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Africa Predicted to be Bigger Technology Market than Europe by 2020

Mobile financial services will take the lead as Africa's digital market is transformed over the next five years, according to many delegates and exhibitors attending, AfricaCom, the continent's largest digital technology conference and expo.

Photo: Mobile is the key to African internet access.
Mobile is the key to African internet access.
Photo: Mobile is the key to African internet access.
Mobile is the key to African internet access.

Far from its image of famine, want and turbulent political regimes, Africa is actually one of the world's fastest-growing and dynamic digital-technology markets, at least according to delegates at AfricaCom, the continent's largest digital technology conference and expo. Underlining the beliefs of many at the event, Andile Ngcaba, Chairman of investment firm Convergence Partners, said: "In the next five years or so, Africa will be a bigger technology market than Europe."

The reasons for such optimism are not hard to find. Luke McDonald, Google's Country Director for South Africa, saw this huge growth potential as down to certain key demographic factors. He said: "Within five years, 50% of the entire population of Africa will be under the age of 25 – and these will all be very tech-receptive consumers."

For McDonald, the most exciting technology transforming the African digital market is 3G mobile. Africa is the fastest-growing mobile market in the world, now moving on from pure connectivity to cloud services, mobile money services and virtualisation. Acknowledging the importance of these sectors, he said: "In these domains, we will see a lot of change and that will help drive the digitisation of Africa."

This rapid rate of change in Africa's technology industry is often described as the "leapfrog effect". This has seen African consumers tend not to follow the step-by-step approach of the mature markets in their transition to a digital environment, instead accessing the internet predominantly through mobile devices, bypassing the fixed-line computer stage altogether.

While the tech industries in Africa may be set to grow and change, what does access to digital technology actually mean for African consumers? Furthermore, what sort of role will it play in the continent's future?

For Tumi Chamayou, Ericsson's Vice-president of Strategy, Marketing and Communications, digital technology in Africa will bring about a powerful socially transformative effect over the next few years. Highlighting this, she said: "A digital Africa is the foundation of a sustainable future. It is the cornerstone of change for this continent."

Chamayou's vision of transformation through digital technology entails harnessing the efficiency of information communication technology (ICT) by using resources more intelligently across a number of industrial sectors. It would also involve the optimised use of data, the introduction of networked business-to-business practices and the greater encouragement of user co-creation, as opposed to simply viewing users as consumers.

Underpinning this digital revolution, of course, is the startlingly fast rate of mobile broadband uptake in Africa, with Chamayou saying: "The adoption rate is growing much faster in Africa than any other part of the world."

According to Chamayou, Africa now has a total of 690 million mobile broadband subscriptions. She predicted that would grow to 1.020 billion by 2016, with 100% penetration achieved by 2021.

She said: "The impact of a 'digitalised' Africa is not about the technology itself, but about its socially transformative effect. It will enable consumers to have greater accessibility to services, as well as increased mobility and economic inclusion. For business, it means a more mobile workforce and the facility to harness the benefits of big data. For society, it means greater social equality.

"We are a transformative industry. ICT tears down traditional barriers. It has created a shift from ownership to user accessibility."

Despite the potentially transformative effect of technology, members of a keynote panel at the event had a number of concerns. In particular, they had reservations about the level of innovation and efficiency in the African digital "ecosystem" – the network operators, investors, entrepreneurs and government/policymakers.

In many ways, the digital industry is a microcosm of African industry in general. Business and government don't pull in the same direction and policy often erodes business confidence. One of the biggest challenges in the African digital landscape is its fragmented nature. This has meant that the market hasn't always been the ideal environment when it comes to transforming innovations into scalable commercially viable products.

The overall sentiment at AfricaCom was that governments need to create the initial spark for local innovation and that then the market will follow. Above all, connectivity in Africa needs to increase in order to enable innovation.

Addressing this issue, Markku Mäkeläinen, Facebook's Director of Global Operator Partnerships, said: "If you increase mobile broadband penetration by 10%, a country can increase its economic productivity by 4.2%. There's a need for government to step up and support innovation in Africa, and not tax it."

The African Handset Market

The conference also provided a number of insights into the trends that are currently shaping the mobile handsets market in Africa, while also highlighting the significance of various price points. Overall, Arthur Goldstuck, Managing Director of World Wide Worx, a South African technology research company, believed that the market was rapidly transitioning from feature phones to smartphones.

He said: "About a year or two ago, the continent passed the 50% mark in terms of handset penetration. Now it's approaching 50% penetration of smartphones."

The 3G mobile phone is fast becoming an integral part of the lifestyle of many African consumers, a development largely driven by the key role it plays in providing online connectivity. The main factor holding back further penetration, though, is now seen as the price of the high-end devices imported into Africa.

Photo: China Telecom at AfricaCom.
China Telecom at AfricaCom.
Photo: China Telecom at AfricaCom.
China Telecom at AfricaCom.
Photo: Huawei technology on show.
Huawei technology on show.
Photo: Huawei technology on show.
Huawei technology on show.

Stephen Essien, Director of Customer Operations for Tigo Ghana, an East African network operator, said: "The cost of sophisticated devices is the killer for faster adoption. Entry-level smartphones at below US$50 are where the African market is at."

Sophisticated products – such as the iPhone series, which come with a price tag of around $800 in Africa – are hugely aspirational, but represent a very small market share – just 5% in Ghana, according to Essien.

That is not to say, though, that a market for high-end smartphones does not exist in Africa. Neeraj Gala, Director of Products and Value-added Service at the Airtel Africa mobile network, believes there is potential, but that it is very much a niche market.

He said: "While suppliers from Asia are capitalising on the market for low-end mobile devices in Africa by marketing smartphones at around $50, there is also a growing market for mid-price devices. What we need to see for this market is the kind of phones produce by Xiaomi [a Chinese handset manufacturer] – good-quality smartphones in a good mid-price band, somewhere around US$200."

According to Goldstuck, a significant proportion of new smartphone users in Africa are deterred from accessing internet connection because of the perceived cost of data usage, a factor that is stymieing greater online penetration. As a result, he believes that mobile device OEMs targeting the African market are best advised to incorporate a manual control of the data connection as a standard feature. He also advocated greater consumer education as to just what consumes data and what doesn't, with a view to showing how smartphones can be used more cost-efficiently.

Mobile Money

Mobile financial services – M-commerce – may be the next big differentiator in African society, according to many at AfricaCom. Indeed, discussion of the direction and evolution of this sector frequently dominated proceedings at the event.

Sending money parcels via a mobile phone application has evolved into an essential service for a large segment of the African community. It is seen as having delivered financial inclusion to the huge numbers of the population whom, otherwise, have no access to banking facilities.

Indeed, in Africa the cashless society is fast becoming a reality thanks to access to M-commerce services. This growth has been driven by convenience of the service and the sense of security associated with not having to deal with hard cash.

In addition, mobile-to-mobile cash-transfer services have proved incredibly popular with overseas Africans looking to send money home and with those who can't access the traditional banking system – the so-called 'unbanked'. Overall, Chamayou estimates that 12% of people in Africa have a mobile money account – compared with just 2% globally.

Jonathan Kaftzan, Head of Sales, Marketing and Products at Amdocs Mobile Financial Services, estimates there are 726 million unbanked around the world, of whom 146 million have mobile money accounts. With this in mind, he believes the mobile financial services market still represents a relatively untapped opportunity for investors.

He also believes that M-commerce adoption will be driven by "tectonic market shifts, including the ubiquity of mobile, evolving technologies, millennial disruption and regulatory shift." Of these shifts, he suggests, the smartphone penetration rate is set to have the most impact.

Interestingly, the potential of M-commerce may be extending beyond just peer-to-peer money transfer. According to Alix Murphy, Senior Mobile Analyst at WorldRemit, an international money transfer company, mobile commerce is about more than just moving cash around, but is also becoming a way of connecting with people.

Explaining her conviction, she said: "What started as a simple way of paying people using a phone is on the cusp of becoming the next global communications platform. Communications and money have come together to form a new kind of service. We are seeing fascinating behavioural trends emerge. People are using mobile money transfers more like they use instant messaging than the way they would use traditional remittance services."

She referred to this phenomenon as the "WhatsAppification of money", with financial support becoming part of a conversation between sender and recipient. To her mind, it has become a new way of communicating and one that enables a better quality of life through mobile connectivity.

The overall mood of the event was that M-commerce, as a relatively new industry, affords potentially untapped investment opportunities and scope for new players to enter the market and provide customer-driven solutions. Summarising this, Murphy said: "People are building products and services connected to mobile money. Increasingly, this mobile money ecosystem will include international participants. We will see more innovative start-ups adding greater functionality and global reach to mobile money."

Photo: AfricaCom: Could digital technology transform the continent’s economic prospects?
AfricaCom: Could digital technology transform the continent’s economic prospects?
Photo: AfricaCom: Could digital technology transform the continent’s economic prospects?
AfricaCom: Could digital technology transform the continent’s economic prospects?

AfricaCom took place at the Cape Town International Convention Centre from 17-19 November 2015. Attracting more than 10,000 delegates, the event is Africa's largest digital communications conference and exhibition.

Mark Ronan, Special Correspondent, Cape Town

Content provided by Picture: HKTDC Research
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