Over the last year, all eyes have been on Africa’s technology sector. And for a very good reason: infrastructure growth is booming, writes Brett Parker, MD of SAP Africa.
Between 2010 and 2016, seven new undersea cables brought fast data connections to the continent, with two more already under development. Meanwhile, mobile providers have invested $13,6-billion into getting 500 000 000 Africans online by 2020.
But, as necessary as infrastructure investment is, it alone won’t take African business global. So what technological development or product has the potential to make African businesses global players?
Tech sector already outperforms expectations
A common misconception is that raw materials are the big African growth story of the last decade. But according to research by Freshfields, since 2004 Africa’s technology companies have delivered 19% annualised returns, compared to just 11% in commodities.
A clue to why the African tech sector is growing can be found in the East African mobile payments industry. In most of the world, mobile payments is a niche sector, because consumers have many other convenient ways to pay -bank cards, credit cards and banking transfers, for instance.
But in sub-Saharan Africa, only 34% of people have a bank account. This used to be a significant barrier to any transaction that wasn’t small-scale or local. Or, in plain English, it was a huge inconvenience.
Change began in 2007, when local telco Safaricom teamed up with Vodafone to develop the mobile-payment system M-Pesa. Its creators expected M-Pesa to have 250 000 customers by the end of its third year. After just two years it already had over 2-million customers.
By 2014, the East African mobile-payments market was worth $61-billion. There were 41 new African mobile-payment start-ups. A huge 80% of all the world’s mobile payments were African. And global players were looking to Africa to see what lessons they could learn.
So is mobile-payment the technology that could take African business global? There’s clearly huge potential for the industry to grow and act as an enabler for other sectors: in particular African SMEs and sole traders, who need a means of making and accepting online transactions. But for a fundamental transformation to take place, it needs to be about more than just one industry.
Overcoming barriers through technology
Another brake on the globalisation of African business is the tariff and non-tariff barriers that inhibit the growth of a single African market. This is something that African businesses need to change if they are to grow to the point of being ready to operate on a global scale.
Here again, signs are positive. For instance, the NGO, TradeMark East Africa, worked with the Ugandan government to develop an online reporting system for non-tariff barriers (NTBs) to trade.
Exporters in East Africa can now report NTBs online or via SMS, resulting in a 20% reduction in the time taken to move goods around the region. This is expected to lead to increased trade, lower costs and higher regional GDP.
At the same time, the adoption of online revenue, legal and other government systems is helping African countries cut red-tape and increase the speed at which businesses can operate. In Addis Ababa, for instance, tax assessments can now be made online: giving taxpayers access to faster decisions, with less form filling. Without doubt, institutional barriers to trade and growth need to be broken down, if African business is to go global. But technology is only one part of the solution. Much more depends on political will and clout.
The foundation of any technological revolution
To take on the world, African business will need investment in technological infrastructure. It will need break-out technologies that allow it to disrupt and then likely lead existing global markets. And it will need technology solutions to problems that currently hold it back. But there is something more fundamental than all of these factors.
Africa is the world’s youngest continent. This will give it a demographic dividend, just as the last generation of economic tigers is beginning to age. But only 1% of the 11 million African young people who come of age every year have even basic software coding skills. This is a waste of talent and a barrier to growth. Without basic STEMS skills, let alone coding knowledge, African entrepreneurs won’t be able to grow their businesses to the point of being ready to compete on the global stage.
In April 2016, Africa Internet Group (AIG) – the holding company for a range of online businesses – was valued at US$1 billion, making it the first ‘African tech unicorn’. AIG’s success is not a one-off. M-Pesa in Kenya, the mobile advertising platform Twinpine in Nigeria, and South Africa’s content-distribution service 8bit – among many other successes – prove that.
“If it works in Africa, it’ll work anywhere,” jokes Juliana Rotich, the co-founder of BRCK, a Kenyan-made Wi-Fi hotspot and battery designed for use in the field. And there are hundreds of African technology companies with innovative ideas, ready to prove her right. But in order to do it, they need access to a skilled, digital workforce.
The technology that will take African business global? As AIG and M-Pesa have shown, it’s the software developer’s kit, in the hands of an African programmer and entrepreneur who’s been trained to use it. The time to start training the next generation of African programmers is now.