Over the past few decades, the digital economy has experienced tremendous growth across Africa. As of 2017, approximately 50% of the continent’s population were unique mobile phone subscribers and if the internet is able to scale as mobile devices did, Africa’s digital economy is expected to reach 10% of the continent’s GDP by 2025.
Mobile devices have been one of the biggest drivers of growth for Africa’s digital economy. Mobile device penetration is expected to continue growing given their increasing affordability. This affordability is supported by the establishment of the continent’s first smartphone production plant in South Africa as well as the popularity of ‘made for Africa’ devices like Tecno Mobile’s phones.
Amongst other continents, Africa has the third-highest internet penetration, with about 40% of the population having access to the internet. Rising urbanization, increasing disposable income, and a young and tech-savvy population mean access to the internet will continue to grow on the continent.
Although conducting business via the internet has been the biggest growth factor for the digital economy, it encompasses much more. The digital economy refers to the hardware, software, applications, and telecommunication devices that are used in all sectors of the economy — from private business to government to nonprofits. The digital economy is set to transform societies by:
- Allowing for innovation, efficiency, and productivity, and providing resources that increase efficiency. These resources assist in optimizing processes and transforming supply chains
- Adding visibility, traceability, and monitoring capabilities to transactions. Since transactions are created and fulfilled digitally, they can be tracked and monitored
- Fostering inclusion, empowerment, cohesion, and sustainability; it provides access and empowerment to the general public
- Creating new opportunities, improving infrastructure and directly impacting on employment and the overall economy
For example, Safaricom, a telecommunications company in Kenya, provided 682,000 (direct and indirect) jobs in 2014. Nigeria’s Andela has a team of nearly 2,000 people and has hired over 1,300 software developers. The Nigerian Investment Promotion Commission expects that the digital economy will create 3 million new jobs in the country by 2021.
The catalyzing potential of the digital economy is more transformative in Africa as it would allow the continent to leapfrog its development. However, these advantages have not fully materialized due to policy and infrastructural bottlenecks.
Digital Economy Reshaping African Industries
To fully appreciate the transformative impact of the digital economy, one only has to consider the degree of change evident in how we access goods and services. From education to healthcare, financial services, travel and foreign relations, and government services, digital is now the way to go.
In the financial space, fintech startups straddle the intersection of financial services and technology. They provide services ranging from payments to loans, asset management, investment banking, insurance and cryptocurrency.
In Africa where about 60% of the African population is unbanked, the fintech sector addresses the unbanked (those who do not have access to any financial services) and the underbanked (those who have access to just a few financial services). These fintech solutions are favored over traditional channels because they are convenient, accessible, faster and cheaper.
About 10% of Africa’s GDP is transacted through fintech. It is expected that by 2025, 60% of Africans will have access to banking services with over 90% of them using e-wallets for their transactions. Unsurprisingly, these fintech startups are being noticed by global players. From 2015 to 2018, African fintech companies raised $320 million in funding and now number about 491 companies.
Regulation, funding and privacy concerns threaten the continued growth of fintech in Africa. In some countries, fintech startups are forced to comply with regulations designed for the traditional banking sector while in others, startups grapple with increased scrutiny and new regulations that hinder the entrance of new players and worsen red tape.
What next for the fintech ecosystem in Africa? The payments segment will continue to drive the sector until most of the population has crossed over from being unbanked. Just then would we see strong movements from the investtech and insurtech segments.
Education in Africa is one of the most underfunded public sectors and even within the tech space, it is one of the last sectors to become mainstream. Edutech (or edtech) startups operate by digitizing educational services and business models. Interventions cut across elementary and high school, tertiary education, as well as the professional/re-skilling markets.
One of the main challenges in the edutech sector is a disconnect between users and buyers. Users are usually the teachers and students while buyers are school administrators who need to be convinced about the usefulness of edutech solutions. Furthermore, since edutech buyers are mainly funded by governments, uptake is slower and constrained by bureaucracy.
As population, disposable income, and school enrollment increase, market shifts and the need for re-skilling will increase the demand for edutech solutions.
Africa has a physician density of about one doctor for every 5,000 people. Healthtech is revolutionizing the number of Africans who receive health services and the manner in which they access those services. This intersection of health and technology provides solutions for health-related education, early disease detection, diagnosis, emergency response, and treatment.
Global and local players operate in the African healthtech space. In Rwanda and Ghana, US startup, Zipline, delivers life saving blood to rural communities using drones. In Nigeria, Lifebank does the same via delivery bikes. GiftedMom uses text messaging to provide medical advice to mothers and pregnant women in Cameroon.
Healthtech startups in Africa are hindered by access to funding and regulatory bottlenecks. According to data from Partech Partners, healthcare start-ups accounted (paywall) for $18m of the $1bn in venture funding received by African startups in 2018. Investors either do not understand how they can monetise the industry or consider it to be a risky investment. Lack of regulation means there are no standards or checks and balances and this hinders startups from scaling awareness, knowledge and benefits of their solutions.
Despite these challenges, healthtech continues to have a dramatic impact on the continent. It is transforming the fight against maternal and infant mortality, delivering life-saving resources in time, and improving health in rural communities.
Governments within Africa are using technology to change the way Africans receive public goods and services. These govtech solutions deliver public services efficiently and quickly, increase transparency, improve public awareness and automate revenue collection.
Many African governments have turned to technology to deliver services to their citizens. Citizens can now communicate with government agencies, pay taxes and fines, register businesses, and complete citizenship documentation online. A 2008 UN report rated Ghana, Mauritius, South Africa and Tunisia as having a high e-government development index. In Nigeria, the Corporate Affairs Commission — in charge of business registration and management — has moved its services online. Clients can now register a company in 24 hours as opposed to 14 days prior to digitization.
Apart from government interventions, private and civil society organizations wield considerable influence in the govtech space. In Nigeria, BudgIT uses data and technology to track government spending and facilitate citizen engagement. South Africa’s GovChat is a civic engagement platform that connects the government to the people.
One of the biggest challenges with providing govtech solutions is that the solutions must be able to cater to every segment within the population. There is no luxury of serving specific target markets that are the easiest to reach, communicate with and convince.
E-commerce has transformed the way we purchase goods and services. Although funding is not as high as the fintech sector, Briter Bridges has identified over 250 startups in the African e-commerce space and Statista estimates that they generated $16.5b in revenue in 2017. The e-commerce sector is mainly driven by internet and smartphone penetration.
The biggest challenges for e-commerce in Africa are logistics, transportation, local behaviour, lack of trust in purchasing online, and a less robust middle class. Across Africa, South Africa ranks highest on customer spending online but still lags significantly behind the global average. In addition, a number of pioneer e-commerce startups in Nigeria such as Konga, Gloo.ng, and DealDey have closed shop or scaled back operations due to these challenges.
What’s next for the e-Commerce ecosystem in Africa? With the signing of the African Continental Free Trade Agreement, e-commerce startups will have easier access to new markets which would provide a wider customer base. Although Jumia, the continent’s biggest e-commerce player, has adopted this continental model but continues to accumulate losses year-on-year. African e-commerce startups will require more funding and deep pockets like Jumia to play the long game on the journey to profitability.
According to the World Bank, agriculture employs 65% of Africa’s workforce and makes up 32% of Africa’s GDP. However, productivity is low due to a lack of access to information and markets, changing weather conditions, crop selection, urbanization, pest control, and management as well as funding.
Agritech startups provide data on weather conditions, seed and planting information, disease and pest control, vaccination, access to funding as well as access to markets and investors. In Kenya, Twiga Foods has raised over $40m in funding for its digital platform and logistics network which links retailers with farmers and food manufacturers. Ghana’s CowTribe is an on-demand subscription service connecting livestock farmers with veterinarians and providing them with vaccines and other livestock healthcare services.
Investor support and funding in the sector is increasing. In the long-term, it is expected that these agritech solutions will transform agricultural production in Africa, support climate change mitigation and adaptation, as well as improve food security.
Boom or Bust?
The digital economy continues to advance in the number of digital products/services available, deals made, the amount of funding received, and the uptake of these products and services. Digital initiatives in Africa are innovating and providing solutions tailored to the needs of the African market.
On the policy side, the African Union and World Bank collaborated in 2019 to develop a program called Moonshot that promises to digitally enable every business, person, and government within the African Union by 2030. We expect that the signing of the African Continental Free Trade Agreement coupled with increasing global recognition and investments in African startups will ensure the continued rise of Africa’s digital economy.