The Rapid Growth of Digital Business in Africa – HBR.org Daily

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Jorg Greuel/Getty Images The latest technology firm to list on the New York Stock Exchange is not from Silicon Valley but from Africa. Jumia, an e-commerce platform with over 4 million customers in 14 African countries, saw its shares jump by around 70% on its NYSE debut day on April 12th. That put the company’s market capitalization at close to $2 billion, cementing its status as Africa’s first technology unicorn. Jumia’s successful NYSE listing is a timely reminder of Africa’s rapid digitization — a trend that has been hidden from the view of many global investors and executives. Africa already has 122 million active users of mobile financial services, more than half the global total. Its number of smartphone connections is forecast to double from 315 million in 2015 to 636 million in 2022 — twice the projected number in North America. Over the same period, mobile data traffic across Africa is expected to increase sevenfold. In our new book, Africa’s Business Revolution: How to Succeed in the World’s Next Big Growth Market, we spotlight Africa’s unfolding digitization and show how investors and entrepreneurs from across the world can be part of it. We interview many of the pioneers at the forefront of the digital revolution, including Jumia’s co-CEO, Sacha Poignonnec. Further Reading One message stands out: digital technologies allow forward-looking businesses to recast Africa’s challenges as an opportunity to innovate and address massive unmet demand. We estimate that private consumption in Africa rose from $860 billion in 2008 to $1.4 trillion in 2015 — significantly higher than that of India, which has a similar population size. We forecast that it could reach $2.1 trillion by 2025. Yet Africa’s consumers are still woefully underserved: there are sixty thousand people per formal retail outlet in Africa, compared with just four hundred people per store in the United States. By Jumia’s calculations, online sales currently stand at less than 1% of total retail sales in Africa — compared with 24% in China. As Poignonnec told us, “My view is that retail will move online very quickly in Africa. E-commerce might reach 15% of total retail sales over the next ten years, and then it will go beyond that.” There are plenty of other entrepreneurs who are harnessing technology to solve deep-seated gaps in Africa’s markets. One is Mitchell Elegbe, CEO of Nigerian start-up Interswitch. He told us how, back in 2002, he observed people carrying piles of cash to pay for everything from groceries to cellphone airtime to utility bills. Today, Nigerian consumers and businesses make more than 300 million digital transactions a month across a suite of Interswitch-enabled channels. Interswitch, too, plans a global listing — which could value the company at as much as $1 billion, making it Africa’s next unicorn. We believe there is room and need for many more such digitally-driven innovations in Africa, across many sectors. Consider higher education, where Africa’s rate of enrollment is half that of India’s. One tech-enabled innovation to close that gap is the African Leadership University (ALU), whose campuses in Mauritius and Rwanda empower students to manage their own education using technology, peer-to-peer learning, and four-month internships with partner companies. Founder Fred Swaniker set about creating a business model for higher education from scratch. “Our university produces talent that competes with students from Harvard and Stanford,” he told us. “But we do it using one-tenth of the real estate and at one-tenth to one-twentieth of the cost.” The ALU was recently named one of the 50 most innovative companies in the world. We believe it is time to step up, scale and replicate such innovations — but we don’t pretend that will be easy. For one thing, much greater investment is needed in the African technology sector, notwithstanding Jumia’s fundraising success. The trend is in the right direction: by one reckoning, investment in African tech start-ups reached a record $1.2 billion in 2018, double the previous year. Yet this is still a fraction of that in other regions. In Southeast Asia, for example, tech start-ups attracted more than $10 billion in financing in 2018. Given Africa’s education gaps, shortages of digital talent can be a further barrier to growth for technology firms. That calls for innovative approaches — such as that taken by Andela, another fast-growing start-up. It recruits African software engineers, staffs and trains them in its campuses in Nigeria, Kenya, and Uganda, then hires them out as full-time “distributed teams” to companies across Africa and the world. Andela has hired 1,200 African developers over the past four years, and supplies their services to 200 companies worldwide. The company is also headed for unicorn status: it is already valued at as much as $700 million. Technology firms in Africa must navigate some big infrastructure challenges — including the fact that internet data is still significantly slower and more expensive in Africa than on other continents. Although penetration is growing fast, two thirds of Africans still lack internet access altogether. Even in this arena, though, some firms are recasting challenges as opportunities. Zimbabwean entrepreneur Strive Masiyiwa has navigated complex regulations to grow his firm, Liquid Telecom, into the largest pan-African broadband infrastructure and data services company, with more than thirty thousand miles of fiber across twelve countries. Loon, a sister company of Google, is going beyond fiber: it is building a network of high-flying balloons to connect people in rural Kenya to the internet. We believe that the sky is indeed the limit in Africa’s digitization. Entrepreneurs, businesspeople, and investors are seizing the opportunity to build something new and change people’s lives.
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