The following article is from Investment Reference by Joseph U Ibeh
China Investment magazine, established in 1985, is a monthly at the central government level. It publishes the Belt & Road Edition and African Edition on a monthly basis. China Investment has been commenting on the Chinese investment from a global perspective, with coverage on macro-economies, industrial analyses and case studies of business investment. In the meantime, it has taken a broad view to the global market with a focus on specific countries, regions and major international trends.
The Africa's digital industry is concentrated in trading scenarios such as farmers’ markets, e-commerce, e-payment, overseas remittances, taxi hailing, streaming media, and e-learning. Cutting-edge technological innovations such as artificial intelligence technology, the Internet of Things (IoT), 3D printing, autonomous drive and virtual reality are just unfolding in Africa.
● Africa's digital economy is growing exponentially
● Digitization promotes the transformation of traditional industries
● Africa's digital economy is confronted with challenges
As time goes on, digital technology is growing exponentially around the world. Digital technology has facilitated the emergence of new economic forms, which impacts traditional industries with its high efficiency, large scale and remarkable benefits.
According to World Bank statistics in 2016, the global digital economy is about 11.5 trillion dollars, accounting for about 15.5% of global GDP; it is expected that by 2025, the digital economy will account for 25% of the global GDP.
Although the speed of digital transformation varies from country to country, there is no doubt that countries in the world, no matter where they are located or at which development phase, are facing the issues of digital transformation and the realization of digital economic growth.
Africa's digital economy is growing exponentially
As mobile networks and broadband connections prevail in Africa, the digital economy has achieved exponential growth. Eric Osiakwan, an African tech entrepreneur and angel investor, wrote in a paper called The Kings of Africa's Digital Economy, "The digital transformation in Africa is catalyzed by mobile technology. Africa leapfrogged the world from a few landlines to massive mobile phone use in just a decade."
The vigorously growing mobile technology has provided abundant opportunities for businesses and entrepreneurs who can redefine the application scenarios and user experience by using digital platforms, digital content and services.
The increasing popularity of smartphones has spawned a variety of digital products and services. According to the estimate of Global System for Mobile Communications Association (GSMA), smartphone connections in Africa reached 302 million in 2018, with a penetration rate of 39%. It is estimated that by 2025, smartphone connections will grow by 66% to as many as 700 million.
"Mobile is King" is the most appropriate phrase to describe the development of the digital economy in Africa. For the vast majority of African users, mobile internet is the only channel for them to get access to the internet and digital services. The mobile internet has become the paramount platform for the production, distribution and consumption of digital content and services in Africa.
Mobile platform services are of various types and technical difficulties, ranging from unstructured supplementary services data (USSD), short message service (SMS) and application program interface (API) to applications compatible with Android, iOS, BlackBerry, Windows and Symbian. These services are now available throughout Africa, bringing digital solutions to Africans with unique local experiences and tailored to groups with different literacy rates.
Some experts believe that the digital wave in Africa sprout around 2012, when broadband Internet became widely available in the metropolis. It heralded the booming rise of technological entrepreneurs and the business ecosystem in vertical markets centering on e-commerce, logistics, real estate, education, health, games, entertainment, media, etc.
Digitization promotes the transformation of traditional industries
Although the digital wave has swept across most African countries to varying degrees, the statistics of United Nations Conference on Trade and Development (UNCTAD) reckons that 60% of the Africa's digital economy is concentrated in countries such as Egypt, Kenya, Nigeria and South Africa, followed by Ethiopia, Côte d'Ivoire, Ghana, Senegal, Morocco, Rwanda, Tunisia and Uganda.
In fact, it is difficult to quantify the scale and impact of digital transformation at the national and regional levels, because the statistics provided are incomplete and traditional industries are rapidly digitalized, which blurs the border between the digital economy and the traditional economy, making it more difficult to define the digital economy.
McKinsey predicted in 2013, early days of the rise of digitization in Africa, that the scale of the African digital economy would reach 300 billion US dollars in 2025, which accounted for only a small part of the global digital economy.
Although different views on the scale and future trend of the digital economy in Africa were presented, all public data showed that the digital economy in Africa had maintained a high year-on-year growth rate, which will continue as the continent becomes more interconnected.
The United Nations Conference on Trade and Development (UNCTAD) said that Africa’s exports of digital delivery service was almost tripled from 10.9 billion US dollars in 2005 to 26.8 billion US dollars in 2018, with a compound annual growth rate (CAGR) of 7%.
According to the analysis report by Freshfields Bruckhaus Deringer in 2014, over the last decade, the annualized returns on investment in the communications, media and technology sectors (fertile grounds for the digital economy) of Africa was 19%, which was higher than the 11% of MSCI Emerging Markets Index, and the 6% of the oil and gas sector.
What is more important than these data is the unique and rich content of digital innovation in Africa, which is determined by the unique conditions and user experience.
Digital entrepreneurs and innovators are using digital technology to empower traditional industries and creating new products and services through information and communication technology so as to drive the industrial transformation.
Measures include developing inclusive financial programs, empowering medical systems, improving modern governance efficiency, expanding the scale of production and manufacturing, developing international marketing channels, and transferring social activities, logistics, and education activities to online platforms, with the use of digital technology.
Africa's digital economy is confronted with challenges
Similar to the situation in emerging markets in Asia and Latin America, the Africa's digital industry is concentrated in trading scenarios such as farmers’ markets, e-commerce, e-payment, overseas remittances, taxi hailing, streaming media, and e-learning. Cutting-edge technological innovations such as artificial intelligence technology, the Internet of Things (IoT), 3D printing, autonomous drive and virtual reality are just unfolding in Africa.
The promotion of e-payment and financial technology (FinTech) platforms in Africa and the wealth they have created prove that Africa has strong creativity in the development of inclusive finance.
According to the data of GSMA, as of the end of 2018, there were 395.7 million mobile currency registered accounts in Africa, about half of the global total. Today, there are over 130 real-time mobile currency services in Africa, many of which are managed by mobile operators and provided by an ecological network of more than 1.4 million active agents.
The 2019 Africa Tech Venture Capital Report of Partech, a French venture capital firm, revealed that 234 African tech start-ups raised a total of $ 2.02 Billion in 250 equity rounds, with a year-on-year growth of 74%. Driven by FinTech, inclusive finance remains the most attractive investment sector in Africa. In 2019, it attracted 54.5% of total investment at US$ 1.1 Billion, up from 50% in 2018, across 92 transactions.
Although Sub-Saharan Africa has emerged as one of the rapid-growing FinTech regions in the world, the penetration rate of electronic payment is still low, and most people have no conditions to use it.
For example, in 2018, only about 39.7% of adults in Nigeria had bank accounts. In 2016, this figure was even lower, at 38.3%. Only about 15.5% of respondents said they had used an e-payment service at least once in 2018, says a World Bank report (the data is cited from EFInA, a financial service institution based in Nigeria).
The fragmented electronic trading activities and user groups is another challenge and opportunity for African FinTech sector. E-payment solutions are tightly regulated by national governments and are difficult to implement at the regional level. The most popular mobile currency solutions and FinTech service providers in Eastern Africa are obtaining licenses to be implemented in other African countries (mainly at the sub-regional level) through three Regional Economic Commission (RECs) frameworks. However, an integrated continent-wide framework has not been determined.
Africa's e-commerce adoption is also rapidly growing. GSMA estimates that e-commerce sales in Sub-Saharan Africa reached USD 16.5 billion in 2017 and are projected to reach USD 29 billion by 2022. Behind the growth are the expanding middle class, rising internet and smartphone adoption, and the gradual promotion of e-payment solutions.
There are further growth trends in other typical information and communication technology (ICT) core segments such as software services, network security, and digital media, as well as rising trends in transforming processes and products in traditional sectors by the application of digital solutions. For instance, Kobo360, a Nigeria-based digital logistics startup, is disrupting the country's logistics sector by enabling cashless shipping by integrating end-to-end transport services to help cargo owners, truck owners, drivers, and cargo recipients deliver goods seamlessly.
It is worth noting that many startups are capturing opportunities and delivering value to customers in market segments. These market segments may not be enough to attract the attention of local and international major companies, but enough for start-up companies to exert their abilities. Hopefully, startups can realize regional expansion if the growth is guaranteed.