Internet and mobile connectivity has opened new worlds of opportunity for African businesses
For decades, setting up business in Sub-Saharan Africa has been full of unavoidable and debilitating challenges and risks. Economic fragility, political instability, regulations, corruption, conflict and poor infrastructure have, in the past, dissuaded potential investors. Digital technology, however, has presented an opportunity for change. In 2002, former Secretary General of the United Nations, Kofi Annan, wrote that “e-commerce is one of the most visible examples of the way in which information and communication technologies (ICT) can contribute to economic growth.” Entrepreneurs have sought technological avenues to develop their businesses and African people are now recognising that digitally driven business is paramount for their continent’s future economic wellbeing. Accordingly, we’re going to take a look at how innovative entrepreneurs are using mobile technologies to open up new markets; how government-led schemes are helping businesses in certain parts of the continent and how SMEs have tailored ICT solutions to meet individual demands and, therefore, create more economically sustainable business models.
Over the past decade, Africa has been catapulted into the digital age. It has experienced the fastest growth in internet users worldwide and has seen accelerated growth in its internet-related markets. Increasingly, the internet is revolutionising the way SMEs and entrepreneurs in Sub-Saharan Africa are engaging and interacting with their customers. First, and arguably foremost, digital technologies have helped businesses to circumvent the biggest constraint to development – infrastructure. Sub-Saharan Africa is, globally speaking, the fastest growing market for mobile phones, laptops and other devices with internet capabilities. There are more active SIM cards in Africa than in North America, with the World Bank estimating that over 650 million Africans own mobile devices. In fact, experts believe that by 2050 there will be another billion mobile phone users across the continent – a huge market for internet penetration, with massive growth potential.
Internet and mobile connectivity has opened new worlds of opportunity for African businesses. In an interview with the BBC, Eryam Tawia, co-founder of Leti Games – a media company which designs African-themed games for mobile devices – states how digital media is starting to “create and open other doors for people, [helping] Africans gain a certain level in the technological world”. Cross-platform media businesses such as Leti Games are beginning to realise the potential of mobile money initiatives. In 2012, the World Bank reported that more than 2.5 billion of the world’s population are unbanked, yet today some 55 million Africans are using interactive devices to manage their money. For instance, over one third of Kenya’s economy is conducted via the micro-financing service, M-Pesa – users can pay for their groceries, take out insurance policies or even buy a round of drinks on a night out. It’s also how Leti Games conducts business: $1 gets you a game; another $1 transaction gets you the latest download. According to a report by MEF, a mobile trade association, “[in Africa], there is more mobile banking activity than the global average of 66% – with engagement rates in Nigeria, Kenya and South Africa at 76%, 92% and 78” respectively.” What’s more, these figures are expected to continue to grow as the “mobile wallet” becomes more popular.
Innovations in mobile technology are fashioning new markets for entrepreneurs. In 2010, Jamila Abass co-founded M-Farm, an SMS-based market information and trading service, seeking to redress the agricultural market imbalance by helping smallholder farmers. M-Farm provides transparent “market prices in real time for [farming produce] – cassava, groundnuts, sorghum, passion fruit – so [farmers] do not get ripped off by buyers”, the Guardian explains. M-Farm’s SMS and social media Apps help to eliminate the intermediaries that chip away at smallholders’ profits. Internet and SMS technology could, Abass claims, also help Kenyan farmers expand into markets abroad. African farmers suffer from a shortage of domestic buyers, but, Abbas says “in Kenya, if Tesco wanted to buy from farmers, it would double the price Kenyan farmers would receive and make a huge difference in boosting their livelihoods.” Similarly, iCow, an SMS mobile phone application, is helping small-scale dairy farmers. Forbes calls it a “virtual veterinary midwife”; farmers can track a cow’s estrous cycle and it offers tips on nutrition, breeding, gestation and milk production efficiency. In addition, mobile and social media technologies are helping to boost the agricultural sector in Tanzania, one of the world’s poorest countries – the SMS-based application, Tigo Kilimo, for example, provides farmers with reliable and cheap information about market prices, weather forecasts and transport.
The development of non-state business in Africa has been modelled, in part, on India, China and Brazil. In 2008, Kenya’s Government launched the Vision 2030 blue-print, aiming to transform the country into “newly industrialising, middle-income country, providing a high quality of life to all its citizens by 2030.” A keystone is the promotion of micro, small and medium-sized enterprises (MSEs) through the implementation of the MSE Act, by strengthening MSE associations and improving their access to training and finance. The installation of undersea cables in 2008 helped to improve Kenya’s digital infrastructure and cheapen internet connectivity. Bandwidth costs have dramatically fallen, Kenya has witnessed a tech boom and Nairobi has become a central figure in Africa’s ICT landscape. Since 2010, iHub has become the focal point for Nairobi’s thriving technology community. According to its manager, “Tosh” Juma, “it is the coolest place to be in Nairobi” – membership is free and it has become a centre for “young techies to bring ideas to life”, just like M-Farm and iCow.
Although Sub-Saharan Africa is ranked as the most difficult region in the world to do business, year on year, information and communications sectors in African countries are on the rise. In Kenya, the largest and most advanced economy in central and east Africa, ICT now accounts for over 5 per cent of its economic performance. In Der Spiegel, journalist Jan Puhl remarks that projects such as iHub are “a kind of digital development aid”. Nonetheless, it’s not just entrepreneurs and SMEs who are recognising the potential of Kenya’s tech boom; Microsoft, Google, IBM and Cisco have set up offices near iHub on Ngong Road – or otherwise known as “Silicon Savannah”.
Meanwhile, South Africa has also emerged as a leading player in Africa’s technology explosion. In December 2011, a R125 million (£9.2 million), 500km fibre optic broadband network was installed in Cape Town, part of an infrastructure project that has increased internet bandwidth exponentially. Created by software developer Herman Heunis, Mxit has grown from a mobile instant messaging application into a global social network. In 2012, CNN reported that, in South Africa, Mxit has eclipsed both Facebook and Twitter in terms of regular subscriptions by using “Africa’s booming mobile market to serve a growing community of users and developers.” Users can chat instantly with friends, share photos or use Mxit’s own virtual currency, “Moola”, to buy Apps, wallpapers and other virtual goods. Entrepreneurs and SMEs can tap into a large audience to promote their products and services – around 6.5 million South African users and a growing number in Nigeria, Kenya, Asia and Europe. Recently, Mxit has integrated some of the successful features of M-Pesa into its existing platform, and although it was supplanted by Facebook as South Africa’s largest social network in late 2013, its users have remained loyal. In 2011, it signed a deal with the mobile payment service wiWallet, enabling users to buy anything over their mobile from everyday goods to utility bills and airtime. A report into South Africa’s social media landscape suggests that, as a business tool, it will continue to rapidly grow: “93% of [South African corporations] use Facebook, 79% use Twitter, 58% YouTube, 46% LinkedIn and 28% Pinterest.” Moreover, 91% of the companies surveyed believed that social media was helping to build their business, but only 19% thought they were using it to its full potential.
Businesses in Sub-Saharan Africa have targeted the growing young consumer class. Poverty remains a predominant feature throughout Africa; however, the African Development Bank reports that over the last decade, the number of middle-class consumers has increased more than 60 per cent – 313 million or about 34% of the population. As SMEs continue to use e-commerce and social media to expand their business, more customers have come to trust digitised brands. In 2013, the Nigerian-based Guaranty Trust Bank launched an online-banking App that enables customers to transfer money and check their bank balance over Facebook – seeking to take advantage of 6.7 million Nigerian users on the site. For SMEs, the possibilities of social media are manifold. Businesses are acknowledging that ICT solutions can widen markets, lower overhead costs and improve efficiencies. Africa is a diverse continent unsuited to a “one size fits all” business model, so ICT service providers are providing tailor-made solutions to help individual enterprises. Microfinance institutions, for example, have helped people in 49 of Uganda’s 56 districts to become Village Phone operators with TN Uganda and the Grameen Foundation, providing affordable telecommunications services for Ugandans. While remote areas in Rwanda have benefitted from MTN’s new Comeka ReadySet solar energy device, improving access to telecommunications and energy.
Another recent innovation fuelling business growth is “cloud computing” – a pay-as-you-use technology which allows companies to store data on remote servers accessed through the internet, rather than on PCs and hard drives. In the absence of ICT infrastructure, cloud computing eases administrative burdens, allowing businesses to outsource the technology they need and, therefore, significantly lower operational costs. SMEs in South Africa, Nigeria, Ghana, Cameroon and the Ivory Coast are already reaping the benefits. Ovum, an analyst firm based in London, predicts that as South African businesses start to fully realise the potential of cloud services, they can expect to shed between 25%-30% of their ICT assets – with total revenue from cloud services reaching $374 million in 2017 (from $190 million in 2013). Robbie Quercia, the Technology director of Deloitte, stresses that cloud computing offers much needed “scalability” because businesses pay for it on a purely on-demand basis. This “creates complete transparency of costs”, adds Quercia, which “will represent considerable savings to clients” in the long run. The current problem for cloud-computing, however, is lack of trust. “The difficulty [cloud services] are facing is that people can’t touch and see the thing”, claims Len Weincier, founder of CloudAfrica, “there’s a mental shift that’s got to happen.” Still, the popularity of m-banking suggests that convincing prospective customers about cloud service reliability won’t be difficult.
“Mobile phones and the internet have changed African nations more significantly than any development since their independence from colonial powers”, claims one journalist. But what’s in store for digital technology and African business in the future? Economies in Sub-Saharan Africa are predicted to sustain high growth levels, enhancing the consumer industry by an estimated $400 billion by 2020. So, if businesses are properly equipped, there’s a huge amount of opportunity out there. However, technology adoption is still a problem. In less developed parts of the continent, poor infrastructure and lack of access to credit has constrained business growth; yet, even in more developed economies, digital technology has not been totally embraced. In January 2014, a report conducted by IBM found that a lack technology adoption has prevented numerous businesses from achieving growth. “The primary reasons for [lack of adoption is] a need for technology leaders to play a greater role in strategic business leadership, a lack of IT skills development across the continent, and information security concerns,” claims Nicholas Nesbitt, General Manager for IBM East Africa. Both Africa’s e-commerce ecosystem and its digital infrastructure are still underdeveloped – Africa’s diverse payment landscape remains an obstacle and large regions still suffer from poor internet bandwidths. With that in mind, the best hope for SMEs is for governments – alongside technology leaders – to take an active role in promoting e-commerce; in creating legal frameworks providing protection from global corporations; as well as protecting and further developing digital infrastructure. Governments in Kenya and South Africa have had success in laying safeguards that seek to protect private businesses and discourage economic stratification. The time has come for others to follow suit.