InformationandCommunicationTechnology-WheretoInvestinAfrica

Is the fourth Industrial Revolution a game changer for Africa?

The fourth Industrial Revolution represents a significant shift in the way in which the global community lives, relates and conducts business.

The schematic below presents the timelines and focal points of revolutions past:

Figure 5.4: Industrial Revolutions

An Industrial Revolution (IR) is an epoch that has been shaped by advancements in technology. The fourth IR is characterised by the scalability of digital and computing power, which has created new industries and reshaped old ones.

Given that Africa had limited success in capitalising on the second and third revolutions, the continent cannot afford to miss the fourth one’s bandwagon.  

The fourth IR is different in that while earlier revolutions saw technology replacing skilled workers (e.g. artisans in textile factories replaced by power looms) and complementing low-skilled workers (e.g. the steam engine), fourth IR technologies tend to replace lower-skilled workers while complementing higher-skilled workers. For example, in our view, there are three opportunities that Africa can take advantage of:

• Demand for digital skills is on the rise and Africa’s young population can capitalise on this demand. Programmes such as the Cisco Networking Academy, Telkom Futuremaker, Vodacom Foundation e-Learning, and numerous others are helping in building up Africa’s repository of technical skills. 
• Industries and business models are rapidly being destroyed and created, opening up opportunities for innovation. For example, Uber has become the biggest player in the taxi business without owning taxis, while Airbnb has done the same with hotel accommodation. With the latter, homeowners are now competing directly with major hotels. 
• The combination of Africa’s vast mineral wealth overlaid with new and innovative technologies can be powerful tools for African countries to extract greater value from their resources. For instance, scientists and engineers in Slovania have developed a robot that can navigate a mercury mine (Idrija) which was deemed to be dangerous for traditional labour intensive mining but through the use of advanced robotics, has opened up the possibility of reaching mineral deposits that were previously deemed too remote.

However, some risks are also present

• New technologies may amplify current inequalities within and between countries. Driverless vehicles for instance may mean thousands of drivers could lose their jobs. If unemployment rises without the requisite inclusive growth, then the risk of rising social inequalities also increases. Important to note is that new technologies often create new industries, which could absorb resources/labour that would have been made redundant by adopting new technologies. The real risk is whether the labour force can be retrained quickly and adequately enough.
• Certain African countries, like Ethiopia, could potentially lose their labour cost advantage as technology continues to drive down production costs. Currently, labour costs in Ethiopia are comparable to those in India and Bangladesh on a PPP basis, making it a potential alternative to Asian countries. As the proliferation of robotic automation continues, the consideration of labour costs by manufacturing companies will get less and less — a case for cloud and data computing in Africa.

The fourth IR and cloud computing seem like a match made in heaven. Cloud technology goes beyond the ability to store data at scale; it encompasses the ability to analyse data flow in real time, prediction and artificial intelligence (AI). No matter what the industry, cloud technology will act as a critical enabler by providing the means for businesses to create new technologies. In a KPMG survey, Journey to the Cloud, the top two reasons for adopting cloud computing are to improve agility and foster innovation (Figure 5.5).

Figure 5.5: Reasons for adopting cloud computing (% of respondents)

A notable example of how improved agility and responsiveness is beneficial for organisations is customised ads. Through our preference and search history, companies are better able to narrow down and target users that have shown interests in their product — this has increased the potential of converting advertising revenue budgets into actual sales. Jumia, mentioned earlier, benefits greatly from this.

Despite the potential benefits that come with cloud computing, it is somewhat disconcerting that the largest cloud infrastructure vendors — Amazon Web Services (AWS), Microsoft Azure and Google Cloud — barely have any notable presence on the continent.

Table 5.3: Cloud locations around the world 

For most countries, low broadband speeds in conjunction with the high cost of data are the biggest constraints for companies to effectively use cloud services. This is part of the reason why only 1% of estimated global public cloud services revenue was generated from Africa in 2018. The preference of some African governments for a more centralised and monitored model of internet usage is a significant constraint as data security and uninterrupted connectivity are key requirements for businesses.

However, things could be changing. Xalam Analytics, a US-based research firm, explored the cloud-readiness of 25 African firms and noted that South Africa is significantly readier than most African countries, with Mauritius, Kenya, Tunisia and Morocco considered at the cusp of cloud-readiness. 

According to Xalam Analytics, the cloud market has been growing at a rate of approximately 30% annually over the past three years — more than 25ppt higher than the average GDP growth rate for Africa. Moreover, top-line revenue from cloud services is expected to double over the next five years, to nearly US$4bn. Revenue from African-based public cloud services in particular is projected to triple over the same period. Huawei recently noted that it would launch cloud services in South Africa, following the footsteps of Microsoft’s Azure who recently launched in South Africa as well. 

The upside potential in this space for Africa is unmistakable. For businesses looking to expand to the rest of the continent, the potential for using cloud-based services is certainly rising.

Barriers to entry

As with any budding industry, there are barriers to entry that hinder the rate of progress. We’ve mentioned affordability as a primary deterrent to internet connectivity, but the challenge is multi-faceted as infrastructural, legislative and literacy hurdles have to be jumped. Granted, there are pockets of success across the continent, with over 50% of Africa’s tech hubs located in South Africa, Kenya, Nigeria, Egypt and Morocco. However, this is an exceptionally small grouping. Impediments need to be addressed to enable a larger proportion of countries to achieve the level of international internet connectivity that can enable growth and development. 

It’s all about the money

Data costs are without question the leading inhibitor to digital access and innovation in Africa. It is evident from Table 5.1 that the cost of mobile data in Africa as a proportion of monthly income is expensive relative to the global average, impacting not only consumers but SMEs. The differences in the average price of 1GB of data (in US dollar terms) is as stark across regions, with the variance between Rwanda and Djibouti, for example, in excess of US$37.00 (Figure 5.6).

Figure 5.6: Average cost of 1GB of mobile data (US$)

Note: Cost of 1GB in Zimbabwe is calculated in local US dollar terms, which might exaggerate the cost. Euro-linked jurisdictions have been converted to US dollar equivalents

Why the difference? A lack of competition in mobile network providers has in many cases perpetuated high costs. Apart from Ethio Telecom in Ethiopia where the mobile network operator (MNO) is government-owned and prices are controlled, the proliferation of private MNOs across the continent has challenged conventional structures, resulting in reduced prices. In a recent study, Ecobank revealed that there is an inverse relationship between the number of MNOs in an African country and the average price of a gigabyte of data (Figure 5.7). Despite a few exceptions, where MNOs have maintained higher prices in countries with relatively low-income levels and high proportions of rural consumers, the figures show that for those countries with greater competition among MNOs, prices for mobile data are generally cheaper. 

Figure 5.7: Number of MNOs in a country vs. the price of 1GB of mobile data

Low income and affordability are challenges common to both users and non-users. The Mozilla commissioned a study on internet usage barriers and user strategies across four African economies (Kenya, Nigeria, South Africa and Rwanda), and found that there is a trade-off to be made by low-income individuals between buying data and using that money for necessities. Where data is prioritised, short-term data bundles (which are more affordable) are preferred, but those need to be replenished frequently, which often negates the cost-saving incentive of purchasing larger bundles. The problem extends beyond the cost of internet access to include the price of internet-enabled mobile devices. Buying or replacing an existing phone with one that is web-enabled is perceived as costly and onerous for rural users, and non-users and can be restrictive in instances where data is required for activities such as online learning.  

Facebook, Google and the Kenyan BRCK — the largest public WiFi network in SSA — provide inexpensive internet access to millions of Africans. There is also much to be said on the importance of fibre-optic cables. Since SEACOM introduced the first private high-speed subsea cable system along the eastern and southern coastlines in 2009, there has been tremendous growth in the provision of undersea networks as the realisation of the inadequacy of one international connection in enabling a digital economy took root. The launch of the South Atlantic Cable System (SACS), which connects Africa with South America, was of particular importance, offering alternative, lower-latency routes to the Americas. The participation of smaller undersea cable initiatives, including Cap Amílcar Cabral, Ceiba-2, METISS, and Ultramar-GE, reflects an evolving market where smaller countries that were excluded from the first wave of undersea cable investments are seeking to connect to larger cable initiatives. Google and Facebook’s investments into new cables with multiple landing points across Africa’s coastline are not to be overlooked — the projects are expected to increase bandwidth and progressively reduce internet data prices over time. It follows that these types of initiatives need to be extended to enable wider accessibility, necessitating further investment.

More than just cost

The question of limited internet connectivity is not one that is unique to users. It is as important to discern why non-users find little value in the internet. McKinsey identifies four distinct challenges (Table 5.4).

Table 5.4: Barriers facing non-internet users

Ironically, many of these barriers are experienced by both users and non-users. In fact, McKinsey’s findings regarding incentives and user capability are borne out by the Research ICT Africa’s (RIA) After Access Survey for 2018, which shows that the low level of internet usage in Africa is largely due to a lack of awareness and education.  

Digital (il)literacy

A lack of digital and language literacy is cited as an inhibiting factor across multiple surveys on connectivity globally. A knowledge deficit with respect to accessing and navigating the internet, especially on different devices, is often the leading reason that individuals do not partake in the digital economy. Of the respondents in ten countries (with an average GDP per capita of US$1,340 in nine countries, with the exception of South Africa) surveyed by the RIA, 31% were quoted as not knowing what the internet is, while 16% said that they do not know how to use it (Figure 5.8). 

Figure 5.8: Barriers to internet use (% of respondents)

McKinsey advises that “more intuitive mobile applications, services with simple graphical interfaces, and stronger local language support could significantly reduce the language and digital literacy barriers to internet adoption in countries with these issues”.

Trust and infrastructure deficits

In addition to affordability and digital literacy, there are concerns regarding content and its appropriateness to users. The ability to offer relevant subject matter in a multitude of languages is appealing to multi-cultural African societies — yet this is often absent, resulting in lower usage. The Internet Society, in its report on Promoting the African Internet Economy, believes that there are two distinct keys to enabling relevant content: infrastructure to host it and strong policies to verify how it is regulated. 

With respect to content management, internet usage in Africa is driven by the high demand for social media (Figure 5.9). The 2017 After Access Survey shows that of the 77 million African internet users counted, 70 million are on social media (Facebook, WhatsApp or Twitter), which represents 90% of internet users. 

Figure 5.9: Internet use in selected African countries

Social media is commonly accepted as a tool for information dissemination, but fake news is a product of the digital age where misleading information can be easily spread to audiences at a rapid pace. Accessibility to private information is as alarming, with physical security, financial fraud, hacking, harassment, slander, stalking and surveillance all cited as disturbing factors by every respondent to the Mozilla study, more so among urban and peri-urban audiences. These factors impact on the right to privacy, especially in instances where there is a high level of legislated surveillance. In South Africa for example, there are legal ramifications for contravening copyright laws, the Consumer Protection Act or for making malicious statements. The strict parameters applied to social media posts can increase the ratio of non-users to users. 

An associated barrier is the cost and speed of content delivery. The absence of reliable data centres and routers throughout the continent undermines distribution as information is often run through internet exchanges located in Europe or North America before being delivered to the country of intent. The benefit of local content is evidenced in Rwanda where there has been increased usage of websites with a Rwandan country code top-level domain (ccTLD). 

In a case study conducted by the Internet Society on the benefits of hosting local content in Rwanda between 2016 and 2017, it was found that the number of websites using the .rw extension increased by 3.7% over one year from 11.2% to 14.9%, which seems small but is significant considering the low base. Kooba, a data centre in East Africa tasked with hosting and delivering data, is an example of a regional provider that offers savings in latency and cost but still lacks meaningful scale to extend to other regions. 

Legislative hurdles

Realising a greater level of integration into the global digital economy requires more than just access and connectivity but a concerted effort to apply meaningful policies which allow public and private-sector participation. The need for government-led cyber strategies is of utmost importance to secure Africa’s online ecosystem. But the WEF highlights the continent’s vulnerability by noting that a mere 20% of African countries have established a legal framework for cybersecurity, while just 11 countries have adopted substantive laws on cybercrime. Even though 38 of 44 countries measured by the International Telecommunications Union’s Global Cybersecurity Index (GCI) have cybercrime legislation, the adaption and enforcement thereof often lag the pace of digital advancement. 

Only Mauritius, Egypt, Kenya and Rwanda are measured by the 2018/2019 GCI survey to demonstrate the highest level of commitment to legal, technical, organisational, capacity building and cooperative aspects of cybersecurity. Worryingly, 34 African countries are at the other end of the spectrum, displaying low levels of dedication to these pillars.

Figure 5.10: Heatmap of geographical commitment to cybersecurity

To facilitate a more uniformed approach toward cyber governance, the AU adopted the Convention on Cyber Security and Personal Data Protection in 2014. But this initiative has proved unsuccessful as only nine of the 55 members have signed the accord, reflecting a lack of political will to enforce the convention. Harmonised policies and legal frameworks would certainly assist governments with a low level of commitment to draft national frameworks that encompass good governance, promote an agile regulatory system and protection of online privacy, but this demands pragmatism on the part of African governments.