Part 3 of a 5 Part Series: Investment in Africa
Africans must have greater access to new technologies if they are to catch up with the developed world, say development experts. Technology improves the lives of consumers and attracts foreign investors eager to profit from a growing consumer population.
McKinsey & Company, a leading global management consulting firm, estimates Africa’s gross domestic product at about US $2.6 trillion, with US $1.4 in consumer spending. That, coupled with the fact that Africa’s population growth and urbanization rates are among the highest in the world, are good indicators for any potential investor.
Recent research also shows Africans can accelerate development by skipping less efficient technologies and moving directly to more advanced ones. Among them is the telecommunications sector, which is attracting a flurry of public and private investment.
Many ask whether such a leap is possible on a continent that lacks basic infrastructure. Others are more optimistic.
Two researchers at the University of Yaounde in Cameroon say it is feasible. The academics, Yunkap Kwankam and Ntomambang Ningo, are the authors of a paper entitled “Information Technology in Africa: A Proactive Approach and the Prospects of Leapfrogging Decades in the Development Process.”
Africa's lack of technological infrastructure, they write, should not be seen as a drawback to investing on the continent. They say it “can be turned into an advantage if properly managed.”
That’s because African countries are not weighed down by extensive networks built on obsolete technology. By using the latest products and methods to build new infrastructure, African countries can bypass several stages and even decades in the use of Information Technology (IT).
“In doing so, they will learn from the experience of more advanced countries the ways and means of providing the greatest social benefits to a large fraction of the population, while avoiding any unpleasant side effects,” write Kwankam and Ningo.
Africa’s IT landscape is rapidly changing, says Alex Twinomugisha, the manager for country programs and special projects for the Global e-Schools and Communities Initiative, based in Nairobi. He attributes the improvement in Africa investment environment to financial backing from public and private investors.
The growth of the telecom industry, he writes, is due to the large amount of foreign direct foreign investment. “This investment alone is about 1% of sub-Saharan Africa’s total GDP in 2008, estimated by the World Bank to be about $987 billion dollars!”
But the money is not only from foreign sources. Local companies are raising millions of dollars from local banks to expand network coverage. “The banks wouldn’t put in their money if they didn’t think that the business was viable,” says Twinomugisha. “There is money to be made. In fact I think the market is still virgin.”
Still, businesses have been focusing their resources on big investments like cable networks. Twinomugisha says the potential market is underestimated. “There has been little investment going into services, software…because it is seen as small market.”
He says there is still a misconception that the market is small. But he points to successful ventures like MPESA, a mobile money transfer scheme that has been embraced by millions of Kenyans, according to parent company Safaricom.
MPESA was launched in 2007 and is used by six million people around the country, mostly in rural areas. It has transferred 135.38 billion Kenya shillings, equivalent to US $1.8 billion (representing about 5% of GDP).
Two other telecommunications companies, IBM and the India-based company Bharti Airtel, have announced they will provide IT services for 16 African countries.
As part of a 10-year agreement, IBM will deploy and manage the information technology infrastructure and applications to support airtel’s goal of providing affordable and innovative mobile services throughout Africa, the world’s fastest growing mobile market.
Making it all possible is the development of underground fiber optic cables. Several efforts are underway to lay them across the continent.
Kenya and Rwanda have both openly encouraged investment in information technology. Kenya has invested more than $US 80 million in an initiative called TEAMS (The East African Marine System), which will link East Africa to the rest of the world through an underwater fiber optic cable. TEAMS moves Kenya away from expensive satellite communications, thereby lowering costs.
But perhaps the best-known cable system in Africa is SEACOM.
Its CEO, Brian Herlihy, says the project is providing inexpensive bandwidth to cell phone and Internet customers, including businesses, in southern and eastern Africa, connecting them to global networks in India and Europe.
Broadband access is expected to reduce the digital divide between Africa and other continents. It is also expected to be a major boon to many local industries, especially ones based on outsourcing.
The cost of SEACOM was around US $600, says Herlily. He’s not surprised that more than 70 percent of the money was raised in Africa.
“They understand the need,” he says. “That African investors are willing to spend millions of dollars on a project that benefits the continent is very telling (about) the level of enthusiasm (and) shows a belief in the viability and potential of the African market.”