number of digital platforms and slightly overperforms for the number of digital businesses. A country’s number of digital businesses is not only correlated with GDP (as considered in Figure 2), but also with population size. This is likely due to the large economies of scale associated with digital business models, particularly in the case of platform- based ones. Comparing countries’ number of digital businesses and platforms with expected values based on their population and GDP reveals a ‘digital business gap’ and ‘digital platform gap’ relative to global trends. Figure 4 shows that South Africa has an above-average number of digital businesses, whereas it does not score equally strongly on digital platforms. This suggests a slight underperformance of online platforms in South Africa – particularly relative to its digital business landscape overall. Figure 4: Comparison of Digital Business Gap and Digital Platform Gap Scores Source: FCI Digital Business Database (only used CB Insights data which covers all regions); GDP (current) and population data from the World Development Indicator Databank. For details see: See World Bank. 2022. A Spiky Digital Business Landscape: What Can Developing Countries Do? Forthcoming. Page 7 Mapping of South African Platforms 18. South Africa leads Africa both in the number of active digital platforms and the usage thereof.34 Research shows that there are over 200 active digital platforms in South Africa (a total of 256 platforms were reviewed, of which 211 were active). According to Cenfri (2020), South African platforms average over 120 000 unique users per month, and South Africa also leads the region in terms of the number of digital platforms launched. The FCI database also confirms this finding. 19. Sixty percent of the over 200 digital platforms researched active in South Africa are of South African origin. However, much like many markets in the world, digital platform usage is dominated by global players. The United States and Europe are the other key source regions. In the internet searching space, Google dominates, while Yahoo and Bing have limited presence. In communications and social media, Meta has a strong presence (WhatsApp has 16 million users while Facebook has 15 million users). Twitter, YouTube, Instagram and LinkedIn also have a strong presence. Uber and Bolt dominate the e-hailing space, and a third platform, InDriver, which differentiates itself through prices set by real-time negotiations, is also gaining traction. Airbnb is also highly active in South Africa and is the dominant accommodation-matching service. Figure 5: Country of origin of active platforms in South Africa (percent share) 1.5 1.5 1.5 2 7.5 10.5 57.5 18 South Africa Other United States Europe Other Asia Other Africa India China Source: Author’s calculations (based on a sample of 256 digital platforms) 20. South African ecosystem for digital platforms shows promise, with a growing number of platforms in an array of sectors that are scaling. These sectors include financial services, education, healthcare, homecare and farming. Moreover, many of these platforms have international ambitions, and several have received international recognition. They include Aerobotics, which uses drone imagery and Artificial Intelligence to detect pests and diseases early for agriculture, SweepSouth, which matches domestic workers to households. Yoco provides convenient and affordable payment solutions to MSMEs, with competition in this space emerging from other players such Ikhoka and SureSwipe. Feenix is an online crowdfunding platform for 34 According to Cenfri (2020). Usage was determined by the number of unique users of platforms per month. Page 8 student fees. From the local database created, gig work accounts for close to a quarter of the digital platforms in South Africa. Figure 6: Number of active platforms in South Africa by sector 60 50 40 30 20 10 0 Source: Authors based on local platform database 21. South Africa’s digital platforms are predominantly consumer-facing (B2C). Our data also shows that 93 percent of the platforms in South Africa serve individuals, and 7 percent serve businesses. The prominence of B2C platforms may be linked to the fact that South Africa has a relatively low number of SMEs compared to peer countries.35 In other words, B2B platforms operating in South Africa have a small addressable market. As discussed in Section 4 of this report, this suggests that there is scope for the government to intervene in the digital platform space as both a regulator (for instance around market contestability) and an enabler (for instance through non-financial and financial support to SMEs) to unlock the emergence and growth of more B2B platforms in the region. 22. With regards to the integration of digital financial services into platforms, South Africa benefits from an advanced financial sector, including a well-established payment infrastructure and the highest levels of formal account ownership in Africa. Sixty-seven percent of the adult population is banked.36 Most digital platforms in South Africa remunerate providers of goods and services into their bank accounts (86 percent of platforms) and allow consumers to pay using bank cards (84 percent). South Africa also has the lowest level of cash acceptance for providers and consumers across sub-Saharan African countries. This is likely due to a combination of high cash-handling costs (associated with theft incidences) and the fact that there are well-established alternatives to cash. BOX 1: COVID-19 Spotlight: South Africa’s Platforms and Economic Recovery The South African economy has been hit hard by the coronavirus crisis, and platform enterprises are no exception. However, relative to traditional businesses, COVID-19 has also brought about opportunities for them. This is especially true in Africa, where digital platforms are often hampered by slow 35 World Bank (2018) 36 Insight2Impact (2020) Page 9 adoption. By their nature, platforms offer coordination of actors, goods, and services across time and space as the pandemic forced social distancing and curfews, platforms that were able to maintain their core value proposition while demand for digital and digitized services thrived, given the sudden lack of analog alternatives. As lockdowns forced users to overcome their reservations and accelerated digital adoption, payment, e-commerce, delivery, and online labor platforms stood out as short-term beneficiaries. Recent firm-level surveys conducted by the World Bank show that more firms are adjusted and have adopted digital technologies. According to the surveys, South Africa is one of the leaders with regard to the share of firms that invested in digital solutions in response to the pandemic. Following the first wave of the COVID-19, the majority of small and medium enterprises (MSMEs) reported starting (28 percent) or increasing (32 percent) their usage of digital solutions during the lockdown. Formal firms (28 percent), female-owned (33 percent), youth-owned enterprises (46 percent) were more likely to start using digital solutions. 60 percent of firms in the Northern Cape, the largest and most sparsely populated province in South Africa, began using digital solutions for the first time, compared to just 17 percent in the Western Cape and North-West. Firms also adjusted their operating methods in other ways: 17 percent of MSMEs saw an increase in employees working from home. Micro firms similarly increased their usage of mobile and digital technologies. A fifth of micro firms (21 percent) report using phones for marketing or placing orders as an adjustment, while 44 percent used the internet, social media or platforms. According to the surveys, firms that invested in digital technologies recovered faster from the pandemic. Figure 7: Share of firms investing in digital technologies 50 40 30 20 10 0 Indonesia Kenya Poland Kenya Poland Kenya Poland South Africa Vietnam South Africa Vietnam South Africa Vietnam Wave 1 Wave 2 Wave 3 Source: World Bank Business Pulse Survey (2022) 23. Among digital platforms headquartered in South Africa, 79 percent only operate domestically, whereas 21 percent also have operations in the region.37 As Figure 7 displays, South African platforms primarily focus on the country’s own market. This is slightly higher than the average in the Sub-Saharan Africa (SSA) region overall (70 percent of platforms operate only domestically). Of the 21 percent of platforms that also operate outside South Africa, 6 percent conduct business in Egypt, and each 3 percent in Kenya and Nigeria. Whereas two South African platforms also operate in the United Arab Emirates and one in Greece, the majority of foreign operations are focused on the African continent. 37 The FCI digital business database currently only has sufficient coverage to assess the regional and not international footprint of South Africa’s digital platforms. Hence, the analysis does not include countries outside Africa in which South African platforms may operate. Page 10 Figure 8: Regional footprint of South Africa's digital platforms Sources: FCI Digital Business Database // Note: This analysis only uses Pitchbook and Briter Bridges data which have operating and headquarter location of African digital businesses. How to read it: 21 percent of digital platforms headquartered in South Africa have international operations (in addition to their domestic operations) whereas 79 percent operate only domestically. South African Platform Emergence 24. Global platform companies have been the dominant forces in South Africa’s platform economy, while local platforms have mostly been confined to niches (see Annex A1.3 for more details). Products and services offered by transnational technology corporations--in particular Microsoft, Google, and Facebook--are in wide use in South Africa. Also, transaction platforms such as Airbnb, Uber, and Bolt have been transformative for their respective sectors. International platforms tend to dominate where there is a global dimension (such as travel tech), but some local platforms have achieved notable success where the customer base is mostly local or requires investments in last-mile infrastructure (e-commerce and logistic tech).38 Overall, local platforms have had difficulty competing directly with these companies, although there are some exceptions. Notably, transnational platforms have the unique ability to leverage their user base and brand within a core platform market to conquer adjacent markets (economies of scale and scope). An example of this is Facebook becoming South Africa’s de facto classifieds platform. 25. As a result of significant market differentiation, most South African platform organizations do not feel threatened by foreign platform competition. Platform organizations interviewed for this study almost universally reported operating in market niches that foreign competition would not find attractive or which they would find too complex to conquer easily. Entrepreneurs felt that their platforms were too deeply entrenched in value chains and local networks, that strategic learning curves were too steep, and that margins were too low for them to come under threat from transnational platforms.39 Some local platforms faced competition for individual aspects of their product portfolio (for example, social media as a universal communication channel). Still, these platforms’ unique combination of digital product components represented a value proposition that they believed, would be hard to replicate for foreign entrants. Our sample 38 Competition Commision of South Africa (2022) 39 Friederici, Wahome, and Graham (2020) Page 11 included one example of a South African platform competing head-on with a Silicon Valley company; this enterprise competes on price, taking lower commissions from the supply side of the market. 26. Achieving minimum efficient scale is a central concern for South African platforms and is a long process.40 Several entrepreneurs from varied segments of the platform economy noted that reaching critical mass, network effects, and self-sustaining growth was difficult and often out of reach. As the majority of B2C platforms lack access to venture capital, they need to generate significant revenue and profits early on; yet this is challenging given small margins and because of niche target markets. Upfront costs for technology development and creating a known and trusted brand are often prohibitive. For e-commerce platforms that need to enroll users on two sides of a market in parallel, even considerable user growth may not be sufficient to achieve sustainability because unit economics only reach sustainable levels at very large scales (for example, network effects) --depending on the context, thousands or tens of thousands of active users. The issue is particularly pronounced in contexts where inadequate or delayed supply immediately and severely affects end-user satisfaction, such as in ride-sharing. One participant pointed out that even ostensible e-commerce success stories such as Takealot continue to struggle with financial sustainability. Also, among the analyzed platform businesses, those that were robust typically needed 5 to 10 years to achieve this. Adaptations of the platform business model to local contexts and value chains required time and came easier to entrepreneurs who were already experienced. 27. Marketing funded by large investments is essential for local B2C platforms to succeed. Platform organizations with end users as one market side consistently reported that their most significant investments were for marketing. This referred to offline and online measures. Platform companies that had obtained significant venture capital funding used it for traditional advertising, for instance, TV and radio campaigns or sponsorship of sports events. Enterprises with more limited resources tended to focus on online marketing, mainly through Facebook rather than Google. One entrepreneur was able to directly observe “hockey stick growth” once he began a Facebook ad campaign. However, online marketing sometimes came at the cost of exclusion; one interviewee reported that he would like to reach township populations, but this was not effective through digital marketing alone. B2B platforms mostly relied on referrals and, in the words of one participant, “word-of-mouth marketing.” 28. Some platforms can scale through large corporate partners, but the process takes time and creates dependencies. Many South African platform organizations complement and augment existing value chains in domestic industries and trade networks. In these cases, various partnerships with corporations are instrumental for platform startup scaling, for example, where a single large corporation is a critical early customer, or platforms can use a corporation’s existing distribution channels to reach end users at scale. Such approaches can be highly effective without alternatives, especially in complex and institutionalized sectors, such as healthcare. Yet, such partnerships also create complexity, dependencies, and delays for platforms. Especially in e- 40This finding is in line with the Competition Commission of South Africa (2022). According to the market inquiry, “a fringe of smaller platforms generally exists in most categories but are battling to scale and contest most online consumers.” Page 12 commerce, South Africa’s legacy of a retail sector based on shopping malls and consumers’ established habits in this regard can inhibit platform innovation. 29. Expanding to foreign markets is prohibitively expensive for most platforms. Serving customers in a new destination comes with a range of setup and fixed costs for platform businesses. This is self-evident for e-commerce platforms that integrate physical value chains but also applies to purely digital platforms. For instance, digital payment providers reported that licensing and financial regulations are highly fragmented across Africa and do not usually favor cash-strapped digital enterprises. 30. For local platforms that are driving inclusion, Gauteng, Western Cape and KwaZulu- Natal to a smaller degree were the most prevalent provinces in terms of location of launch and area serviced. From our sample of 256 platforms, 76 were found to be driving inclusion, meaning that they cover underserved communities and create opportunities for the excluded. 41 In this subsample of 76, Johannesburg, Pretoria, Cape Town and Durban, and their surrounding townships were found to be the most common areas for launching and operating the businesses. These are townships that have proximity to South Africa’s large cities. These are cities where many platforms launch their operations before trying to spread to other townships across the country. 31. Interestingly, these inclusion-focused platforms rarely reach rural areas or townships around smaller cities. For instance, very few platforms operate in the townships surrounding the city of Rustenburg. This implies that inclusion-focused digital platforms have had limited success in overcoming (a) the rural/urban divide and (b) the high level of economic concentration across geographic locations in South Africa. This may suggest that limited market size affects inclusion- oriented platforms even more than ‘traditional’ platforms as they need to compensate for lower margins and purchasing power by targeting a greater market. The townships of Johannesburg lead in inclusion-focused platforms, representing 31 percent of all platforms launched. It is followed by the townships surrounding Cape Town, representing 25 percent of all local platforms that drive inclusion. 41 Desktop research was used to identify and collect the data for the platforms, relying on news websites, published reports ad interviews as well the websites and social media pages of the different platforms. In some instances, contact was made with the platforms to fill and verify some of the data. In total, the sample contains 256 SA digital platforms, of which 76 have some inclusion effects by servicing underserved and marginalized communities. The sample is not exhaustive, and no statistical techniques have been used to ensure that is representative of the population. Hence, evidence is presented as anecdotal rather than conclusive. Page 13 Figure 9: Heatmap for the geographical distribution of township platforms in South Africa Source: Author’s based on local platform database Note: To avoid double counting, the shares are based on platforms that operate only in these areas Entry and Exit of South African Platforms 32. Our sample of South Africa’s platforms showed that the local platform space (particularly regarding inclusion-focused platforms) remains nascent but is dynamic. Indeed, many of the platforms were young and small. Figure 10: Number of Digital Platforms Launched in South Africa per Year below shows that most of the platforms are relatively young, and the entry rate accelerated from around 2014 when digital platforms were gaining more and more prominence in the global economy. While a majority of the platforms recorded a cumulative average of 1 000 downloads, there were several bright sparks with platforms that had tens of thousands of downloads (and some reaching hundreds of thousands of followers on Facebook).42 A quarter of the platforms had exited the market at the time of the study. The demand and supply side challenges (particularly in the digital economy in townships) that may prevent platforms from reaching critical mass and sustainability are discussed below. Digital platforms function optimally when they have a significant market share that generates scale and network effects (as long as the platforms do not abuse their dominance at the expense of consumer welfare).43The closure of older platforms in townships may (as partly captured by the 25% exit rate), in part, be explained by the entry of newer platforms. In other words, the market may be saturated on the supply-side because of limitations in the number of townships platforms scale to, ultimately resulting in the shutdown of older platforms as new ones enter. Figure 10: Number of Digital Platforms Launched in South Africa per Year 42 Data of reach of platforms in South Africa is scant. We tried to find data on downloads for Play Store for those platforms that had mobile application. In the absence of this data and other data on usage, we use Facebook followers as one of our proxies for reach. 43 OECD (2019) Page 14 Source: Authors based on local platform database Investment and M&A Trends of South African Platforms 33. Almost half of the investors in South African platforms are domestic investors, with the remaining half primarily comprising investors from developed countries. Error! Reference source not found. gives an overview of the country of origin of investors in digital platforms headquartered in South Africa using the FCI Digital Business Database. The type of investments ranges across different funding stages, including, for example, grants, pre-seed or seed funding by angel investors or incubators, venture capital (VC), private equity (PE), and debt financing. Following investors from South Africa (48 percent), further important countries of origin are the United States (22 percent), the United Kingdom (8 percent) and France (4 percent). It is noteworthy that investors from other emerging economies only play a minor role as investors of South African platforms – for example, the database only contains information on one investor each from India and Nigeria to have invested in South African platforms. 34. The leading types of investors in South African platforms are VC/PE investors (40 percent), accelerators and incubators (19 percent), while tech companies only account for 10 percent. This is illustrated in Figure 10 below, which is based on the number of investors (and not the size of deals). In line with trends in developing countries, the government does not play a substantial role as an investor in South African platforms (for example, through public innovation funds or sovereign wealth funds), accounting only for 3 percent of investors.44 The fact that tech companies account for only 10 percent of investors suggests that such investments are currently not a key channel for practices that may lead to a reduction in competition in digital platform markets.45 However, competition-distorting dynamics generally tend to stem from winner-takes- most dynamics in platform-based business models or through mergers and acquisitions rather than investments in tech companies. 44 It is important to note that the role the investors play depends on their overall share of investments that go the digital platforms ecosystem and not necessarily the absolute number of platforms. 45 Accelerators and incubators that are directly linked to tech companies are counted in the category of tech companies (e.g., Google for Startups Accelerator). Page 15 Figure 11: Country of origin of investors in Figure 12: Types of investors in South South African digital platforms (n=100) African digital platforms (n=100) Note: “Other” includes countries with only one investor Note: “Other” investors include, for example, an each. association, digital currency exchange, retail company and a research institute. Source (both Figures): FCI Digital Business Database and further research (esp. CB Insights, Crunchbase, Pitchbook) 35. Relative to benchmark countries, few South African digital platforms have exited, for example, through mergers and acquisitions (M&A) or initial public offerings (IPOs). As shown in Figure 12, fewer South African platforms have exited than ones headquartered in countries like Poland, Argentina, Brazil, Philippines, Malaysia and India (with a confidence of 90 percent). However, exit levels are comparable to countries like Chile, Colombia, Pakistan, and Nigeria. Exits may be an indicator of the competitiveness or attractiveness of digital firms but are also influenced by other factors such as the maturity of the financial market, Mergers and Acquisitions (M&A) restrictions, and market entry strategies of competitors. Figure 13: Share of digital platforms that exited up until 2020 Source: FCI Digital Business Database. Note: Only benchmark countries with at least 30 digital platforms are considered. Error bars show the confidence intervals around percentages with a p<0.1 taking into consideration a country’s number of digital platforms. Exits include initial public offerings (IPOs), buyouts, mergers and acquisitions (M&A) and other exits. Page 16 36. Acquisitions of South African platforms mostly take place by acquirers from South Africa or Europe and tend to be in the same or adjacent sector. Annex A2 lists 16 M&A deals for which information is available in the FCI Digital Business Database or other data sources (for example, Crunchbase, CB Insights and Pitchbook). Among these acquisitions, half involve an acquirer headquartered in South Africa, two from Sweden, and one each from Australia, the UK, Netherlands, Nigeria and Kenya. Besides three M&A deals which involved VC/PE firms, the majority are acquisitions within the same or adjacent sector (for example, fintech and e-commerce). Deals within the same or adjacent sectors risk decreasing competition and may even be considered ‘killer acquisitions’ if the intention is for an incumbent to pre-empt competition through the acquisition of a smaller firm. In almost half of the acquisitions, the acquired platform did not continue to operate in the market as it had been prior to the acquisitor – either because it ceased operations or became part of the new company. This highlights the importance of the South African Competition Commission to investigate cases – which has only intervened in a few cases. Business Model Analysis 37. There is evidence that digital platforms lower transaction costs and create efficiencies, but these impacts are not uniform across business models. Platforms are interdependent with the South African economy at large. Their business models and impact depend on various integrations with existing value chains, economic clusters, and social networks. These types of interdependencies, as well as scale and the type of platform business model, determine how transformational and widespread platforms’ impacts are.46 Gig Economy, Food Tech and Mobility Tech 38. The gig economy, mobility tech, and food tech have begun to have a transformational impact in South Africa. These include international platforms Uber (which launched in South Africa in 2013), Bolt (which followed in 2016), UberEats and Bolt Food which have achieved the widest reach. Other international platforms include InDriver which started operations in 2019 and Didi which operations in the country in 2021 but has since exited the market. On the local front, Jrney, Ramzy Ride, Local Ride, Lulaloop, Tag Your Ride and Hike App are some of the mobility platforms that have entered the market. Mr D is a local food tech platform that has achieved significant scale. This entry from international and national platforms is indicative of the fact that mobility and food tech are attractive markets in South Africa despite security concerns and regulation changes. There has also been dynamism in other services where consumers on the demand side commission some form of physical labor from workers pursue a similar business model, such as cleaning (Sweepsouth), chores (TaskApp or HelpGiant), or home services (Kandua) platforms. Gig work platforms generate value mainly by increasing the utilization of human and physical capacity through improved matching of demand and supply across time and space. Often, skill barriers are low, implying employment potential. 46 The current report considers (economic) value and impact as two sides of the same coin. The value created and captured through platforms translates as impact for the platform stakeholders (in other words, entrepreneurs, end users, gig users, business users and so on). Page 17 39. Mobility tech (ride-hailing platforms) creates additional value in South Africa by increasing the reach and security of transport. The South African transport system’s challenges are well-documented, especially a lack of widely available and affordable public transport and taxi services.47 While the coordination of labor and assets is a foundational contribution by platforms anywhere, South African ride-hailing platforms consider themselves “public transport,” emphasizing their expansive coverage as well as customer and worker safety as core value propositions. They report to have connected underserved areas, signed up middle-class customers who previously had to rely on minibuses, and enrolled previously unemployed drivers. An IFC survey revealed that around 60 percent of respondents identified being able to book through an app as a major positive point.48 Improvements in rider safety arise from platforms’ validation procedures for drivers. Platforms have also sought to increase driver security, for instance, disabling cash payments at late hours and for areas where incidents have happened. Uber has contracted a security service that drivers can call. 40. Gig economy platforms focus on establishing trust through rankings and certifications of workers. Especially service platforms for which quality of service will directly affect customer satisfaction and recommendation rates provide end users with detailed profile information about service providers. Two service platforms in the sample were able to align the interests of both market sides, as well-paid and professional workers allowed these platforms to create trust and a reliable image with consumers. In turn, this meant that these platforms had to lower their commissions, at least in the beginning. 41. Gig economy platforms mediate between consumers’ and laborers’ conflicting interests, especially concerning pricing. Pricing and commissions are platforms’ central levers for the distribution of value. While consumers benefit from lower prices that result from increased transparency and competition between providers, providers lose price-setting power and may need to work long hours to attain decent wages. They are often cheaper because they tend to be underregulated as opposed to other service providers. For ride-hailing, increasing competition between platforms (for instance, the market entries of Bolt and Uber in the Johannesburg area) has kept commissions down and offered drivers sufficient demand to reduce idle time. Overall, a vast supply of labor and significant inefficiencies in pre-platform markets may have resulted in net positive value creation beyond a redistribution between groups. However, in the long run, and when a given platform establishes lock-in and market dominance, the central tension for development impacts is how captured value is distributed between consumers, the platform, and workers. This is apparent, for instance, for cleaning services: despite time-consuming journeys, gig workers often attain very low average wages, given that platforms take substantial commissions while customers are not willing to pay more than they would in the offline market. 42. A major limitation of gig economy platforms’ inclusion potential is their focus on densely populated areas. Gig economy platforms offer digitally mediated coordination and remote customer services, but the core services that are provided remain physical. This means that a degree of physical proximity between labor demand and supply is necessary. Moreover, given thin 47 Lucas (2011) 48 IFC, Accenture, and Uber (2018). Page 18 margins, only densely populated areas seem to offer the kinds of unit economics that gig work platforms need to become sustainable. Gig economy platforms are also prone to reproduce and mirror gender biases in the respective service industries that they are mediating (for example, male drivers versus female cleaners) rather than offering particular opportunities to women. Overall, the gig economy has large-scale employment potential for low-skilled workers, and possibly fewer opportunities for long-term upgrading or bridging socio-economic divides. E-commerce 43. As elsewhere in Africa, South African e-commerce platforms are more than just marketplaces; they integrate upwards and downwards in value chains. E-commerce platforms go beyond merely offering a virtual storefront to effectively connect supply and demand. Across Africa, e-commerce platform enterprises have established logistics operations, warehouses, field agents, kiosks, customer support centers, financial services and so on.49 In the present sample, examples include an agricultural logistics and produce aggregation platform (including Khula which is discussed in more detail in section 3.2 below), an online fashion marketplace with associated physical shops, and a platform aggregating risk and supply for micro-traders. Accordingly, the geography, existing networks, and value chains of analog industries determine the reach of e- commerce platforms to a large extent. South Africa is the second highest ranked country in Africa after Mauritius in the UNCTAD’s e-commerce readiness index, at 73, out of 152 countries. 44. E-commerce platforms generate value through more efficient use of physical capacity and MSME formalization. They digitally re-intermediate existing supply and production chains of physical goods, addressing inefficiencies and misallocations across stakeholder groups. Rather than narrowly addressing information asymmetries and price dispersion, e-commerce platforms create additional information and additional offerings for parties in existing value chains. This allows platforms to avoid displacing or competing with existing market actors, which tend to be dominant, at least initially. Lowering prices through transparency and increased competition is a possible outcome of such an effort, but it is not usually the central impact. Existing value chains are not disintermediated (“cutting out the middleman”) but rather augmented through digital technologies. 45. A central challenge for e-commerce platforms is scaling and creating network effects. Given that South African e-commerce platforms entrench themselves in value chains, matching parties can be more complex, and the cost per additional user can be substantial. E-commerce platforms tend to require significant time to achieve product-market fit, as they need to elicit different value chain actors’ perspectives and incentives. Finally, platforms need to blend digital technologies with analog systems (for example, warehouse stock monitoring) in various, sometimes sophisticated ways, which can be time-consuming and costly. 46. E-commerce platforms have the potential to enhance market access and benefit rural, female, and township populations as well as MSMEs. They enable sellers to offer a long tail of products due to the national customer base on the platform, and the relatively less expensive use 49 David-West and Evans (2015) Page 19 of commercial warehouses.50 This is an improvement on the limited range offered by brick-and- mortar retailers driven by retail shelf space and stock turn constraints. 51 The inclusion effects of digital platforms are, therefore, complementary to that of gig work platforms. An additional long- term impact is the formalization and sometimes upgrading of MSMEs, such as smallholder farmers or micro-traders. Fintech 47. Fintech (such as secure transactions, lending, insurance, investment platforms and so on) creates value by moving financial and sensitive transactions online, making them cheaper, safer, and more instantaneous. This category is dominated by payment intermediaries such as Ozow, and services that pool risk and secure or coordinate financial transactions. Unsurprisingly, reliability is a contributor to end-user satisfaction and loyalty. The value addition compared to the pre-platform state consists of digitizing analog transactions and enabling transactions that would not have happened, for instance, because the risk and cost for an individual loan would have been prohibitive if it had not been pooled and lowered through a platform. For example, the People’s Fund is a purchase order crowdfunding online platform for businesses that have orders with the government and corporate and are looking for capital to deliver these orders. An important trend to note is that South Africa’s traditional banks have been increasing investments in the “platformization” of their offerings in response to competition from new digital platforms. In 2020, the most significant proportion of spending by the Big five banks was on technology and digitization.52 48. An important spillover impact of fintech is its contribution to the formalization of MSMEs. For example, payment providers typically offer user interfaces or simple dashboards to track spending, serving as simple financial management systems for MSMEs. Some finance and security platforms also offer more elaborate systems, allowing for tracking of internal financial management, such as payroll. Many products integrate with banking services through Application Program Interfaces (APIs), thus enabling better digital system integration. 49. In agriculture, for example, a good number of platforms focus on enhancing access to finance for small-holder farmers. One of the biggest challenges faced by small-holder farmers in South Africa is the lack of access to funding to start or grow their businesses. Access to credit for many smallholder farmers is limited because they cannot prove their trustworthiness to lenders. Blockchain-powered platforms such as BanQu provide farmers with digital credit scoring, obtained through their personal information and transaction history they record on their mobile devices. Digital platforms can also provide farmers with crop insurance (for example, Mobissurance). 50. Additionally, crowd-farming platforms help farmers access credit by acting as a bridge between smallholder farmers who need capital and individual or corporate investors. 50 Competition Commission of South Africa (2022) 51 ibid 52 Financial Services Conduct Authority (2022) Page 20 Platforms such as Livestock Wealth and Fedgroups’s Impact Farming allow users to own income- earning assets and earn profits at harvest. Impact farming, a B2C platform, has sold more than 100,000 blueberry bushes, over 20,000 solar panels, and close to 10,000 beehives to investors. 51. Financial regulation is a barrier to the growth and market entry of secure transaction platforms. Participants reported that they operated in legal grey areas, with uncertainty around licensing and accreditation, for instance, by the Financial Sector Conduct Authority (FSCA). Interviews and research suggest that large South African banks may have undue influence on the financial sector, thwarting innovation and overdue disruption.53 Encouragingly, there have been some initial interventions from the South African government in this regard. For instance, the South African Reserve Bank is working with the World Bank Group to reform policies around open banking. Social Networks 52. Social network platforms create interconnection, visibility, and sometimes community among end users. These platforms typically do not establish their software or technological product but instead run through large social networks, especially Facebook and WhatsApp. Value addition ranges from merely providing a virtual environment (for example, a simple classified portal) to the active curation of a platform community. In the latter case, platforms create trust among users, which in turn facilitates communication and the exchange of information. Typically, trust is generated by platforms acting consistently and fairly, for instance, vetting profiles and content to improve the overall quality and clear rules. Once the platform has set the rules of engagement, communities of users themselves monitor and enforce them to a large extent. An example is Brownsense which is discussed in more detail in Section 3.4 below. 53. Even for user numbers in the thousands or tens of thousands, community platforms may struggle with monetization. Social information can be highly useful and rewarding for end users (for example, through a sense of peer support, entertainment, bargain hunting, and so on.), but they are not usually willing to pay for it. One platform in our sample offers a freemium model, offering direct phone support to paying customers but not to others; yet this has remained a limited revenue stream. Social information and community platforms are, therefore, often run on a not-for- profit basis, or they transition towards becoming e-commerce or business management tech platforms. Through advertising, cross-subsidizing between different markets can occur, where a nominally free usage of the product/service is offered to consumers, paid for by placing ads that the consumers see. 54. Social information and community platforms have the potential for extensive reach to underprivileged populations, yet value addition per transaction is typically more limited. Without a standalone technological product and logistics infrastructure, community platforms keep costs low and avoid introducing additional entry barriers for end users. However, they are not usually able to add significant value to individual transactions beyond basic matching, such as guaranteeing transaction security, vetting service providers, or delivering goods. In turn, this limits 53 ibid Page 21 these platforms’ opportunities. Again, these social networks use advertising revenues to create a “free” service for consumers. 55. Social network platforms are also playing a key role in advancing e-commerce in South Africa. Indeed, social network platforms such as Facebook, Instagram, WhatsApp and Twitter have a dual impact on e-commerce. Firstly, their e-commerce functionalities (for example, Instagram Shop, Facebook Business Suite and WhatsApp Business) have enabled SMEs to offer online sales without having to develop their own online shops. In fact, in South Africa, SMEs will typically have a “soft launch” by initially selling online on these social platforms before they launch their own online stores. This “soft launch” allows SMEs to gain better market knowledge and fine- tune the processes needed to run an online shopping offering. An example of this is Brownsense which started as a referral group on Facebook and grew to a fully-fledged online shop. Secondly, SMEs rely on social network platforms for free and paid advertising to find customers and link them to their online shops. The return on investment from advertising on social network platforms is typically higher than traditional forms of advertising because of optimized targeting. This dual impact of social networks on e-commerce has been particularly important in South Africa given the relatively low digital maturity but high adoption of social network adoption. Business Management Tech 56. Business management tech exclusively focuses on business customers, interconnecting sectors or company-specific processes and systems. They typically offer a range of product modules that customers can pick and choose to fit their needs. For instance, in the agricultural sector, business management tech platforms may plug into farmers’ existing resource planning and crop and livestock management systems. An example of this is Hydra which allows farmers to efficiently and effectively gain data regarding farm security, livestock and crops management, asset management, capability management, finance, risk management and sensors.54 More advanced and complex system platforms may integrate other organizations’ information across the entire value chain or even for a sector as a whole (see the Hydra case study in Table 1 below). A key feature of most system platforms is that they can connect with digital infrastructure (like Microsoft and Google services) and sector-specific legacy systems, spanning across standards and competitor solutions. 57. Business management tech thrives in complex sectors (insurance, health, education) and serving large brands. Business management platforms can become sector standards or at least preferred solutions to common technical issues. Often, they become tech solutions providers, offering platforms only as individual product modules while not overall pursuing a platform business model (this may be different in the case of “Software as a Service” business models). Some social information and community, as well as finance and security platforms, often evolve into business management tech platforms as they specialize further and add additional modules and products, thereby becoming further entrenched in sectors. Growth tends to happen over very long periods, and network effects can be challenging to leverage due to the need for one-to-one customer 54 Hydra can also be classified as an ag tech platform. See the definition of the catergories in Annex 3. Page 22 interactions. Yet, in exceptional cases, platforms can become operating systems for entire sectors and ultimately achieve fast growth and a stable market position. 58. The impact potential of business management tech lies mainly in formalization, efficiency gains and innovation, while inclusion effects are often limited. Given system platforms’ monetization strategy of focusing on business customers with complex applications and sufficient willingness to pay, micro and informal businesses are not usually within their scope. Exceptions to this rule exist where platforms formalize agricultural value chains or social sectors. One exception may be that business management tech may bring B2B solutions within reach for companies that couldn’t afford them before (for example, through software as a service which has lower capital expenditure). This may benefit MSMEs and hence could have an inclusion effect. Table 1: RecoMed case study Product/Service Number of FT Growth angle Current and target Differentiation staff customer market and Impact RecoMed Location In South Africa, Current customer market: Key value provides its Cape Town, marketplace RecoMed currently has proposition: customers with an South Africa platforms are 200,000 monthly users in RecoMed offers a online booking increasingly South Africa. In 2020, technology-enabled platform and Year founded growing enabling RecoMed had reached 1 solution to connect all marketplace that 2013 transactions to million unique users, (which stakeholders of the connects occur easily and was more than 10 percent of healthcare ecosystem practitioners, Staff instantly. The the 8.5m healthcare users in in South Africa, patients and other 11-50 healthcare sector South Africa). Ambition to providing an online stakeholders in has multiple expand in select African booking platform as the healthcare layers in the markets when the time is its core product. ecosystem, where Funding market and ripe. patients can sources, requiring a Competitive edge: search and book amount multisided Impact appointments with HAVAIC platform to RecoMed provides a booking Patients can book health providers (US$324,000), connect relevant platform and marketplace appointments with a https://www.Reco ASISA stakeholders. In solution connecting all diverse selection of Med.co.za/about/) Enterprise the last 10 years, stakeholders of the healthcare providers Development RecoMed has healthcare ecosystem: in their area quickly Fund (ZAR become the 200,000 (visitors per month), and privately from 4,500,000), largest and 50,000+ (online bookings per their phone, tablet or Growth Grid fastest-growing month), 50 percent (new PC, 24/7 Venture online healthcare patient bookings), 66 percent Capital booking platform (bookings made after hours), The platform is Partners.55 and marketplace 6000+ (real patient designed to in South Africa.56 recommendations), 2000+ seamlessly integrate (health care providers.57 with Practice Management RecoMed is a solution that Applications (PMAs), increases competitiveness in which helps increase the health industry by appointment connecting health providers bookings, sync to medical schemes, life appointment insurers, websites and other availability and channels. The platform helps patient data, and practices grow with save time for 55 Crunchbase, RecoMed, https://www.crunchbase.com/organization/RecoMed 56 Pogorevici, C., & Serobe, T. (2020). Motivating Factors for Workers and Platforms in the South African Gig Economy. 57 https://www.RecoMed.co.za/ Page 23 increased bookings from practitioners and existing and upcoming patients. patients leveraging recommendations and referrals in the system. RecoMed provides detailed big data analytics on a wide range of areas within the healthcare industry. Ag tech 59. Ag tech platforms offer precision services and provide information to forecast planning dates, spraying conditions, and harvesting. For instance, AgriCloud, is a partnership between ARC and the South African Weather Service in the context of the Rain4Africa program. Additionally, platforms like Aerobotics use drone imagery and data analytics to optimize crop performance for farmers (see Case Study). Other platforms that aim to increase yields and reduce wastage are Climate Fieldview and Agri-Sense International. Companies in the traditional agricultural input industry have augmented their value proposition to farmers through digital propositions. Examples of these are Pannar Seeds Voermol, which through their app offers insights into the production phase. 60. Agri marketplace platforms help firms manage different parts of value chains simultaneously, and enhance access to input suppliers. Examples include eProd which is an integrated supply change management solution to agribusiness’ needs and challenges and Vodacom Connected Farmer which is a phone and Internet-enabled solution that allows agribusiness to engage with smallholder farmers. Online marketplaces such as Skudu are also available for farmers to acquire inputs. BOX 2: South Africa’s Platforms in Agribusiness Agriculture is of great economic relevance in South Africa as it is a significant provider of both jobs and income, particularly in rural areas. Based on the mapping of Digital Platform providers through the agribusiness value chain (see Figure 13 below), the analysis aimed to identify what digital technologies were being used to improve agribusiness ecosystem outcomes in South Africa. Findings point that digital platforms are present throughout the agribusiness value chain; integrative information systems constitute the majority of the identified platforms and over two-thirds of the platforms have been established after 2015. Figure 14: Mapping of digital platform providers in agriculture Page 24 Digital platforms in agriculture can reduce both socio-economic divides in accessing markets and information provided an adequate regulatory environment. With the proliferation of digital platforms, small producers, even in remote areas, can now directly connect to input suppliers, consumers, and even international markets, bypassing traditional middlemen.58 Figure 15: Benefits, enablers and risks of digital platforms in agriculture Source: Authors 58 Schroeder, Lampietti, and Elabed (2021). Page 25 Table 2: Aerobotics case study Product/Service Location, size, Growth angle Current and target Differentiation and funding customer market and Impact Aerorobotics Location Aerobotics Current customer Key value provides data Cape Town, collects data and market: Farmers and proposition: analytics using South Africa (HQ); develops crop insurance in 18 Aerobotics provides aerial imagery Los Angeles, USA information tools countries (Africa, farmers and crop from drones and to provide Australia, Europe, North insurance with an end- satellites and Year founded accurate and real- and South America). to-end solution to lower machine learning 2013 time data to the cost of provision algorithms to farmers and crop Impact and cost of farming optimize crop Staff insurance and Since 2014, Aerobotics through precise data on performance for 51-200 help them has helped farmers a regular basis by farmers. Farmers manage multiple manage over 65 million leveraging satellites, can interact with risk factors and trees with clients in 18 drones and artificial these data Funding higher costs. countries, including intelligence. through mobile sources, amount several in Africa, USA, and web apps $27M (Investors: The high- Spain and Australia. Competitive edge: (https://www.aero Naspers Foundry, resolution plant Aerobotics offers the botics.com/) AfricInvest, FMO, data enables the Aerobotics provides ability to automatically Platform platform to farmers with accurate compare data from Investment, provide a better statistics and other tools, different time periods Naspers Foundry, policy on what such as its management and different sources. Paper Plane actually needs to zones, to plan and plant Ventures, be insured, to mitigate damage to The market strategy AgFunder, ultimately leading tree and vine crops from provides an end-to-end Nedbank, Joe to optimal diseases and pests. packaged solution Caruso, 4Di coverage and addressing the Capital).59 reduced friction in challenges both of the claim process. farmers and crop insurance. Travel tech 61. Digital platforms have the potential to increase global market access for tourism businesses. Digital innovation supports different forms of handling transactions, gathering, and storing data and connecting operations along the value chain, which allow for remote operations and, thus, international reach. Additionally, they also contribute to enhancing the customer experience by increasing the array of innovative options for service delivery. On the flip side, the enhanced access can exacerbate the gap between global, tech-driven tourism and local, traditional tourism. 62. On the other hand, booking platforms can be a costly intermediary for MSMEs which also push prices down and can lead to pressure to deliver more efficiently and at lower costs. Hybrid business models may be able to cut the need for an intermediary, but most keep their own webpage while still being present in one or multiple platforms for visibility.60 Platforms’ fees can be burdensome for MSMEs and the inability to compete without that visibility can ultimately exclude them from the ecosystem. Thus, global digital platforms may ultimately divert earnings from local tourism businesses, effectively deepening the divide between tech-enabled businesses and traditional MSMEs. 59 https://www.crunchbase.com/organization/aerobotics 60 OECD (2020a). Page 26 63. Online Travel Agencies (OTAs) by their nature are more agile in responding to emerging data and shifting supply. International renowned OTAs such as Homestay and Booking.com share the segment with South Africa-based accommodation platforms. For instance, Lekkeslap, South Africa’s first Afrikaans leisure accommodation-booking platform, which attracted an average of 750,000 users a month in 2017 in combination with its version in English, TravelGround and other accommodation platforms specialized in safari lodges, such as Bush Scapes and SafariNow. In 2010, South Africa became the first country in the continent included in Airbnb. It is the country with the highest number of guest arrivals in the continent through the platform. Early occupancy trends suggest that home-sharing is experiencing the second strongest recovery just after caravan and camping, which suggests a preference for outdoor and smaller establishments. Home-sharing platforms also offer opportunities to generate income to seniors globally. For instance, Homestay reported close to 1 in 4 hosts to be 55 years old or older and, in the case of South Africa, Airbnb sustains that 1 in 6 hosts who welcomed guests are seniors. 64. Digital restaurant and shopping guides and booking can help bring awareness of dining opportunities off the beaten path. Eat Out has a section specifically on new restaurants while DinePlan allows users to filter by recently added restaurants to the platform. However, the number of cities it offers its services is limited. International platforms such as TripAdvisor Restaurants include establishments in over 500 geographical areas within South Africa. Additionally, this type of platform includes user reviews, which are becoming the main source of tourism information. In a 2018 TripAdvisor study in key markets in Europe and the US, findings suggested that around 9 out of 10 users are influenced by TripAdvisor when selecting a restaurant, and about the same proportion rely on the platforms as restaurant discovery sites. The data also suggested that diners relied more on TripAdvisor and other restaurant platforms when traveling in comparison to at home. BOX 3: South Africa’s Digital Platforms in Tourism South Africa is the second most attractive destination for tourism in Africa. The tourism digital platform ecosystem in South Africa is highly fragmented and spearheaded by global players. The mapping of Digital Platform providers through the tourism value chain (see figure 14 below), identified digital technologies that were being used to improve tourism value chain outcomes in South Africa. Findings support that the traditional structure of the tourism sector is “highly fragmented and heterogeneous with many subsectors demonstrating a dual structure characterized by a very small group of large businesses combined with a large group of MSMEs/micro-businesses” is replicated in the South African digital platform space, with large platforms such as Airbnb, and TripAdvisor leading their respective categories and competing with a sizable amount of smaller, mostly local, players. 61 Figure 16: Mapping of digital platform providers in tourism 61 OECD (2020a) Page 27 Digital platforms can increase tourism demand by reducing the monetary cost of travel. The ability to easily find and compare alternative tourist services increases the bargaining power of customers, which ultimately reduces prices. A secondary effect of the number of options available in platforms is that more diverse and niche services are accessible for the tourist, partly through data-gathering and targeted marketing practices. Figure 17: Benefits, enablers and risks of digital platforms in tourism Source: Authors Edtech 65. Edtech platforms reduce geographical and financial barriers to accessing education. For instance, GetSmarter partners with the world's leading universities to select, design and deliver premium online short courses with a data-driven focus on learning gain. In agriculture, for example, edtech platforms can be used for the development of skills. The development of digital skills is essential for the inclusive uptake of digital platforms. AgriColleges, in partnership with the University Page 28 of Stellenbosch, is an e-learning platform offering training in agriculture science and related sectors. Additionally, the Agricultural Research Council (ARC) developed a training platform named ArcHub to bridge the information asymmetry between farmers, researchers and extension officers. 3. Impact of Private Digital Platforms 66. This section provides some evidence of the impact of digital platforms in South Africa with respect to job creation, inclusion and economic spillovers. A key caveat to this analysis is that the data in this area are scarce, and hence findings are illustrative and not conclusive. Indeed, in South Africa, much like in other developing countries, while the impacts of digital platforms on the economy are potentially large, meaningful and large-scale data collection efforts have not kept up with the pace at which the digital platform landscape has been developing. For example, despite the importance of digital jobs, systematic processes to capture digital jobs, through labor force surveys, for instance, are still missing. To understand inclusion, data is also needed on the uptake and usage of platforms in townships, and these data are difficult to source. Thus, for the below, mostly anecdotal evidence has been sourced from media features, interviews, installations statistics from the Google Play Store and desktop reviews of previous studies that have attempted to measure the different outcomes in the digital economy. 67. Indeed, there is significant scope for governments, platforms and research institutions to collaborate in data collection efforts to better capture digital platforms’ job creation and economic spill-over effects. Labor Force Surveys do not accurately represent platform economy workers. Although they are likely to be categorized as self-employed, there is no clear distinction between platform workers and, for example, professional self-employed individuals. Even in tax records, platform workers may be registered as provisional taxpayers, which means that the parent company of the digital platform may not be recorded.62 Cooperation across the different actors is required for systematic data capturing in the digital platform ecosystem. International cooperation will also be necessary to ensure harmony and consistency in how this data would be captured to allow for international benchmarking. Data are required for indicators such as scale, penetration rates, active users, new users (digital inclusion), character and quality of transactions undertaken on these platforms, employment, income, volume and value of transactions. The team developed a short basic survey that was shared with platforms to capture some of this information. This survey is attached in Annex 5 as an example of some of the tools that can be used to capture this crucial data. 68. Based on available evidence, which is incomplete, particularly on jobs and economic spillovers, this report finds that the impact of digital platforms in South Africa has been positive overall. As discussed in Sections 3.1 and 4, the picture is not completely rosy. There are significant job vulnerabilities associated with some digital platform work. Nevertheless, the findings of this report (which have mostly been derived qualitatively given the scant quantitative data) are consistent with previous studies which report positive effects of platform growth on overall 62 Mokofe (2022) Page 29 employment and small negative or insignificant effects on dependent employment and wages for instance.63 There are also important competition policy concerns as some larger incumbents have been found to have anticompetitive practices that make it challenging for smaller and newer firms to enter markets and grow. Additionally, there have been cases where South Africa’s local platforms create exclusive agreements which prevent their users from offering products and services through other platforms or offline channels.64 Contestability of markets is crucial since competition has substantial social benefits through prices, quality of offerings and innovation. This is discussed in more detail in Section 4. 3.1 Direct Contribution to Employment and Income Generation 69. Evidence shows that digital platforms have created much-needed opportunities for jobs and income generation. In 2018, it was estimated that over 1.3 million jobs had been supported by digital platforms. 65 This is equivalent to 5.5 percent of the labor force and compares favorably to the 0.5 to 2 percent figures in OECD countries.66 Examples of digital platforms creating jobs in South Africa include Airbnb. In the financial year ending in 2019, Airbnb generated an estimated ZAR10.97 billion (around US$652 million) in economic impact in South Africa and this was estimated to be equivalent to 28 600 jobs.67 As of 2019, Airbnb had more than 45,500 active accommodation hosts and 500 experience hosts.68 Cape Town currently leads Africa in Airbnb listings. As of 2023, Kandua had created over R400 million worth of work opportunities for over 28 000 professionals. 70. Indeed, international and local digital platforms with traction have been reporting strong job creation. A vital caveat is that some of these jobs may not be “new jobs” but jobs that shifted online (potentially with higher wages).69 There is evidence, however, that many of the jobs may indeed be new. For example, surveys revealed that some of the growth in domestic travel using Airbnb appears to be latent demand being unlocked by the platform. Around 15 percent of surveyed guests reported that they would not have traveled at all without Airbnb, 42 percent would not have traveled to the region, and 57 percent of guests would not have stayed as long. 70 In mobility tech, Uber and Bolt have supported close to 34 000 jobs.71 While Uber only operates in the main cities (Johannesburg, Cape Town, Durban, and Port Elizabeth) and has thus mainly benefited the major cities, Bolt has launched in 32 other less urbanized cities, spreading the benefits of ride-sharing platforms more evenly across the country.72 In food tech, it is estimated that platforms such as UberEats and MrD have a total of over 6 400 drivers as of 2020. 73 In e-commerce, 63 For example, see OCED (2019) 64 World Bank (2022) 65 Insights2Impact (2018) 66 World Economic Forum (2020) 67 Genesis Analytics (2021) This is inclusive of Airbnb’s direct, indirect and induced GDP contribution. This accounts for positive contribution only, not net impact, as it does not quantify any substitution or loss from other parts of the industry. 68 Genesis Analytics (2021) 69 The lack of data has impeded separating the new jobs created from the jobs that have shifted online. 70 Genesis Analytics (2021) 71 Genesis Analytics (2018) South Africa in the Digital Age 72 Uber has now announced plans to expand to smaller cities. 73 Reutters (2021) https://www.reuters.com/article/us-safrica-workers-apps-idUSKBN2C10AB Page 30 Takealot alone employs 2000 employees.74 E-commerce has stimulated employment and investment in logistics and delivery. An uptick in online retail may impact low-skilled in-store jobs such as checkout and creates new jobs in picking, packing and delivery. In the gig economy, SweepSouth has supported 40 direct jobs and 15 000 domestic jobs, primarily for low-skilled female workers.75 71. In mobility tech, several local platforms have been launched to compete with international platforms. Still, they have had limited success, with Uber and Bolt continuing to dominate in terms of users and workers. Examples of this include Ramzy Ride, which was launched in 2018 in Johannesburg, (reaching 24 000 followers on Facebook) but eventually exited the market. Africa Ride was launched in 2016 and operated in Johannesburg, Cape Town and Rustenburg. They had over 500 drivers in 2017 but have also exited the market.76 Tag Your Ride was launched in 2017 and achieved just over 1000 installations before exiting the market. Jrney was launched in 2019 and currently has around 1000 installations on Google Play Store. 72. Other local platforms have tried to offer some differentiation in addition to the lower prices. For instance, in response to some safety issues associated with e-hailing in South Africa, Local Ride and Ambee are some of the platforms that offer a ride option where the driver is female and all the passengers are female. The option is offered exclusively to women and aims to ensure safety and comfort for female riders and drivers. An IFC survey revealed that female riders prefer a woman driver when traveling alone.77 The proportion of women citing safety and security as a barrier for signing up and driving more hours was found to be the highest in South Africa. Local Ride was launched in 2019 in Johannesburg and operates across the province. The platform currently has over 10 000 downloads on Play Store and is currently active. Ambee was launched in 2021 but only has around 100 installations on Google Play Store currently. Another example is Lulaloop differentiates itself by exclusively focusing on connecting corporate commuters with private shuttles on their way to work. They were launched in Cape Town in 2016 and also operate in Johannesburg, Pretoria, Durban and Port Elizabeth. Their traction has been very limited; they currently have around 1 000 downloads on Play Store (and 11 000 followers on Facebook). Despite these entries, the jobs created continue to be minimal as the platforms are yet to reach scale. 73. Digital platforms also offer some benefits to workers, including flexibility and the opportunity to learn on the job. Income, flexible hours, independence and the ability to grow skillsets due to greater exposure and various tasks were highlighted as the key reasons for engaging in platform work.78 Around 27 percent of SweepSouth workers were also furthering their studies.79 The platform workers report aims to ‘professionalize’ the gig workforce and ‘dignify’ service-based work by standardizing services, certifying and marketing worker offerings and providing workers with training in ‘soft skills’, such as how to present themselves and how to bid for services. While arguably self-serving in that it enables charging out workers on the platform at 74 Takealot (2022) https://www.takealot.com/about/our-journey 75 Business Insider (2019) https://www.businessinsider.co.za/bruce-whitfield-creating-jobs-21st-century-style-2019-10 76 Disrupt Africa (2017) 77 IFC, Accenture, and Uber (2018) 78 Fairwork (2020) 79 ibid Page 31 higher rates, it also improves workers’ skill sets and (if this became more widely scaled) could offer the promise of raising earnings more broadly within the service industry. 74. Notwithstanding this positive impact of platforms on livelihoods, some platform workers still face significant challenges, including a lack of protection and inconsistent and low pay (see Box 1 below). Almost half of the workers reported a monthly household income of under ZAR 3,000, and an additional 40 percent reported an income of under ZAR 4,000. 80 This is well below South Africa’s living wage.81 Indeed, the sporadic nature of income is a crucial challenge for many platform workers, and the promise of flexibility is not always fulfilled in practice. Indeed, where gig workers have placed high importance on the higher income that they can receive from gig work (compared to traditional employment), the inconsistency of this income was a major drawback.82 Encouragingly, the task platforms NoSweat and GetTOD have now guaranteed that all jobs they post will pay above the living wage. 75. The vulnerability of some platform workers may be linked to the fact that platform workers are typically categorized as independent contractors and are thus not fully covered by traditional labor regulations. In South Africa, this means that these independent contractors do not always benefit from the labor rights in the Labor Relations Act and Basic Conditions of Employment Act. Indeed, studies have found uneven standard of employment across different types of digital platforms.83 This may need further monitoring, to be possibly addressed through adaptations in traditional labor law and potentially an introduction of a code of conduct following more in-depth research. This is discussed in more detail in Section 4.84 Box 4: The COVID-19 impact on platform workers The COVID-19 pandemic and the containment measures it necessitated resulted in a large negative impact on the incomes of platform workers, ultimately highlighting the vulnerability of platform work. A survey by Flourish Ventures (2020) revealed that nearly 4 out of 5 platform workers earned less than US$240 (R 4000) per month, compared to less than 1 in 5 before the pandemic. Around 74 percent have experienced a significant decrease in income since the COVID-19 lockdown began in March 2020, and half are supporting more people financially since the COVID-19 lockdown began. Some 82 percent of e-hailing platform workers suffered a large decrease in income, and 47 percent reported a large decline in quality of life. While there was greater reliance on e-commerce and delivery during the lockdown, delivery workers also suffered hard initial impacts with 57 percent reporting large decline in income. Some gig workers have a financial cushion, but a majority live on the edge. If they lost their primary source of income, 58 percent of platform workers reported that they could not cover household expenses for a month without borrowing money. Source: Flourish Ventures (2020) 76. In microwork, although US platforms like Freelancer, Elance (Upwork), ODesk and Amazon Mechanical Turk have dominated, they have been progressively challenged by local platforms. Mintor is a South African platform looking to connect students (in the supply market) and MSMEs (in the demand market). In 2017, around 3 percent of South Africa internet users 80 Fairwork (2020) 81 Ibid. 82 Pogorevici & Serobe (2020) 83 Mokofe (2022) 84 ibid Page 32 partake in some form of microwork, making South Africa one of the leaders in the African continent although it still trails several Latin American countries85. In South Africa, a growing number (though small in relation to total Internet users) are doing online professions and technical freelancing. 77. The gig economy is also expanding through new opportunities in tradable sectors through global business services (GBS). GBS encompasses call center work, coding, other ICT services, finance, accounting and legal support, and could be expanded to include new services such as tutoring and long-distance care. A quarter-million South Africans already work in GBS, more than double the number employed in the automotive sector86. Of these, some 50 000 already service off-shore demand, a number growing by around 24 percent a year, which makes GBS exports one of the fastest-growing job categories in South Africa.87 Before COVID-19, it was estimated that an additional 100 000 - 500 000 GBS export jobs could be added by the end of 2023 given the right policy actions.88 3.2. Impact on Economic Inclusion 78. Inclusion effects differ by platform business model, largely in line with expectations of the analytical framework. Notably, gig economy platforms can have strong employment effects for low-skilled workers, but those rarely extend to rural areas. Gig economy platforms mirror existing gender divisions across professions, thus limiting their potential to provide outsize opportunities to women. Additionally, studies have demonstrated that platforms create much-needed jobs for younger workers in particular.89 E-commerce platforms indeed have broad, inclusive effects for MSMEs and along value chains that extend into rural areas and trade networks within townships. Given low adoption barriers, social networks show particular promise to provide simple interconnection of informal service providers and traders in underserved communities. Fintech predominantly benefits youth and MSMEs, not women and rural populations; however, this could be an artifact of the limited sample, which only included one broad-based B2C payment provider. Business management tech has direct inclusive effects only in exceptional cases where they target social development-related sectors, such as agriculture. 79. In travel tech, digital platforms are “democratizing” tourism. For instance, Airbnb minimizes barriers to entry and helps emerging destinations welcome more visitors in a scalable and sustainable way. While travel with Airbnb reflects national tourism patterns concentrated in the provinces with the three largest metropolitan areas, namely Gauteng, the Western Cape, and Kwa- Zulu Natal. However, visits to traditionally less popular provinces are growing much faster than the traditionally popular provinces, sharing the benefits of tourism. From 2016 to 2019, the growth in booking to destinations in largely rural areas grew by 81 percent - of the 10 fastest-growing towns, seven are in rural areas.90 Absolute numbers remain low at 158 hosts in Soweto and 123 in Tembisa 85 Research Africa (2017) 86 Genesis Analytics (2018) 87 ibid 88 Ibid. 89 OECD (2019) 90 Genesis Analytics (2021) Page 33 but are growing. From 2016 to 2019, the number of active hosts on the platform increased by 508 percent in Soweto, and Tembisa by 200 percent.91 Additionally, 65 percent of South Africa’s Airbnb hosts are female. A local example is Jurni which aims to level the playing field by connecting travelers to tourism businesses, particularly those that are smaller and based in rural areas. This is discussed in more detail in the case study below. The inclusion impact is discussed in more detail in Section 3.4, which deep-dives into townships. 80. Travel tech platforms for excursion and activity planning are helping to develop tourism in rural areas. Platforms such as Discover Africa, Bookmundi and SA-Venues provide guidance and recommendations about routes and excursions that can create spillovers to local economies. For instance, the well-established Garden Route and over 20 different wine routes. Wine tours have had two main positive effects in South Africa: (i) the majority of the wine tours take place outside of tourist hotspots having helped develop rural tourism; and (ii) they have increased the profile of South African wines at large. 81. Travel tech platforms support the spread of tourism. The National Development Plan aims to leverage tourism to reduce spatial inequalities.92 Digital platforms in tourism operate in the global market in nature, as they can connect customers with tourism products and services anywhere. Therefore, they can support the geographical spread of visitors and, thus, support regional development. Additionally, digital platforms in tourism can facilitate entrepreneurship by providing newcomers with the opportunity to join platforms with an established reputation and user-base. 82. The significant job creation and inclusive effects found in South Africa may be linked to the fact that South Africa has (a) a high unemployment rate, and (b) a legacy of exclusion with significant geographical, racial and gender dimensions that platforms have been at least partially able to bridge. Robustly comparing the job generation of platforms in South Africa versus other parts of the world is constrained by scant data. However, available estimates show that platforms have created jobs for 5.5 percent of South Africa’s labor force compared to around 2 percent in OECD countries. South Africa has a relatively large pool of low-skilled labor compared to peer countries. International platforms such as Uber and Bolt and local platforms such as Kandua and SweepSouth have leveraged this and created much-needed opportunities for this segment of the labor market. 83. In addition, the significant inclusive effects are likely linked to the fact that platforms have provided township-based SMEs with access to: (a) more affluent segments of the market outside townships, and (b) new digital consumers in townships. For example, Airbnb has enabled tourists to find accommodation in townships. Khula is a local platform that links smallholder farmers to supermarkets that service the upmarket. Additionally, platforms unlock new users from the large and excluded township market by catering to their specific needs and preferences that are linked to heritage and culture. For instance, township-based foodtech platforms have leveraged their understanding of this local market and facilitated market access for local restaurants. This is discussed in more detail in Section 3.4 later in this report. 91 ibid 92 Rogerson (2015). Page 34 Table 3: Jurni case study Product/Service Location, Growth angle Current and target Differentiation size, and customer market and funding Impact Jurni is an online Location MSMEs in travel Current customer Key value proposition: platform that Bryanston, and tourism market Jurni is the official provides a Gauteng, struggle to grow, Travel and tourism rebranding of the booking tool, data South Africa and new entrants to industry (consumers National Tourism Visitor hub and, visitor the industry face and suppliers) in South Information System app & information Year founded barriers to market Africa (NTVIS) of South Africa, portal to 2019 access due to a offering a solution to stakeholders of lack of funding, Impact unlock the value of the the tourism & Staff technology and The Data Hub can travel and tourism travel industry 2-10 adequate skills. generate reliable industry allowing every (https://jurni.co.za/ Jurni offers a tourism insights for the tourism player in South ) mobile-enabled private and public Africa to have access to Funding booking system sectors and has the a digital platform.94 sources, connecting all capability to unveil amount stakeholders of the investment Competitive edge Project funding tourism ecosystem, opportunities for South Jurni is centralizing data from the providing tools to Africa’s unexplored from different Amadeus IT book and pay for destinations. management systems Group under accommodation and into one portal, making it the National experiences, and The Booking tool available to all Industrial generating real-time integrates the stakeholders and Partnership data & insights to ecosystem to leverage enabling the Program facilitate decision- insights from the data commercialization of (NIPP), making for tourism hub and visualize them data. managed by industry players in the visitor app & the across the value information portal. Jurni is a public-private Department of chain. Approximately 80 initiative with no once-off Trade and accommodation joining fee, no annual fee Industry establishments have or monthly fee for the (DTI).93 already been Jurni Booking Tool and onboarded on the does not charge PPC platform. fees or channel management. 3.3 Economic Spillovers 84. Macroeconomic data that unpacks the economic spillovers of digital platforms is scant. However, several case studies indicate that the economic spillover may be significant. An example is Airbnb which is estimated to have contributed ZAR8.5 million, ZAR10,8 million and ZAR8.1 million to South Africa’s economy in 2018, 2019 and 2020, respectively.95 With 72 percent of Airbnb guests being foreigners, Airbnb has positive spillovers to South Africa’s tourism sector.96 In 2019, 46 percent of surveyed hosts on the platform reported that their primary reason for hosting 93 https://issuu.com/globalafricanetwork/docs/sab_2020_01_digital__1_/s/11309221 94 https://jurni.co.za/tourism-data-hub/ 95 Genesis Analytics (2021) This is inclusive of Airbnb’s direct, indirect and induced GDP contribution. This accounts for positive contribution only, not net impact, as it does not quantify any substitution or loss from other parts of the industry 96 ibid Page 35 was “to make ends meet”. Airbnb charges most hosts a flat fee of 3% of the booking subtotal.97 With 97 percent of the accommodation charge remaining in the hands of hosts, the extra income from hosting is helping to uplift communities.98 3.4. Townships and Underserved Segments 85. A large proportion of South Africa’s population continues to reside in townships where economic opportunities are few.99 Indeed, with about half of South Africa’s urban population residing in townships - townships accommodate most of the urban population on a relatively small geographical footprint.100 South Africa’s townships also suffer from contemporary urbanization challenges such as unreliable service delivery and low job creation. South Africa’s townships are also characterized by significant heterogeneity. Townships can have “different levels of internal social organization, inclusion, class differentiation, racial and ethnic composition, the balance of old and new residents and many other dynamics that can inform their social fabric – and economic dynamism”.101 86. Overall, township-based MSMEs are often established out of necessity and remain informal. Around 65 percent of all township MSMEs are informal.102 The dominant sectors are retail trade (including street traders, spaza shops and shebeens) at 54 percent and services (including hair salons, mechanical and electrical repairs, recycling, and early childhood education centers) at 34 percent.103 Micro-manufacturing makes up only 2 percent of all enterprises.104 The existing manufacturing is characterized by short value chains and hardly any integration with external markets. Moreover, most products sold by township enterprises are almost exclusively produced by large companies outside townships. Township enterprises thus play a complementary role to formal retailers and wholesalers, enabling them access to a growing sector of low-income earners who cumulatively have sizable buying power. Wage labor outside the township constitutes the most significant share of income for people in townships. Additionally, despite the critical role played by the taxi services, townships are also characterized by a highly fragmented public transport and logistics network. 87. While most township enterprises are limited to meeting the immediate demands of their local community (in other words, for convenience purchases), some economic activities are linked to customers and markets outside of townships. One example is township tourism, which has experienced significant growth since 1994. Township tourism connects international and 97 Airbnb’s business model relies on charging both the guest and the host. Most Hosts pay a flat service fee of 3% of the booking subtotal while guests typically pay a service fee of around 14% of the booking subtotal. The subtotal is the nightly price plus any optional fees charged to guests, like a cleaning fee, and doesn’t include Airbnb fees and taxes. 98 Genesis Analytics (2018) 99 A township is In South Africa, the terms township and location usually refer to the often underdeveloped racially segregated urban areas that, from the late 19th century until the end of apartheid, were reserved for non-whites, namely Indians, Africans and Coloureds. 100 HSBC (2019) 101 Philip (2018, p2) 102 HSBC (2019) 103 HSBC (2019) 104 ibid Page 36 national residents with higher disposable income levels with township enterprises, ultimately bringing much-needed expenditure into townships. However, one of the critical challenges is that local benefits from township tourism have often been limited, and most tours are restricted to only a few well-established townships, including Soweto and Khayelitsha.105 88. Digital platforms have the potential to address some of these challenges, particularly in the context of ongoing improvements in connectivity. Data on internet coverage in townships are scant, but in 2020, ICASA estimated that three-quarters of South African households had at least one household member who had access to the internet through mobile devices and laptops. 106 Again, a 2014 survey conducted in 3 townships in South Africa revealed that around three-quarters reported having internet access on their smartphone and that 65 percent of users reported having installed an app.107 In 2021, ICASA reported a 100 percent coverage in 2G and 3G across South Africa while 4G/LTE was recorded at 96 percent. Smart mobile phones continue to become increasingly ubiquitous across the country, with 65 million smartphone subscriptions reported in 2021. But as discussed earlier, addressing the cost of connectivity and digital literacy would significantly further broaden the market for digital platforms in townships. Barriers to Digital Platform Adoption in Townships 89. Continued improvements in market readiness are crucial since being able to reach consumers based in townships for critical mass and sustainability is key for South African platforms. Despite the number of platforms that have emerged in South Africa’s townships and in the nation overall, most of these remain nascent. The efficiency and cost-reduction effects of demand and supply matching have not been extended to several low-skill service sectors. Even where it has, the active platforms have not yet scaled significantly. In particular, strong competition between digital platforms operating in a particular sector has yet to form, as is the case of markets like India, where platforms are achieving significant scale. This reflects the fact that the market for digital platforms in South Africa has yet to mature. This is partly because digital platforms in South Africa primarily cater to the relatively affluent middle-class consumer market. As noted in the Competition Commission’s recent market inquiry “Overall, the broader online platforms market in South Africa is limited by the country’s enormous wealth inequality”.108 As such, these platforms only provide services to a small portion of consumers and will struggle to scale significantly, especially if they have to share this consumer segment with other competing platforms. To achieve a serious scale domestically in a competitive environment, digital platforms must develop business models relevant to the potentially large cumulative purchasing power of low-income earners. This section discusses some of the barriers inhibiting greater platform adoption in the low-income segment, namely,(a) limited user readiness, (b) digital divide in infrastructure, and (c) digital divide in skills. Limited User Readiness 105 Langa and Inanda (HSRC, 2019). 106 ICASA (2022) The State of ICT 107 Abrahams and Pillay (2014) 108 Competition Commission of South Africa (2022, page 5) Page 37 90. Across business models, platform adoption in general, and inclusion in particular, were seen to be hampered by low readiness among targeted users.109 These constraints have been discussed in depth in previous World Bank studies, such as the Country Private Sector Diagnostic (2018) and the Digital Economy Diagnostic (2020). The latter report also provided a comprehensive discussion on the policy implications around digital skills and digital infrastructure and the inclusion aspects of these two areas. This report, therefore, provides a more concise discussion of these challenges as they are essentially and fundamentally linked to the inclusion agenda in South Africa. 91. Indeed, the low capacity to use affordable digital technologies in townships is constraining the ability of digital platforms to attain domestic market scale. The low readiness referred mostly to consumers (in other words, platform customers), MSMEs as customers, and individuals along the value chain (for example, drivers for mobility platforms). Readiness was broadly understood to be lower in townships and lowest in rural areas compared to urban centers. A founder of a niche ride-hailing business highlighted how Uber and Bolt are not so much undesirable competition but rather favorable for his business. After all, their marketing efforts and educational effect on drivers pave the way for smaller providers. Another respondent reported that MSMEs in the tourism industry do not typically have a mindset to trace, analyze, and exploit data, leaving the value-creation potential of digital technologies underutilized. 92. An important underlying factor was considered to be low trust in digital technology. The founder of an agri-tech startup mentioned that user uptake was hesitant because of poor experiences with first-generation products that promised a lot and delivered little. Several interviewees mentioned ongoing trust issues with digital payments and submitting sensitive information digitally. One participant highlighted that consumers were particularly uneasy with digitally engaging with MSMEs, disadvantaging, for example, small service providers in the tourism industry. Digital Divide in Infrastructure 93. Beyond low user readiness as a wide-ranging demand barrier, the most pressing challenge to the inclusive effects of platforms is arguably the long-standing digital divide in South Africa.110 Many platforms require users to have smartphones and be able to use them effectively, confining addressable markets significantly. Despite the improvements discussed earlier, data affordability remains a key concern, with one interviewee calling it the “anchor dragging down e-commerce” in South Africa. Another participant highlighted the importance of WiFi access, given that many users cannot or do not want to afford data packages. An interviewed entrepreneur highlighted that, when trying to target micro businesses in a township, his company realized that this group only had access to entry-level smartphones but not the devices necessary to seamlessly run the application (that is, a tablet, laptop, or advanced smartphone). Similarly, a point-of-sale (POS) software provider highlighted that informal and rural businesses are not their target market 109 Lin et al. (2007) 110 see Gillwald et al. (2018) Page 38 since POS devices are rarely available. However, as discussed earlier, there are signs that connectivity in South Africa is improving. Policy interventions need to continue supporting the improvements. 94. South Africa performs well in the Technology Pillar of the Networked Readiness Index . It is ranked 58th out of 131 countries as of 2022. South Africa also leads Africa in the Quality of Digital Life Index under the mobile internet category. The good performance reflects improvements made in infrastructure and affordability. Data from the International Telecommunications Union (ITU) shows that 70 percent of the South African population had access to the internet as of 2020, on par with the global average (70 percent) and comparing favorably with the upper middle-income average (73 percent). Mobile remains the primary means for people to get online in South Africa with 100 percent coverage in 2G and 3G while 4G/LTE coverage was recorded at 96 percent as of 2021. Based on 2022 data from Ookla23, South Africa comes first in Africa on mobile internet download speeds (ranked 52nd globally). 95. However, while network coverage gaps in South Africa are closing, the digital divide is increasingly characterized by the internet’s unaffordability and poor overall quality. South Africa's internet quality, in relation to internet speed, stability and growth, ranks 62nd in the world in the Quality of Digital Life index and is 8% worse than the global average. The nation trails behind emerging market competitors such as Brazil, Mexico, Turkey and India. South Africa’s performance on fixed broadband speeds is not as favorable as mobile, ranking at position 98 globally, behind several other African countries by Ookla23. The urban metro regions are enjoying an expansion of fiber optic cable infrastructure, preparing for the arrival of 5G networks and benefiting from increased consumer choice for fast internet connectivity, but the township and rural parts of South Africa are being left behind. 96. According to the Worldwide Mobile Data 2022 report, which measures the average cost of 1GB of mobile data in 230 countries, SA ranks 135th. The average price of 1GB of mobile data in SA is $2.04 (R34.09), the most expensive price is $22.12 (R376.06) and the cheapest is $0.07 (R1.19).111 These figures improved compared to recent years in part reflecting the price cuts in data by South Africa’s mobile network operators after a mandate from the Competition Commission of South Africa. The mandate resulted from a market inquiry by the Competition Commission which found that data prices were excessively high, noting that existing competition in the sector has not been sufficient to push prices down. 97. Geographical analysis shows that South Africans living in rural areas and townships face substantially higher data prices as a percentage of their income per capita, as do demographic groups of black people and women, in which poverty levels are higher. Data from Statistics South Africa shows that 59.2 percent of the rural population has mobile access to the internet compared to 73.7 percent of the urban population. This rural-urban gap is even higher when looking at access to the internet at home, work and at educational facilities and may at least 111 Worldwide Mobile Data 2022 It is important to note that these figures are not PPP adjusted. Page 39 partially be explained by the unaffordability of use. Using data from the Statistics South Africa’s Living Conditions Survey 2014/2015, and the Worldwide Mobile Data average prices for 1GB of mobile broadband data from 2022, the bottom 20 percent of South Africa’s population would have to spend around 6 percent of their income per capita for 1GB of mobile data. While this figure represents an improvement from the 12 percent observed in 2019, it is still higher than the UN Broadband Commission target of 2%. There are structural issues with pricing that work against poorer consumers: postpaid data is cheaper than prepaid, and people with less disposable income also end up buying smaller data bundles, which are costlier than large ones112. Digital Divide in Skills 98. Social factors, especially low levels of education, were understood as essential and impenetrable hindrances to inclusion. Low user readiness was highlighted as one of the most pressing challenges for the nation’s platform economy and fundamentally tied to issues in the broader educational system. One interviewee noted the stigmatization of vocational skills, especially the poor reputation of TVET colleges compared to universities. Other participants highlighted that the digital platform adoption process is slower than mobile, or internet penetration figures pointed to a generational divide, detecting greater readiness among younger user groups. 99. Socio-economic divides intersect with digital divides, and low levels of literacy and formalization in the economy further hamper marginalized groups. Platform businesses typically require users to fulfill certain quality or consistency conditions. Some payment providers require users to have a bank account, systematically excluding the unbanked population. 113 An agricultural e-commerce platform needs farms to be of sufficient size for its vetting and onboarding process to be economical. The drivers working for ride-hailing platforms need to be able to organize financing for leased vehicles and pass background checks. One participant argued that even gig work platforms explicitly targeting low-skilled workers, such as SweepSouth or RecruitMyMom exclude unskilled workers because they require a minimum level of qualifications and experience. 100. South Africa ranks 126th out of 141 countries in the Global Competitiveness Report’s assessment of digital skills among the population (3.3 out of 7). 114 Indeed, there are considerable lags in digital literacy development in schools. There are still major gaps in access to devices and connectivity in schools, as well as concerns about teacher training in effective technology use.115 Only 21,6 percent of households in South African metros have access to the internet in cafes or educational facilities according to the Statistics South Africa General Household Survey of 2021. In rural households, the figure drops to 3.5 percent. While the Department of Basic Education (DBE) uses several partners to provide teachers with resources and technical skills to use technology in teaching, the training is sporadic and not universally standardized. Such training is also criticized by educational technologists because it mainly focuses on technological skills training and does not empower teachers to embed technology into teaching practices to enhance 112 World Bank (2019a) 113 It is important to note that fintech that target the unbanked have the potential to circumvent part of this challenge. 114 World Economic Forum (2019) 115 World Bank (2019a) Page 40 learning.116 Moreover, there seems to be a lack of a collective understanding of what digital skills entail and whether they should be introduced as stand-alone curricula in school or embedded throughout the broader curriculum.117 101. The limited digital literacy is in part explained by weaknesses in the quality of basic education. Central to these quality concerns are learners’ underperformance in mathematics and limited access to ICT electives. Only 26,7percent of learners who wrote the National Senior Certificate examination in 2022 obtained a bachelor’s pass. Around 45 percent of the learners were not able to meet the Mathematics passing score of higher than 30 percent. Additionally, only a limited share of learners hasv access to ICT electives from Grade 10 because of a lack of infrastructure, resources, or teachers.118 102. Several platform enterprises tried to address low user readiness by offering demos, trainings, and sometimes devices to their specific user groups. Often, traditional face-to-face trainings were conducted to increase the user appreciation and usefulness of platforms. For instance, a niche e-commerce shop offered trainings to traders from townships, assisting them in presenting their products in a digital environment. Other platform enterprises, for example, in education and recruiting, had service teams equipped with tablets to reach out to users and demonstrate their applications. In some cases, enterprises also developed virtual demos of technology to avoid the need for one-to-one physical sessions, but this required a minimum degree of willingness and ability by users to engage with the product. Impact of Platforms in Townships Food tech 103. Anecdotal evidence suggests that platforms developed by township MSMEs seem to be better positioned to leverage their firsthand understanding of township markets and the niche opportunities that exist. In food tech, international platforms such as Uber Eats and Bolt and some of the larger incumbent platforms that were locally established, such as Mr D do not service these townships. Township-based tech entrepreneurs have identified this as a market gap and believe that their food delivery platforms can properly cater for the budgets, tastes and needs of the township market. For instance, Kasi Menus was launched in 2020 and delivered to seven restaurants across Soweto and Ga-Rankuwa. They reached over 2,000 active customers in their first year.119 Another example is Scooter Treats which uses electric scooters to deliver food and cargo in the townships of South Africa. The platform was launched in 2016, and as of 2020, they were covering 120km2 of Soweto daily, with over 3000 meals delivered to over 1000 users.120 Delivery ka Speed was launched in 2021 in Hammanskral and other townships around. Their B2P2C platform delivers food from popular fast-food restaurants such as KFC and McDonalds. 116 Ibid 117 Ibid 118 ibid 119 VUT Research (2020). 120 Start-Up Mag (2021). Page 41 Within their first three months of launching, they had completed nearly 2 500 deliveries. 121 However, several platforms have exited this space, including the Kasi Menus, the Hunting Chow App and Ezy Delivery.122 Possible reasons for these exits include limited readiness of the market, saturation on the supply side, and inadequate support for the entrepreneurs concerning resources or funding that is required to scale. 104. These food tech platforms drive clear inclusion on the supply side by enhancing the market access for township-based restaurants. There are thousands of informal food businesses across South Africa’s townships whose modest profitability provides a much-needed shield against poverty.123 Order Kasi is a meal delivery service that exclusively offers food from restaurants based in the township to consumers in and outside townships. The platform was launched in 2019 in Nyanga and operates in other townships around Cape Town. They currently have over 1 000 downloads on Play Store (and over 3000 followers on Facebook). Launched in 2017 in Pretoria, Kasi Eats restaurants in the townships market their menus and manage food delivery orders. Chucks App connects consumers with local restaurants looking for a “kota” - a fast meal that is popular in townships. Chucks were launched in 2019 in Soweto and reached over 1000 downloads on Play Store, but they have since exited the market. Siyeza Deliveries was launched at the height of the COVID-19 pandemic lockdowns in 2020 in Tembisa to deliver kotas and African cuisine to Tembisa and surrounding townships. However, they have also since exited the market. 105. There are other examples of how local platforms can cater to local needs. The first example is Handed, a delivery platform that enables consumers to pay for goods on delivery and addresses the lack of trust by consumers - a binding constraint on online shopping in South Africa.124 The platform was launched in 2019 in Johannesburg and currently services Gauteng with 350 registered stores. The second example is Droppa which allows users in Gauteng to book on- demand delivery from as little as R99 in response to the challenges of extended delivery times and expensive courier services.125. Established in 2017. They currently have over 10 000 downloads on Play Store. Finally, StokFella makes it convenient for stokvel clubs to manage their admin, monthly payments and claims using a smartphone or via the website. They also assist stokvel clubs in growing their savings through their investment channels. StokFella currently has over 10 000 installations on Google Play Store. Moreover, some township platforms have displayed adaptation to combat the cost of data and lower access to smart devices. For instance, Yebo Fresh allows customers to place an order using a website, SMS, email, Facebook light or request a callback. Logistic tech 121 Business Insider (2021). 122 The Hunting Chow App was launched in 2018 in Soweto and Edenvale to deliver food and drinks and Ezy Deliveries which was launched in Voslvoorus in 2020 to deliver fresh produce from retail shops directly to clients. 123 Petersen (2020). 124 For example, Makhitha and Ngobeni (2021). 125 Goga and Paelo (2018). Page 42 106. Logistic tech has also been driving inclusion by providing service to underserved communities. Examples include Droppa, as discussed above and LoadIt, which was launched in 2017 to offer on-demand truck hire services. The platform is available in Johannesburg and Cape Town and services the surrounding townships. Droppa has over 1 000 installations on their driver app (and over 5 700 followers on Facebook). Similar to the larger incumbents, on-demand food and logistic tech platforms servicing townships usually have several service lines, delivering food and other consumable and non-consumable goods.126 Examples include eKasi Deliveries, Cloudy Deliveries, eKasi Express Deliveries, Kasi Delivery and Local Ride. Fintech 107. In fintech, there is also a good number of B2B platforms, many of which offer integrated services (see Table 4 below). Selpal connects informal traders to suppliers with its digital distribution platform and provides dealers with a point-of-sale device — enabling them to sell digital products such as airtime, electricity, and insurance in South African townships 127. Flash connects spaza shops and their customers to a point-of-sale device that includes digital products such as airtime (calling card), electricity and mobile money.128 They currently have over 500 000 installations on Google Play Store. Nomanini provides a retail point-of-sale device — allowing informal traders to sell digital goods such as electricity and mobile airtime. uKheshe is a micro-transaction platform that enables a person without a bank account or smartphone, such as a spaza shop owner, to get paid in real-time through an uKheshe card — featuring a Quick Response (QR) code linked to their mobile phone number. Other mobile point-of-sale (mPOS) players that are gaining a foothold in the spaza market are Yoco (over 500 000 installations on Google Play Store) and iKhokha (over 100 000 installations on Google Play Store). Their devices attach to a merchant’s mobile phone and can handle credit card swiping and give merchants an overview of sales, settlements and tax invoices. Spoon Money is a group-based micro capital finance platform for female informal traders. A2Pay provides point-of-sale terminals that provide business intelligence and stock management. The terminal helps spaza shops to log transactions and establish transaction history — enabling them to better manage inventory, measure performance, track costs, make payments, and make better decisions based on data. The vending platform also allows them to sell digital products such as electricity and airtime. 108. These B2B platforms also play a key role in assisting township-based MSMEs with access to finance by creating a platform where transaction records can be created and stored. Through platforms, weekly and monthly orders and payments are tracked, and credit profiles are built. Traditional lending institutions can use these profiles to see how much credit they could qualify for. 126 These tech entrepreneurs have also demonstrated adaptability and use different kinds of vehicles to set-up their initial fleets. On the low technology end, Cloudy Deliveries uses a fleet of bicycles to make their deliveries. Dash Deliveries also uses bicycles to offer on-demand delivery services withing a 20km radius. Launched in 2018 in Durban, they have recently opened registration for riders across the country. By using bicycles, these platforms are able to offer prices that are cheaper than the normal market rates. They also make entry easier for gig workers (riders) by not requiring motorbikes or vehicles. On the high-technology end, Scooter Treats and Delivery Ka Speed use electric scooters to deliver and aim to contribute to the shift towards clean transportation. 127 In 2021, Selpal was acquired by First National Bank. 128 Spaza shops are small convenience shops usually operated from home and predominantly found in townships. Page 43 Table 4: Vuleka case study Product/Service Number of Growth angle Current and target Differentiation FT staff customer market and Impact Vuleka provides a Location Vuleka planned to Current customer Key value mobile application Johannesburg, support the entire market: 1,200 informal proposition: Vuleka platform where South Africa trading ecosystem traders in South Africa (out offers a route-to- shop owners can within the informal of 6000 included in the live market solution to sell their goods Year founded sector across database)130 connect directly to 2017 South Africa in manufacturers to consumers. In 2021, and into Target customer market in informal business addition, the Staff other African five years: 10,000 informal owners via a mobile platform arranges 18 countries over traders in South Africa app and provides the collection of three years. manufacturers with goods from the Long-term objective: credit (loans) to manufacturers and Funding trading ecosystem within acquire stock from delivers these sources, the informal sector in other Vuleka goods to shop amount countries in Africa owners. Also, the $150K129 Competitive edge: platform provides Impact Builds credit profiles them with credit In South Africa, the for informal and (loans) in order to informal sector consists of unbanked business acquire stock from over 155,000 informal owners based on the Vuleka traders. Vuleka is currently orders they have (https://vuleka.com/) serving approximately submitted through the 1200 informal traders.131 platform The credit profiles are based on the data from the orders submitted by manufacturers through the platform E-commerce 109. E-commerce in South Africa has grown exponentially over the last decade and more recently because of COVID-19 lockdowns. Growth has been particularly strong in consumer electronics, media, fashion and apparel categories. Lockdowns forced many citizens to turn to online shopping. The sudden step-change rise in the digital economy created opportunities for new entrants and business models due to market demand growth and further consolidated specific platforms’ growth.132 Estimations suggest that COVID-19 might have accelerated South African online shopping by 4 – 5 years. 110. Some township e-commerce platforms also benefited from the lockdowns imposed by COVID-19 restrictions. For instance, Yebo Fresh is an online township food delivery service based at Cape Town Airport Industria. They source, pack and deliver food parcels into townships. In 2020, they were packing 56,000 meals daily. Molding to the changing dynamics of lockdown, the online retailer displayed high growth during the pandemic, increasing its sales from private household 129 Vuleka platform, Global Innovation Exchange, https://www.globalinnovationexchange.org/innovation/vuleka-platform 130 Vuleka Spaza Shops, Smesouthafrica, https://smesouthafrica.co.za/vuleka-app-spaza-shops/ 131 ibid 132 Competition Commission (2020). Page 44 deliveries to businesses and charitable organizations, also playing an integral role in the township economy. Yebo Fresh supplies goods to NGOs and township businesses such as fast-food restaurants and spaza shops. Providing this much-needed service to township traders allowed them to continue trading without having to leave their stores to stock up on goods. 111. For township-based MSMEs, online shopping could present a channel with fewer barriers to entry compared to traditional brick-and-mortar retailing. The infrastructure set-up cost for accessing a platform or creating an online presence is less than required for a physical shop, particularly in accessing additional markets. Platforms such as Shopify, Magento, Woocommerce and ShopEfast provide affordable services for MSMEs to set up online stores without coding the back-end themselves. And online marketplaces such as Takelaot, Etsy, Yaga, Bird or Buy, Brownsense, and Hello Pretty provide platforms for start-ups to list their products for a commission much lower than that usually charged by physical retailers. Online retailing can thus also serve as an initial market for township-based entrepreneurs to get market validation and sustainable cashflow before expanding to brick-and mortar retailing should there be a need. Moreover, if platforms share the rich data on consumer preference generated by e-commerce adoption, it will enable entrepreneurs to fine-tune their product offerings and positionings, improving their chances of succeeding. An example of such a platform is Boxshop which is presented below. Table 5: Boxshop Case Study Product/Service Location, Growth angle Current and target Differentiation size, and customer market and funding Impact The Box Shop SA Location Online sales in Current customer Key value proposition: is an e-commerce Midrand, South Africa are market The Shop Box SA offers a platform where South Africa expected to grow by In 2020, the Boxshop platform to solve the Small and 19 percent (almost served approximately 33 access to market problems Medium Year founded three times as fast young entrepreneurs and faced by MSMEs in the Enterprises 2014 as in-store sales in was targeting the entire textile, accessories, (MSMEs) in the the period 2018- South African market cosmetics, furniture and retail industry can Staff 2023). crafts industries. feature and sell 2-10 Impact their goods. In The Box Shop SA The platform provides Competitive edge addition, the offers a platform for first access to the market The Box Shop’s incubator initiative offers an Funding young to young entrepreneurs supports entrepreneurs by incubator to sources, entrepreneurs to by i) featuring their providing business provide business amount grow their brands and goods in the development assistance development Initial seed businesses by platform and ii) linking along the value chain and support services funding of reaching markets them to the platform’s connecting them to to entrepreneurs, around R4 and positioning networks to enable integrate activities. https://www.thebo million from them in global partnership development. xshop.co.za/) Technoserve markets. The online format reduces The incubator supports infrastructure costs, emerging entrepreneurs increases access to with the aim of increasing international markets (for youth employment and example, Germany), and participation in the limits the liability of shops economy as they do not need to keep expensive goods in the physical store Page 45 112. Some digital platforms in South Africa provide market access to township MSMEs and enhance access to suppliers. For instance, Zuzela is a Port Elizabeth-based (B2B) e-commerce platform that connects spaza shops and informal traders in South Africa with brands and distributors on a sales app. Zuzela makes it easier for spaza shops to purchase products at affordable prices, increasing product visibility and price transparency in townships. 113. Analysis of the platforms in our sample also demonstrates how platforms give township communities access to better-quality products. Kasi Meats was launched in 2020 during the height of the COVID-19 pandemic lockdowns to deliver fresh meats directly from the butchery to households in townships around East London. They continue to operate today and have over 4000 followers on Facebook. A second example is Khula. Launched in 2016, Khula connects households with fresh produce sourced from small-holder farmers. Similarly, Kasi Farmer’s Market is an online marketplace that connects small-scale township farmers with consumers looking for fresh produce. A final example is the Luntu platform. Launched in 2020 in Johannesburg, Luntu is an online marketplace where customers may shop brands and products that have ethical and sustainable standards that consumers are looking for. For instance, through the Luntu B2C platform, consumers can easily filter the online catalogue to find brands that are black-owned, women-owned, owned by people with disabilities, halal, vegan, locally made or upcycled and recycled. Platforms also provide consumers with products that may otherwise be difficult to source. Examples of this are in the sneaker market, where C2C platforms such as Buy My Sneaker and Sneaker Spaza connect consumers looking for second-hand premium sneakers with other consumers who are selling their sneakers.133 114. E-commerce can also create significant consumer benefits for township communities by making it easier for businesses to serve them. Yebo Fresh leverages USSD and WhatsApp messaging for door delivery of fresh food to nine townships in the Western Cape. For township communities, shopping can be a long and exhausting experience because of poor public transport and overcrowded supermarkets. More and more last-mile delivery companies are adding townships to the areas they service at no additional cost, albeit at a longer delivery time. 115. However, despite the overall promise of growth, many barriers remain, making large- scale effects elusive. Limited digital skills, poor connectivity, insufficient hardware and lack of uniform address systems are some of the reasons for the relatively low uptake and use of e- commerce in South Africa, and in townships in particular.134 Additionally, South Africa’s delivery cost is high relative to the goods purchased.135 While postal services have enabled e-commerce adoption in other countries as it provides a more affordable delivery option, South Africa has been reluctant to use them because of the poor quality of the services provided. 136 Moreover, South Africa’s high data cost remains prohibitive for e-commerce uptake, but encouragingly recent policy actions have led to improvements (see Section 4). Finally, despite the presence of secure online payment gateways (such as PayU, PayGate, PayFast), South Africans continue online shopping. 133 Buy My Sneaker was launched in 2015 in Vereeniging and has over 4000 followers on Facebook and over 1000 installations in Play Store. Sneaker Spaza was launched in 2018 in Johannesburg and currently has over 1800 followers on Facebook. 134 Byuma and Marnewick (2020). 135 Goga et al. (2019). 136 The 2IPD is a comparative indicator of postal development around the world based on reliability, reach, relevance and resilience. Page 46 Fintech platforms such as SnapScan and Ozow allow customers to pay online without ever having to enter their bank card information, have been launched in response to this challenge. Platform Work 116. Platform work encompasses a broad range of activities that use online platforms to connect the demand and supply of services. Task platforms have created new opportunities in industries, such as shared-ride drivers, homestay hosts, e-commerce logistics, e-commerce sellers, and small-scale e-commerce producers. They also expand opportunities in traditional sectors, such as opening new markets to artisans (for example, Kandua). The services provided by digital labor platforms can be broadly distinguished as services performed digitally (including clerical and data entry, translation or design services, offering lessons and so on) or services performed on location (such as transport, delivery, housekeeping, and so on). 117. Microwork, another component of online digital work, entails dividing up a large job into many small manageable pieces of work and allocating them to a large number of workers using an Internet-based platform . Microwork is characterized by online forum participation, data input, and image tagging usually performed quickly and requires no specialized skills. Usually, workers are paid small amounts of money for each task. The growing adoption of internet-enabled devices has led to some platform developers focusing on micro-tasks that can be performed on mobile phones. These tasks are generally organized via mobile platforms by companies that set the terms of service (including fees, commissions and minimum quality standards) and have some role in worker selection and management. Companies operating these platforms act as intermediaries, enabling purchasers to order tasks at an agreed price from an available worker (which can be time-based), usually taking a fee or commission when the service is paid for or completed. Workers take on individual ‘gigs’ without any guarantee of further employment; platform companies classify them as independent contractors rather than employees. 118. Though still nascent, South Africa has one of the biggest gig economies on the African continent. It is estimated that up to 100,000 South African’s actively undertaking gig work. Before COVID-19, the figure was growing by above 10 percent yearly.137 Platform work is concentrated among the low-skilled in townships close to the two major cities of Johannesburg and Cape Town. Many platform workers in South Africa do not have any tertiary education. 138 Platforms with the most traction include SweepSouth, which had 7,500 registered workers, over 150,000 app downloads, and 40,000 users in 2018, making it the biggest on-demand cleaning service app in South Africa. However, it represents less than 1 percent of domestic workers in the country. 139 119. There is evidence that platforms provide paid work opportunities for marginalized groups such as women and people in townships, where the alternative is often unemployment or very precarious work. Women and people in townships face higher unemployment and poverty and are disproportionately involved in informal economic activity. In South Africa, women are also often household breadwinners (whether living with or apart from their 137 Fairwork (2020). 138 Pogorevici & Serobe (2020) 139 Research ICT Africa (2020) Page 47 children). Around two-thirds of SweepSouth workers report that the platform gave them better choices for work, while the remainder felt they had few alternative work options. 140 Some workers were previously employed in the service sector—in shops, in restaurants, or for professional cleaning services. They moved to SweepSouth platform because of low wages, irregular pay, long hours of work, care responsibilities, or because their contracts had not been renewed. 141 120. In mobility tech, the employment effect has been mainly driven by international platforms, and in the task, local platforms lead. Indeed, the large pool of low-skilled workers in townships is a key source of the platform workforce. Most e-hailing drivers live in townships and service the main cities around the townships they reside. Local platforms such as Kandua and SweepSouth have also made traction, hiring artisans, handymen and cleaners who mainly live in townships to perform tasks in nearby cities. Public Services 121. Additionally, digital platforms have also been launched in attempts to facilitate more efficient, reliable and affordable basic services in South African townships . These include waste collection and recycling – a big challenge for South Africa’s townships and informal settlements. For example, there are promising use cases when it comes to plastic recycling. Packa- Ching is a utility tech platform that enables community members to bring their bags of recyclable packaging material in exchange for digital payments into a cashless e-wallet payment system called eVoucher. Launched in 2018, the platform reported that almost 6 million kilograms of recyclables had been handed in, with over R4 million being paid to customers. In public transport, AftaRobot is a mobility tech platform launched to address the fragmentation in South Africa’s public transport system. Launched in 2018 in Johannesburg, the platform has since exited the market. 4. Preliminary Policy and Regulatory Considerations for Private Digital Platforms 122. Private Digital platforms hold the potential for sustained creation of economic value in South Africa. Platforms have been growing in number and reach in South Africa more than elsewhere in Africa, and many segments of the platform economy have significant employment potential.142 Those digital platforms that create digital infrastructure can also fuel the emergence of other services and innovations, for instance, where digital payments are made interoperable or digital building blocks are made open source for other innovators. Finally, the emergence of local platforms can be a catalyst for the broader South African entrepreneurial ecosystem as well as a window to the national and global economy, significantly increasing market access and size for local MSMEs. This includes driving a strong inclusion agenda that can leapfrog some existing and persistent bottlenecks. 140 Fairwork (2020). 141 USAID (2019). 142 Johnson et al. (2020a). Page 48 123. The South African government has a critical role to play in digital platform development as both an enabler and a regulator. This policy role encompasses, on the one hand, nurturing local platform growth and encouraging the significant positive and wide-ranging benefits that can come from digital platforms, including unlocking access to new markets, lowering transaction costs, ensuring job creation, and fostering economic participation and inclusion. It also encompasses, on the other hand, curbing negative externalities from digital platforms, which require targeted regulation, including competition, taxation, and data privacy and security, among others. 124. An optimal ‘policy mix’ remains elusive, compounded by a significant lack of data. Evidence and research on appropriate regulatory and policy approaches to digital platforms are still somewhat limited internationally, most notably in emerging market contexts. It seems thus important to view the various policy and regulatory aspects holistically. The paucity of existing data stands in large contrast to the rapidly growing economic influence platforms yield. As in other sectors, the role of data collection to inform all aspects of regulatory and policy aspects is essential. It remains an Achilles heel of current policy interventions, and a more detailed assessment of digital market regulations and policies may be warranted with better data collection. For example, other digital platform assessments currently being undertaken, such as those being carried out in the Philippines and Vietnam, give a slightly more granular regulatory approach, based also on more robust data. 125. At a national level, policy actions can be grouped into two main policy and regulatory categories: (a) “regulatory enablers of platform business models”, which touches on key policies that can facilitate scale, in order to foster thriving local digital platforms able to complement or compete with larger transnational platforms; (b) “Safeguards and regulations that improve contestability”, which aims at leveling the playing field for digital platforms and increasing competition, in order to ensure a better outcome for South African consumers, users, and society more widely. Beyond national-level considerations, policy and regulatory discussions are progressing at the international level, most notably on international taxation issues. Key national- level policies are summarized in Table 6 below. 126. The report focuses on six preliminary key policy and regulatory actions essential to support platform development and regulate them effectively. This should be by no means seen as an exhaustive list, but a preliminary list, which could be further detailed and built on.143 For example, the World Bank in Vietnam and the Philippines has now completed a more detailed assessment of digital market regulations, with the support of further data collection. 143 This list does not delve into details on digital infrastructure and skills for example – not because these are not important – they are fundamental to digital platform development – but because these have been treated extensively in other reports, including the recently completed Digital Economy for Africa report for South Africa (2019). Page 49 Table 6: Summary of Key Preliminary Policy Priorities on Digital Platforms for South Africa 4.1. Government as Enabler: Policy Enablers of Platform Business Models 127. Some key foundational policies and regulations for digital platforms in South Africa are already in place, while others merit attention to reap further positive benefits. On the positive side, the latter includes progressive regulations on e-transactions, mobile payments, and online consumer protection.144 Other foundational policies exist in areas including digital infrastructure skills and investment. These were discussed in depth in the Digital Economy for Africa assessment and have been emphasized again in this report.145 Additionally, three further key priorities merit attention: (a) targeted MSME support programs to enable South African MSMEs to fully benefit from the significant benefits digital platforms can afford them, (b) growth stage financing, which continues to be a constraint for digital platforms in South Africa; and (c) data policies (privacy, security, open data). Digital Infrastructure 128. Policies concerning digital infrastructure are critical to encouraging local digital platform development and have essential inclusion aspects in South Africa. There are current 144 Electronic Communications and Transactions Act 2002 (ECTA). 145 World Bank (2019a) Page 50 inequities of connection and opportunities, which have also been abundantly highlighted during COVID-19 lockdowns146. With internet penetration levels of around 60 percent in 2020, high mobile data prices, and low-bandwidth connectivity in certain areas, South Africa continues to lag on its national rollout plan in digital infrastructure and access. As extending mobile broadband coverage is becoming a less important issue, the divide is explained more by affordability and is characterized by the uneven quality of access. South Africa’s Quality of Service is regarded as poorer than in comparable countries, and mobile data prices are high, especially for poor, rural consumers. The recent changes in the price of 1GB data, data bundle expirations, spectrum allocation, and auction finalization are expected to significantly contribute to lower data costs and facilitate rolling out the 5G, including to regions currently lagging. 129. There is scope for the government to consider the following interventions to enhance universal access to the internet:  Update the national broadband policy with realistic targets and implementation models based on international best practices. Instead of continuing to rely on SOEs as implementation vehicles for SA Connect, the Government could use its anchor role on the market more proactively, by aggregating its demand for connectivity and having this delivered through bulk procurements.  Ensuring ICASA’s independence and capacity is key. The regulator needs a clear mandate confirming its field of play, to help alleviate concerns around its independence and expedite stalled actions such as 4G licensing.  Prioritize fast-tracking spectrum assignment for 4G use to increase network capacity and alleviate constraints that the operators currently face and to take a proactive stance towards 5G licensing. The government could implement spectrum caps or spectrum set aside as part of the auction process to encourage market entry by operators with lower access to capital or set more demanding coverage requirements for existing MNOs  Promotion of infrastructure sharing, pro-competition open access principles, implementation of transparent wholesale pricing and determination of regulatory remedies could help the market grow. Digital Literacy 130. Digital literacy is a bottleneck for the growth and development of local digital platforms, whereas they are crucial for inclusion. South Africa ranks 126th out of 141 countries in the 2019 Global Competitiveness Report’s assessment of digital skills among the population. Many schools are still without devices and connectivity, many do not offer ICT-related subjects, and there are concerns about teacher training in effective technology use, which hinders digital literacy. These gaps were further highlighted by the COVID-19 shutdowns. Moreover, there is significant endogeneity between these digital gaps and South Africa’s inequality. 131. There is thus significant scope for the South African government to support the development of digital literacy. Interventions could include: 146 Research ICT Africa (2020) Page 51  Explore innovative ways of including digital literacy in the wider basic education curriculum and scaling up private sector-led initiatives.  Leverage and scale-up private-sector initiated models for rapid digital literacy development through PPPs.  Foreground equity of access to resources. Additional opportunities through external partnerships should be made available to learners, teachers, schools and institutions from rural or disadvantaged areas.  Emphasize formalized teacher training in general, as well as the use of technology to enhance learning, including through partnerships with educational technology consultants and closer collaboration with teacher training centers and universities. Digital Platform Growth Financing 132. Digital companies in South Africa face significant debt and equity financing gaps throughout their growth cycle.147 The market enquiry revealed that smaller platforms lack the capital backing to fund growth and that the venture capital industry domestically remains small and is generally unwilling to back platforms which face scaled incumbents. 148 When considering the various growth stages, with each corresponding to specific financing needs in terms of amount as much as structuring, the availability of finance in South Africa can be deemed generally low. The South African government has various financing and incentive programs for early-stage companies, but most of these are not suitable for digital companies or platforms. A World Bank Group (WBG) report identified 52 national programs targeting MSMEs through the Industrial Development Corporation (IDC), the Department of Trade and Industry (DTI), the Department of Science and Technology (DST), and the Department of Small Business Development (DSBD). 149 Most of these programs target very early-stage businesses, with few focusing on later-stage startups and only 4 percent of the government financing programs targeting technology MSMEs (roughly a third of the programs are not sector specific). Grants and loans are available from as low as R50 thousand, and equity finance starts from R250 thousand but are only offered in combination with debt. Programs require a minimum of 1 to 2 years of trading, although some grants can be provided to companies that have been trading for more than six months. Most of the grants include a cost- sharing clause, and for loan and equity financing, collateral or a guarantor is often required. This is a challenging criterion for digital companies and platforms to fulfill. This can hamstring digital platform development, which relies on market width and scale to become profitable and raise further funding for growth, including internationally. 133. Angel investors would be well-suited to help fill the early-stage funding gap. However, there are insufficient incentives to balance the risk. Moreover, only a very small portion of venture capital financing goes to digital companies and is highly concentrated on fintech platforms. Contrary to later-stage funds, there are few regulatory incentives for angels to invest in 147 According to the Competition Commission of South Africa (2022, page 10-11), "Successful platforms have typically made use of large capital backing initially to fund growth through customer acquisition and platform infrastructure development whilst revenues from business users are low... Other first-mover platforms with limited access to capital are usually left behind as they cannot drive growth in customer acquisition in the same way and become relatively less valuable to business users as a result. This hinders revenue growth and the ability to spend large on customer acquisition relative to the leading platform, which ultimately sees the leading platform extend its lead.” 148 Competition Commission of South Africa (2022) 149 Mudzi, Mwanga and Olafsen (2019) Page 52 young (digital) companies in South Africa. However, they take a higher risk on their investments as the company is at an earlier pre-revenue stage, in contrast to many countries around the world, including the United Kingdom (UK), Australia, and now also countries such as Tunisia, where policies and regulations have been recently instituted to encourage investments by angels. On the other hand, venture capital (VC) funding has grown significantly in value and numbers in recent years, but only a small amount of this is going to digital ventures150. Some discussions ongoing under the planned South African startup Act may clarify and catalyze this funding, particularly since the phase out of Section 12J, which had contributed to increasing invested VC funding over several years, albeit with little going to the digital sector. Source: Adapted from World Bank (2021) Early-stage finance assessment 130. To supplement current programs, the government could unlock growth financing from the private sector by (a) creating the conditions that attract private investments (such as venture capital and private equity), and (b) de-risking to crowd in private capital if that is needed. More specifically, based on previous World Bank studies such as the Early-Stage Finance Diagnostic, there is scope for the government to consider the following interventions;  Implement targeted programs that focus on attracting regional and international VCs and helping South African platforms expand regionally. New Zealand for example specifically focused on the digital sector within public agencies such as New Zealand Trade and Enterprise (NZTE), which worked to connect international venture capital with select New Zealand businesses and then help to launch those products globally.  Scale up Fund of Funds structures through Public-Private Partnerships to Catalyze Early- Stage Financing. Consider conducting research to determine whether this can be implemented by scaling up the SA SME Fund and/or by pursuing a new entity. 150 World Bank (2019a) Page 53  Reform Tax Incentives to Invest in Startups and VC Funds. Since, upon review, National Treasury has decided not to extend the 12J VCC program, there is an opportunity to build upon the lessons of that program while designing it to better fit the needs of start-ups and SMEs. Consider tax incentives for angel investors programs such as that of the United Kingdom which offers a range of income tax deductions for taxpayers who invest in early- stage businesses in order to stimulate the sector and provide risk capital to startups. Consider tax incentives for pension funds and institutional investors to invest in VC funds.  De-risk investment targeted to digital early-stage entrepreneurs, including through blended finance by governments and intergovernmental agencies on the model of the CORFO program in Chile. There are significant opportunities to build on and expand the work of TIA and similar government programs in matching private sector capital with public sector capital. Rather than providing matching grants, however, these programs could invest alongside private institutions on purely commercial terms, thus targeting a return on investment for taxpayers and ensuring the sustainability of government programs that can re-invest profits into future investments.  Remove the restriction on exporting intellectual property. Restrictions on exporting intellectual property make it more difficult for startups and investors to internationalize and can drive them to move their operations offshore. These restrictions may in part explain the limited regional expansion of South Africa’s digital platforms. The SARB is working to implement policies to ameliorate this issue (effectively replacing the present system of approvals with one of reporting) although the final regulation and its actual implementation remain outstanding. MSME Support Program 134. Currently, few targeted programs to support MSMEs’ access to digital platforms exist in South Africa. Support programs designed to help MSMEs (particularly those operated by disadvantaged groups such as women and previously disadvantaged communities) to access relevant platforms and overcome hurdles such as digital skills, infrastructure, finance, and adaptation of the business model can be a helpful complement while tackling significant underlying issues. Some Organisation for Economic Co-operation and Development (OECD) governments have introduced policies to increase MSME use of online platforms through awareness campaigns, consultancy vouchers, self-assessment tools or training. These initiatives typically target higher MSME engagement in e-commerce, more significant online presence, and communication platforms. Well-designed programs could help on the supply side to ensure that MSMEs that could most benefit from the greater exposure and market access can effectively access and trade. 135. Increase support of digital platform entrepreneurship along the value chain. The Government of South Africa provides funding to agribusiness entrepreneurs through South Africa’s Small Enterprise Development Agency (SEDA) which supports the growth of small businesses. In the agribusiness space, it provides funding for the Mobile Agri Skills Development and Training (MASDT), an incubator that offers skills development and training for initiatives led by entrepreneurs from previously disadvantaged groups; and the SEDA NMB ICT Incubator, focused on socially impactful, disruptive technology projects. However, none of these programs specialize or prioritize digital platform development. The inclusion of digital platform development or leveraging as Page 54 additional criteria or a separate funding stream within the incubators would increase the funding available to entrepreneurs with digital platform projects. 136. To better support digital platforms in scaling nationally and expanding regionally and internationally, the South African government could consider the following interventions;  Building on the national 4iR initiative, review existing instruments and policies, and develop a comprehensive and consistent set of support and regulations (grouped under a policy statement such as done by the Irish government or others) would help develop the sector, with clear department leadership.  Identify and address constraints to digital entrepreneurship. For example, amend exchange control requirements and processes relating to IP as well as foreign investment into domestic companies, enable digital startups to defer R&D tax breaks against taxable income, ease labor legislation in young digital companies and reform regulations to allow IP to be fully assigned to spin out companies.  Improve the quality of support provided to entrepreneurs, including for better inclusion, scale, and access to foreign markets. Use results-based funding, strengthen linkages between Gauteng and Western Cape ecosystems and continue to address the rural/urban divide to improve learning, inclusion, and scale, and help build out regional programs for later-stage digital entrepreneurs to better access international markets and mentors.  Explore a voucher-like system and training for MSMEs to incentivize digitization and MSME digital presence.  Continue active support to foster more diversity in the digital entrepreneurship sector, including through incentivizing support organizations to increase tailored support provided to women and black-led digital businesses drawing on international best practices. Digital Data: Privacy, Security, and Open Data 137. Data is key to digital platforms’ business model as a competitive and highly valuable asset, allowing them to scale rapidly and massively. Using data to develop new, innovative services and products is a competitive parameter whose relevance will continue to increase. By collecting significant amounts of data on their users, digital platforms can better understand their customers and tailor their services. This has led to a high amount of innovation and novel business models geared to addressing critical gaps in the market, high growth, and employment generation. Such business models have also raised significant concern globally regarding the regulation of data privacy following a multitude of high-level and massive data breaches. Enabling and judiciously regulating access to data is thus seen as primordial to building trust and ensuring accountability from digital platforms on their use and exploitation of this data, as well as allowing competitors to scale. Open Data 138. There are obstacles preventing digital entrepreneurs from accessing and monetizing public data in South Africa, which may be holding back private investments in business models and innovations. There is currently no specific regulation for the access to and sharing of Page 55 non-personal data. The interest from the local and national public sector to make public data available for business is growing, and several pilot initiatives, including hackathons and challenges, have been implemented in recent years. A dataset analysis by the Global Open Data Index provides some indication of the challenges: for example, only two out of fifteen datasets are openly licensed, and nine are available for free. 139. The open public data policy at the national level is driven by the Open Government Partnership (OGP) where South Africa has committed to developing a pilot national open data portal and consolidating various datasets from across the three branches of government.151 The main objective is to enable citizens and businesses to easily access the government’s published data.152 South Africa piloted a national open data initiative called Open Data South Africa which was led by the Department of Public Service and Administration (DPSA) with support from Government Communication and Information Services (GCIS), Innovation Hub, DTI, and firms and CSOs (OpenUp, Microsoft, Chillisoft). Aside from increasing transparency and accountability, the objective of the portal is also to allow for the development of user-centric applications utilizing data published on the portal. In its fourth and most recent National Action Plan (2020-2022) under the OGP, South Africa revived its commitment to open data, and strong partnerships between government, civil society, the private sector, academia and public research organizations. Data Privacy and Security 140. Trustworthiness is crucial for a healthy and dynamic digital platform ecosystem. South African personal data regulation and security is generally seen as robust. It is enshrined under the Protection of Personal Information (POPI) Act 2013, the operative provisions of which came into effect on July 1, 2020, give “responsible parties” (data controllers) one year to ensure that all their processing of personal data conforms to the Act’s provisions. POPIA regulates the way the personal data of individuals whom the personal information is about (data subjects), including the personal data of website users, may be "processed", that is, collected, held, used, disclosed, or transferred, by a data controller (referred to as a "responsible party" in POPIA). The act applies to processing personal information entered into a record by or for a responsible party where the responsible party is domiciled in South Africa or where it is not domiciled in South Africa but makes use of automated or non-automated means in South Africa to process personal information.153 One significant change the act has brought is the obligation to report data breaches. Online consumer and supplier protection is fundamental to a healthy platform ecosystem. The facility of implementation and enforcement of the POPIA will be key going forward. 141. The government can consider the following interventions to enhance privacy, security, and open data: 151 World Bank (2019a) 152 It will also be important to ensure that data are frequently updated and made available in formats that can be easily used. 153 https://popia.co.za/, https://www.justice.gov.za/inforeg/ Page 56  Conduct further analysis, for example through the use of the World Bank’s Open Data for Business Tool, to better understand the needs of the private sector, current and potential uses of open data, and the steps required to support innovation, and help existing businesses create new products and services and optimize their operations.  Building-up on the Open Government Partnership and the Department of Science and Innovation’s upcoming policy framework for sharing data for science and innovation, work toward an integrated national data system (INDS) that allows the flow of data among a wide array of users in a way that facilitates safe use and reuse of data. The EU Regulation on the free flow of non-personal data and India’s Report by the Committee of Experts on Non- Personal Data Governance Framework may be relevant in this regard. A well-functioning INDS explicitly builds data production, protection, exchange, and use into planning and decision-making and actively integrates the various stakeholders—individuals, civil society, academia, and the public and private sectors—into the data life cycle and into the governance structures of the system. Achieving a well-functioning INDS requires proper financing and incentives to produce, protect, and share data.154 Greater investment in physical and human capital is needed to improve data governance, specialized analytical and data security skills, as well as data literacy of the general public 155.  Continue with the implementation and enforcement of POPIA and ensure that smaller players receive support that enables them to be compliant.  Continue to develop data awareness and literacy among the public through programs such as the UK-SA Digital Literacy for Development (DL4D) program. 4.2. Government as Regulator: Safeguards and Regulations that Improve Contestability Taxation 142. There are two aspects concerning taxation considerations for digital platforms: (a) the possible tax exemption for young technology-focused digital platform startups under the South African corporate tax requirements. This is being suggested by stakeholders to be included under the Startup Act and could encourage the launch and scale of local digital platforms, specifically at the earliest stages of their development; (b) the taxation of (transnational) digital platform income generation. Like many other countries, South Africa has no specific tax measures that enable taxes to be imposed on income raised by digitized economic activities. Given that a growing number of businesses have become more digitized, the Parliamentary Budget Office (PBO) has signaled that it is considering taxation measures that enable revenue to be raised from digital economic activities. This is in line with and informed by ongoing work at the global level facilitated by the OECD and the G20 on BEPS and international corporate taxation. 154 World Bank (2021b) 155 ibid Page 57 143. The government could consider the following interventions to improve the framework for the taxation of digital platforms:  Amend tax legislation to enable digital startups to defer R&D tax breaks against taxable income for example. Such measures could be implemented under a framework similar to the Start-Up Acts in Tunisia. For example, under Tunisia’s Start-Up Act, the amounts invested by individuals or legal entities in startups or regulated investment organizations dedicated to startups, are fully deductible from the tax base.  Continue to participate in multilateral consensus approaches to taxation of the digital economy, such as that under development by the Inclusive Framework for Base Erosion and Profit Shifting (BEPS) of which South Africa is a signatory. Ensure alignment around areas such as tax thresholds and categorization of digital services to minimize double taxation, uncertainty, dispute, evasion and avoidance.  Conduct further research to understand the gaps and misalignments between South Africa’s existing tax regime and the business models of digital platforms. Labor Considerations 144. With an estimated 1.3 million platform workers, or around 5.5 percent of the labor force, the advent of digital platforms has had a significant impact on the labor market in a short period.156 These jobs can be found in a variety of sectors, from self-employed gig workers to some in previously unemployed and disadvantaged communities, including in townships and underserved communities. Digital platforms are thus seen as one solution to tackle the ver y high rates of general unemployment and youth unemployment specifically, as they can allow those who typically face barriers to employment to find more work. 145. The “gig economy” has also engendered a radical shift in how work is organized, and, with further data, labor-related considerations could be monitored by the government. On the one hand, digital labor platforms hold up to their potential of reducing high unemployment and inequality. On the other hand, there is also growing evidence that platform workers face low pay, opaque algorithmic management structures, dangerous work conditions, and barriers to collective organization and bargaining. Fairwork (Universities of Oxford, Cape Town, the Western Cape and Manchester) have developed an enforceable code of basic worker rights that assesses digital labor platforms in South Africa and other countries against five principles. The five prices are (a) fair pay, (b) fair conditions, (c) fair contracts, (d) fair management, and (e) fair representation.157 They have published several years of ratings on ten of the largest ‘gig work’ digital platforms operating in South Africa. Working with the private sector platforms and with further data, such input could be usefully monitored and serve to adopt appropriate regulations. 146. Labor market policies aimed at platform work need to strike a balance between preserving sufficient flexibility in work arrangements to allow innovative business models 156 Insights2Impact (2018). 157 https://fair.work/wp-content/uploads/sites/97/2020/04/Fairwork-South-Africa-2020-report.pdf Page 58 to succeed while providing adequate working conditions for platform workers. 158 There is scope for the government to explore improving the protection of platform workers:  Improve data collection and regularly monitor the quality of platform work. Asses which labor market regulations may need to be adapted to enhance worker protection.  Clarify the categorization of platform workers and the extent to which existing basic social protection (including unemployment insurance) applies to them. If the categorization limits coverage, consider amending regulation and improving platform workers’ access to basic social protection.  Explore platform workers' ability to bargain over working conditions collectively, for instance through bargaining councils. This can be facilitated through innovative platform-based collective action that allows workers to collaborate and share information.159 Competition and Market Contestability: leveling the playing field and increasing rivalry of digital platforms 147. Emerging monopolistic behaviors that stifle competition in the digital platform space include market concentration, vertical restraints, aggressive mergers, envelopment, and collusion, which can all affect prices and innovation. The two key objectives of competition policy are thus to regulate harmful practices and behaviors of incumbents to the benefit of users and support digital capabilities in local rivals to platforms by leveling the playing field and increasing market contestability.160 In the case of digital platforms, market dominance arises from the rapid pace of accumulation of an exponential amount of data on participant or consumer behavior, a most valuable asset, which, coupled with significant network effects, compounds first-mover advantages to rapidly develop into “winner-takes-all” or “winner-takes-most” situations .161 Evidence from the Competition Commission’s market inquiry showed that there are leading platforms with major market shares across all the categories with a sizeable level of adoption in South Africa. 162 According to the market inquiry, “the degree of entrenchment of the leading platforms in part depends on the maturity of the platform category and in part the competitive dynamics that are playing out including the existing conduct”.163 148. Internationally, several pieces of legislation have been recently announced to tackle competition concerns. The recently developed Digital Service Act and Digital Markets Act in the European Union are a first quite comprehensive response to some of the competition-related concerns that have arisen due to the rapid rise of digital platforms and have also significantly muscled the response to market abuse. The local media ruling in Australia to tackle concerns about using and paying for local media content have also made waves. In line with many international competition authorities, the Competition Commission in South Africa is increasingly active in the digital platform space. Indeed, South Africa’s competition authority is relatively advanced compared to the continent. The nation is one of only three African countries that have been identified as having 158 OECD (2019) 159 OECD (2019) 160 https://www.bsg.ox.ac.uk/research/publications/governing-data-and-digital-platforms-middle-income-countries 161 page 5, Chen (2019) 162 Competition Commission of South Africa (2022) 163 Competition Commission of South Africa (2022, page 7) Page 59 tackled antitrust cases involving digital platforms in the Global Digital Antitrust Database. 164 The Commission published a market inquiry on digital platforms in July 2022. The Commission has also noted other issues such as the international use of local media content. 149. Interventions aimed at leveling the playing field and enhancing the contestability of markets require the government to strike a balance between innovation and regulation. The government must intervene to curb the uncompetitive practices which are commonly found among large players without overregulating and ultimately stifling the innovation, entry and growth of small and newer firms. To drive a healthy and dynamic digital platform ecosystem that fosters both inclusion and innovation, the government could consider the following interventions;  Continue with research to understand how different sectors may be prone to different types of anticompetitive behavior by digital platforms, depending on the typical business models seen in those sectors through more sector-specific or business model-specific market enquiries for instance.  Regularly review whether the Competition Commission is adequately accounting for emerging economic features, theories of harm, and efficiencies associated with digital markets. Certain characteristics of digital markets and platform business models may warrant further scrutiny: analysis of the Global Digital Antitrust Database reveals that features, such as winner-takes-most dynamics, multihoming, zero-price behavior, and algorithms are mentioned in decisions relatively infrequently.165 South Africa, much like the rest of the world, has not been very active in cases investigating data-related issues.  Since antitrust enforcement in digital markets might have effects in several jurisdictions at once, due to the global nature of platforms, continue collaboration with other competition authorities and ensure harmonized interventions. During its in-depth investigation of the Google-Fitbit merger of 2020, the European Competition Commission worked in close cooperation with competition authorities around the world, including the Competition Commission of South Africa. The most recent International Competition Network (ICN) highlighted the need for competition authorities to work together in addressing competition issues in digital markets. 4.3. Sector-Specific Regulations 150. The digital platforms' sectoral focus often calls for an update of sector-specific regulations to provide regulatory oversight, with sometimes a strong call by traditional players to level the playing field between digital platform firms and more traditional ones. In South Africa, this was the case for land transport (Uber/Bolt vs traditional taxi services), accommodation (Airbnb vs traditional hotels), as well as online media content (Netflix vs traditional broadcasters), among others. Seeing the rapid development and deployment of digital platforms, including in many other areas of the economy, sectoral regulatory updates are becoming a key piece of the regulatory toolbox on digital platforms. 164 World Bank (2021b) 165 World Bank (2021b) Page 60 151. Indeed, in the land transport sector, for example, it was long a complaint that the regulatory framework did not cater for e-hailing firms. Traditional metered taxis raised the concern that restrictions, license requirements and price regulations applied to their business did not apply to e-hailing firms, placing the traditional firms at a competitive disadvantage. 166 An amendment, the National Land Transport Amendment Bill, creates a new category of operating licenses and also imposes certain obligations on technology providers not to allow illegal operators (drivers who have not received the relevant public operating licenses) on their technology platforms. The conduct is punishable by a penalty of up to R100,000. The bill also seeks to strengthen regulations and empowers Provincial Regulatory Entities to withdraw or suspend operating licenses. 152. In the Tourism sector, the Tourism Amendment Act, adopted in June 2020, includes short-term home rentals in the legislation.167 The bill empowers the minister of Tourism to determine rent and duration ‘thresholds’ regarding these short-term home rentals. The amendment will also allow the minister to specify ‘thresholds’ for Airbnb accommodation in South Africa. This could include limits on the number of nights a guest can stay or even how much income an Airbnb earns. 153. In the tourism sector again, reliable data can help guide policy and businesses . An adequate data regulatory framework that incentivizes responsible data collection, data sharing and interoperability while reducing travelers’ data privacy concerns may foster the adoption of digital platforms and help guide tourism policy moving forward. South Africa has worked on this realm both at the regional and local level. At the regional level, Jurni (see Case Study) is a platform, in partnership with relevant stakeholders, which aims to serve as the country’s travel and tourism directory providing critical tourism information. At the regional level, Airbnb’s CityPortal has data sharing partnerships with South African Tourism, Wesgro, Tourism KZN and the Western Cape Government. 166 Competition Commission of South Africa (2020). 167 Business Tech (2019) Page 61 Annex 1: Analytical Framework - Impacts by Platform Business Models Type A1.1. Impact Potentials of Platform Usage 1. Platforms’ most immediate usage impact potential lies in increases of productivity and efficiency and in market integration. They can reduce market friction, decrease search costs, match buyers and suppliers, and exploit and manage direct and indirect network effects. In the process, spare human and physical capacity gets utilized, prices of intermediate and final goods may be lowered, and the quality of products and services may rise. Technically, any such effects are rooted in the reduction of transaction costs and information asymmetries between dispersed market actors. 168 2. Platforms can have second-order effects on digital innovation and digital transformation. Digital platforms often do more than better connecting (analog) actors and processes, if more indirectly. They may create entirely new digital products or bundle existing digital products in new ways. By providing businesses and individuals with means to digitize their activities, platforms can also contribute to digital transformation (in other words, augmenting and fundamentally altering existing industries through digital technologies), especially in African contexts169. 3. Different platform business models hold distinct and complementary impact potentials. The strengths of e-commerce and gig economy platforms lies in market coordination, including the better utilization of human and physical capacities. Social networks provide informational value and transparency, while secure transactions platforms can be foundations for digital transformation. Integration information systems do little to improve the utilization of physical and human assets but may hold large digital innovation potential. 168 Lehdonvirta et al. (2019); Parker et al. (2016); 169 OECD (2016). Page i Table 7: Digital platform impact potential through usage A1.2. Inclusion Potentials 4. Where platforms address marginalized and vulnerable groups as users, or where they incorporate them in the value creation process, they hold particular inclusive potential. Due to their reach and ability to enroll diverse sets of users and stakeholders, platforms offer opportunities for inclusive development. This is the case where platform business models inherently depend on the value contributions of actors who would normally be excluded from productive processes due to location, gender, education, race, or poverty. 5. Platform business models have varied inclusive potential. For instance, gig work platforms by their nature provide new income opportunities for low-skilled workers. E-commerce platforms have probably the broadest inclusive potential, given the opportunities for market access and efficiencies they provide for actors along the value chain, such as female micro-traders, subsistence farmers, or shops, food producers, and other MSMEs seeking to procure or sell goods. Social networks promise to amplify kinship networks and communities, especially in townships. Secure transactions platforms can bank the unbanked and offer digital financial tools for individuals and MSMEs. Business management tech platforms, targeting mostly corporate customers with a sufficient willingness to pay, are likely to have more indirect inclusion potential, for example, by digitizing value chains in tourism170. 170 See also Foster et al. (2018) Page ii Table 8: Digital platform inclusion potential A1.3. The emergence of Local Platform Enterprises 6. In the short run, foreign platforms may have greater usage impacts, given their larger scale and resources. Most platform business models become sustainable only when a critical mass of users is enrolled, and network effects can be exploited. For users, enrolling in the largest platform on the market is often more valuable because more of their peers are already signed on to it (direct network effects, as for WhatsApp and Facebook) or because the supply of services or goods is better (indirect network effects, as for Uber or Takealot). Especially for platform markets that concern digital infrastructure (for example, operating systems) or that require large investments to enroll a critical mass of users through marketing or discounts (for example, ride hailing), transnational platforms may be better positioned to advance platform usage at scale. 7. In the long run, local platforms have more favorable structural transformative impacts. Holding scale and product qualities constant, the impact for a person or business of using a platform is the same regardless of whether the platform is headquartered in Silicon Valley or Johannesburg. Yet, the emergence of competitive local platforms has several long-term structural advantages for the digital transformation of the South African economy (see Table A3). Notably, transnational platforms syphon off a large share of locally created value and thus contribute to globally increasing inequality.171 By commodifying markets, they may also increase competition for MSMEs too swiftly, ultimately shifting profits towards the (foreign holdings of the) platform, which results in net losses for the local economy and can aggravate issues of globalization.172 In contrast, local platforms typically design products that are better-suited to local economic processes, integrating digital products with value chains through iterative processes. 173 Spillovers for local entrepreneurial ecosystems also remain-in-country, which can have crucial effects on a country’s long-term innovative capacity. 171 UNCTAD (2019). 172 Foster et al. (2019); ITC (2018). 173 Friederici et al. (2020a). Page iii Table 9: Typical value creation and capture outcomes for local domestic versus transnational digital platforms Local Foreign transnational Rollout Scale-up (Inside-out), iterative Expansion (Outside-in), launch- and slow, differentiation-oriented based and fast, replication-oriented Product adaptation to High, mostly enterprise-driven Minimal, mostly user-driven local user base Vertical & value chain High (asset-heavy) Low (asset-light) integration Job creation: knowledge Management, software Legal & policy representatives in workers engineering, legal & policy country office Job creation: customer Call center workers, warehouse Call center workers, warehouse support & operations workers & managers, agents, workers & managers, agents, etc. etc. Entrepreneurial Entirely localized: angel Indirect and small: knock-on effect ecosystem spillovers investments, “recycling” between on the competitiveness of local entrepreneurial generations enterprises, advertising campaigns through mentoring help enable markets Taxation Entirely local Mostly abroad, depending on tax regulation concerning local operations, local revenue, & for digital services Regulatory access & Direct, complete Limited, only national operation control Source: based on Friederici et al. (2020a) 8. Support to local platform enterprises and regulation of digital platforms is necessary, carefully weighing positive and negative and short- and long-term effects. Calls to curtail platform companies have become louder in the USA, Europe, and South Africa. Some evidence from Europe suggests that even the most successful platform enterprises on the continent do not have anti-competitive and societally detrimental effects that resemble those of the largest transnational platforms.174 New stringent regulations for platforms could have the opposite than- desired effect, since transnational platforms have already achieved unassailable market shares by scaling in comparatively unregulated environments, while local competitors would be stifled during a much earlier period of growth. 174 Friederici (2020). Page iv Annex 2: Overview of Mergers and Acquisitions of South African Private Digital Platforms South HQ Type of African Year # Acquirer country of Subsector Remarks acquirer platform acquired acquirer acquired Business of E- E- UbuntuDeal 1 BidorBuy South Africa Commerce UbuntuDeal Commerce, 2011 discontinued after firm AdTech the acquisition. Media and Korbitec not LexisNexis South Africa Information PropTech, operational as 2 South (parent: Korbitec 2015 Services LegalTech separate Africa USA) (B2B) organization. Silvertree E- 3 Internet South Africa PE/VC firm PriceCheck 2015 Still in the market. Commerce Holdings Discontinued operations, E- unclear whether Thebe 4 South Africa PE/VC firm ClearAsset Commerce 2017 related to Investment (B2B) acquisition (Source: LinkedIn of former CEO). Travelstart 5 Sweden TravelTech SafariNow TravelTech 2017 Still in the market. Nordic Travelstart 6 Sweden TravelTech SafariNow TravelTech 2017 Still in the market. Nordic CompCom blocked the OLX acquisition in (parent: Software, E- 2020 citing 7 MIH e- Netherlands E- We Buy Cars Commerce, 2018 concerns over a commerce Commerce FinTech reduction in Holding) competition (source). Lebashe 8 Investment South Africa PE/VC firm RainFin FinTech 2018 Still in the market. Group Surestart Online 9 Financial South Africa InsureTech CompareGuru InsureTech 2019 Still in the market. Services (Pty) Acquired their main competitor on the African market, OLX, and their businesses E- E- 10 Jiji Nigeria OLX 2019 in Kenya, Ghana, commerce commerce Uganda and Tanzania. OLX website says no longer available E- 11 DPO Kenya Fintech Payfast 2019 Still in the market commerce Page v Still in the market. Gumtree E- Unclear whether United Classifieds 12 (owned by Autotrader Commerce, 2020 CompCom Kingdom website eBay) AdTech conducted investigation. Rebranded to ASAP! Now operates as Pick n Logistics 13 Pick n Pay South Africa Retailer Bottles 2021 Pay’s internal tech same-day delivery grocery service 14 Zip Australia Fintech Payflex Fintech 2021 Still in the market. First 15 National South Africa Bank Selpal Fintech 2021 Still in the market Bank Online financial 16 RCS South Africa Mobicred Fintech 2022 Still in the market services provider Source: FCI Digital Business Database and further research (incl. Crunchbase, CB Insights, Pitchbook) Page vi Annex 3: Glossary AgTech: Developing and using digital technologies to enable the agriculture technology value chain - including but not limited to digital agriculture software and hardware (sensors, imagery, precision ag), mixed and integrated agriculture innovation, plat and crop science, animal and livestock science, post-farm agriculture value chain (agri marketplace, delivery, logistics, supply chain innovation), and agriculture waste management. B2B digital business model: Process of businesses selling products and services directly to businesses, and it is usually more complex and sophisticated. For example, in contrast to typical e-commerce transactions that involve the exchange of products and services already “in-stock”, services rendered through B2B can involve the co-creation of high-tech products between the platform and the firm consuming the service/product.175 B2C digital business model: Process of businesses selling products and services directly to consumers, using the platform as an intermediary. Business Management Tech: Developing and using technology to improve business operations. This subsector includes but is not limited to operations management/optimization software, customer relations management (CRM), customer service tools, enterprise resource planning (ERP) products, and corporate digitization consulting. Commercial digital platforms: Multisided online marketplaces that enable producers and users to create value together by removing market frictions, facilitating interactions and matching, and by exploiting and managing direct and indirect network effects. Data-driven businesses: Systematically and methodically collect or aggregate large datasets and leverage advanced analytics (such as artificial intelligence, big data, and blockchain) to create value, leveraging data as a key element of their business model.176 Data-driven businesses can also help traditional industries upgrade through servicification to optimize production processes, increase sales, streamline decision-making and even re-think revenue models. Many commercial digital platforms are data-driven businesses, but data-driven business models are not always platforms. Digital platforms: “multisided marketplaces with business models that enable producers and users to create value together by interacting with each other”. E-commerce: Developing and using digital technology to facilitate and improve the sale of products over internet networks. BEA considers e‐commerce to include 175 Grafmuller (2020). 176 Hartmann (2014). Page vii digitally‐ordered, digitally‐delivered, or platform‐enabled transactions.177 This subsector includes but is not limited to online marketplace, aggregator e-commerce, e-commerce analytics, e-commerce transaction, e-commerce logistics. FinTech: Developing and using technology for financial services usually offered by traditional banks, including loans, payments, wealth and investment management as well as software providers automating financial processes or addressing core business needs of financial firms. Food Tech: Developing and using technology to improve food and beverage production, distribution, purchasing and consumption. This subsector includes but is not limited to restaurant aggregator/ review platform, food e-marketplace, food lifestyle media as well as pre-packaged food subscription firms. Gig Economy: Developing and using technology to connect gig-economy workers to gig- economy opportunities including different sharing economy opportunities. This subsector includes but is not limited to freelancer/gig-worker hiring platform, gig worker workflow management software, gig worker insurance platforms. Health Tech: Developing and using technology to improve the creation, facilitation, delivery, safety, reliability and analysis of healthcare services. This subsector includes but is not limited to telehealth, e-health platforms, pharmatech, technical medical device development, medical laboratory management, and diagnostic algorithm development. InsurTech: Developing and using technology to improve the creation, distribution, delivery, usage and analysis of insurance products and services. Internet of Things: Developing, producing and using Internet of Things (IoT) devices - physical objects that are embedded with sensors that monitors, stores and sends data for a use in the physical space. Legal Tech: Developing and using technology to improve creating, distributing, using, interpreting, organizing and assessing legal products and services. This subsector includes but is not limited to tele-legal service, legal service aggregator, algorithmic legal service and caseload management solutions. Logistics Tech: Developing and using technology to improve the movement of goods. This subsector includes but is not limited to digital supply chain management, cargo management software, supply chain tracking and operation management software. Manufacturing Tech: Developing and using technology to improve the operation and management of the manufacturing value chain. This subsector includes 177 BEA, Barefoot et al (2018). Page viii but is not limited to automation solutions, smart factory products and data- based production analytics tools. Marketing Tech: Developing and using technology to improve the marketing value chain. This subsector includes but is not limited to digital marketing content creation, digital marketing consultancy, marketing data and analytics, search engine optimization (SEO) technology and customer tracking and interaction products and services. PropTech: Developing and using technology to improve the real estate and property development value chain. This subsector includes but is not limited to property sale and renting platforms, property management software, renter verification software, and smart home applications. Social Network: Developing and using technology to enables users to connect and communicate with each other’s by posting information, comments, messages, images through a dedicated website or applications. Travel Tech: Developing and using technology to improve the travel and tourism value chain. This subsector includes but is not limited to travel booking platforms, travel review and discovery platforms, and travel security software. Page ix Annex 4: List of Private Platform Stakeholders Consulted Company Contact Bishop Hlabirwa Marvin (Operations Manager) Brownsense Mzuzukile Soni (Founder and CEO) DiggerApp Christo Engelbrecht (Co-founder and acting COO) Digital Solutions Group Yaron Assabi (Founder and CEO) Handed/Local Ride William Thubakgale (Founder) HiFranc Sebastian Patel (Co-Founder & COO) Shera Deavall (Chief Marketing Officer) Hydra Farm Awareness Estelle Lubbe (Co-founder) I Know A Guy Mbali Ndhlovu (Founder) Kandua Sayo Folawiyo (Co-founder) Khula Ayanda Vana (Head of Legal) Loctransie Tshidi Morabi (Founder) Ozow Rutendo Hlatshwayo (Head of Legal) Fidelis Chiwara (Senior Client Success Manager) People’s Fund Luyanda Jafta (Co-founder) Sasfin Bank Joshua Mangena (Product Manager) Frank Ferreira () Start with 7 Odette Jones (Co-founder) Keith Jones (Co-founder) Uber Yolisa Kani (Public Policy Head) Zanoodene Kassim (Legal Counsel) Ofentse Mokwena (Public Policy Head) Yoco Adam Duxbury (Co-founder and COO) Page x Annex 5: Digital Platforms Survey Questionaire. 1. CONTACT DETAILS & OVERVIEW Platform Name Name Position Contact Person 1 Email Mobile # Tel # Name Position Contact Person 2 Email Mobile # Tel # Please briefly explain the business model of your platform Please list the South African cities that your platform operates in OR indicate the number of cities Please list the countries where your platform operates outside South Africa OR indicate the number of countries 2. MERCHANTS AND BUSINESS CUSTOMERS Note:  "Merchant Customers" refers to the registered businesses outsourcing your platform  “Sole proprietors” refers to businesses with only one owner and no employees. Businesses with more than one owner and businesses with employees are counted under SMEs.  “SMEs” refers to businesses with at least 2 owners or at least one employee. The average size of SMEs refers to the number of owners plus the number of employees of the SME.  In this section, please only include data for South Africa  Please include data for 2019 and/or the latest year  Only fill in this section if it applies to the business model of your platform Number of merchant customers supported/created by the platform Male Female Total Revenue generated by merchant customers through the platform Male Female Total Number of Independent Contractors or sole proprietors supported/created by Male Female Total the platform Page xi Revenue generated by Independent Contractors or sole proprietors Male Female Total through the platform Number of SMEs supported/created by the platform Male-owned Female- Total owned Average size of the SMEs Revenue generated by SMEs through the platform Male Female Total Year 3. PLATFORM WORKERS Note  “Platform workers” refers to (a) jobs created by the platform or (b) jobs created by the business/merchant customers of the platform. (Do not include the number of merchants or business customers as they are counted in the previous section).  This does not include direct employees of the platform (for example, developers are not included)  If the skills and gender breakdown data are not available, please provide the aggregated data.  Skilled refers to workers who completed tertiary education, semi-skilled refers to workers who completed high school education (matric) while unskilled refers to workers who have only completed primary education or less.  In this section, please only include data for South Africa  Please include data for 2019 and/or the latest year  Only fill in this section if it applies to the business model of your platform Number of platform workers Male Female Total Skilled Male Female Total Semi-skilled Male Female Total Unskilled Male Female Total Aged between 15 and 34 years Male Female Total Aged between 35 and 49 years Male Female Total Aged 50 years and above Male Female Total Average hours worked in a month Male Female Total Share of workers who were Total unemployed before participating in the Male Female platform Average monthly income generated by Male Female Total platform worker Year 4. TRACTION Page xii  In this section, please only include data for South Africa  Please include data for 2019 and/or the latest year  Use any convenient currency 4.1. Users Monthly average number of unique active South African Users 2019 2020 2021 Please provide an explanation for “active user” 4.2. Value of transactions Value of transactions in South Africa 2019 2020 2021 Page xiii References A Hunt and E Samman, ‘Domestic Work and the Gig Economy in South Africa: Old wine in new bottles?’, Anti-Trafficking Review, issue 15, 2020, pp. Accenture. 2018. 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