Why technological disruption is changing Africa’s business landscape

Astute international investors have begun to take note of Africa’s rising digital economy, which is riding the wave of technological disruption, unlocking new business and investment opportunities across the region. Op-ed by Dominic Rebelo, Partner, Africa Legal Network (ALN) Kenya.

The speed at which Africa is currently embracing technological disruption gives the feeling of a region on a mission to make up for the time and opportunity lost during the 20th century. Since then, Africa has come a long way in fast-forwarding itself into the 21st century, learning lessons from more developed economies and leapfrogging old technology to instead adopt new and disruptive solutions that are creating new business opportunities and transforming millions of lives across the continent.

Many of these disruptions are happening locally as the unique challenges faced in Africa give birth to new and innovative ideas. The success of mobile money platforms like M-Pesa in Kenya, together with a multitude of tech hubs stretching across 93 cities in 42 countries across the continent have enabled tech solutions to flourish, reach and service a host of sectors across African economies. The innovations developed by these tech start-ups and entrepreneurs seek to provide novel solutions to address people’s day-to-day problems through more efficient products (such as energy efficient solutions) innovative methods of delivery (such as delivering blood and medical supplies by drone to remote areas) or using finance solutions to make existing goods and services accessible to underserved populations.

The world has begun to take a note. Where once international investors were wary of Africa, seeing most countries as a risky place to invest, and where local investors traditionally favoured low risk real estate investments, there is now a trend towards investors realizing the opportunities in African tech. The result: African tech start-ups have managed to raise funding in excess of $195m in 2017, up 51% on 2016, according to research conducted by entrepreneurship portal Disrupt Africa.

Abundance of opportunity

Africa’s digital revolution offers an abundance of opportunity across a wide range of areas – from fintech, insurtech, blockchain and the Internet of Things (IoT) to renewable energy, agritech and professional services. The vast majority of this tech rides on the back of mobile penetration which allows for faster ‘disruption’. Sub-Saharan African nations have already seen a rapid increase in mobile penetration, which isn’t slowing down, being predicted to demonstrate the fastest growth rate in the world over the next two years.

By 2020, the region’s mobile subscription base is expected to reach over 500m, registering 48% growth in mobile penetration, up from 44% in 2017, according to the GSM Association. Increased mobile penetration provides enhanced connectivity, but the real catalyst comes through the range of payment solutions now available to mobile users. Africa had over 280m registered mobile money accounts as of 2016, and by 2020, the region is expected to have over half of all mobile money services in the world. The number of mobile internet users is predicted to reach 280m by 2025, and it is estimated that smartphone adoption will grow from 34% in 2017 to 68% by 2025.

These numbers speak for themselves, and new companies looking to enter the African market can capitalise on this existing mobile subscription base to speed up their reach. They don’t need to develop their own payment platform or aggregation system as there are many local players already operating in the payment space and increasing interoperability between these players gives instant access to a significant market. For instance, Nairobi-based mobile technology startup, Africa’s Talking offers bulk SMS, short codes, and premium SMS, USSD, MMS, and customized mobile messaging solutions for individuals, businesses, and developers. Backed by over 1000 active API developers, it is simplifying the process and technologies required to exploit true potential of mobile communication networks across Africa.

Fintech

In Sub-Saharan Africa, fintech was arguably the first big disruptor, taking a lead by reaching out to millions of new customers. With retail bank account penetration as low as 35%, and around 80% of Africa’s one billion population lacking access to formal banking services, according to a report released last year by International Finance Corporation (IFC), fintech continues to offer real potential for companies offering financial services.

More and more fintech players are now using blockchain and, in some instances, crypto-currencies to offer not only mobile banking but also a host of other services including bill and other payment solutions, global remittances, peer-to-peer lending, bulk payments and micro-finance to a sizeable, underserved market.

Insurtech

Africa’s digital revolution has also unlocked huge business opportunities in the insurance sector as companies are able to reduce the costs of operation and speed up launch times. Disruptive technology is being used in this sector to reach people who historically have not had access to insurance. With the exception of South Africa, large parts of the continent still have a very low penetration of insurance services. Off the back of data sourced from payment providers and a user’s own mobile device, insurtech disruptors are now able to provide access to a wide range of insurance products, from motorbike and health insurance to life insurance digitally through apps and mobile platforms to customer who traditionally were uninsured.

MobiLife, for instance, offers life insurance products through mobile phones on which customers can sign up for their product by providing limited information, such as name, ID number, mobile phone number and bank account details, without the need for cumbersome paperwork and the manual investigation that would generally be required for persons who are not already formally insured, according to a case study done by Deloitte.

Agritech

While more than 65% of Africa’s population is engaged in the agriculture sector, according to the World Bank, the continent’s productivity has been among the lowest in the world due to small scale holdings, the lack of advanced equipment and technical expertise, weather changes and the inaccessibility of water.

But the situation has begun to change with a number of technological developments helping farmers to increase their yield, enhancing the earnings of small scale farmers through payment and irrigation funding platforms, crowd-sourcing of information related to planting, storing and pricing, crowd-farming, and access to markets.

Given the growing international demand for the sector, investors and start-ups have begun to tap into the agritech space and succeeded in attracting investments worth $19m in the last two years alone, registering a 110% growth during the period, according to a research report released by Disrupt Africa.

Technology for reducing risk

The power of technology is immense – it not only revolutionises specific industries but also helps reduce or detect inherent risks, including the risk of corruption, a major issue for any developing nation in attracting international financing. Digital technology such as blockchain, which uses a network of computers to approve transactions in an interrelated chain, with each transaction being available on a public ledger, is helping to keep accurate and comprehensive records of public expenditure, stamping out fraud, corruption and waste.

For example, Raise is developing an online data-driven financial infrastructure using a decentralised public ledger to create a continent wide exchange for digital asset (linked to domestic assets), making it easier for the public to invest in private companies from anywhere in the world directly through their mobile phones. By doing so, companies such as Raise are leveraging blockchain technology to bridge the gap between traditional financial models and access to markets and thereby exponentially increasing social impact.

In addition, mobile money is transforming the way salaries can be paid to private and government employees and the way fines can be collected by governments across the region. New initiatives like mobile salary payments, which is being run by the Liberian government in partnership with the Mobile Solutions Technical Assistance and Research (mSTAR), are being used to pay salaries to Ministry of Education and Ministry of Health workers.

The system not only makes the whole disbursement process efficient and faster but also clears out inefficiencies in the form of ghost workers and assists in reporting obligations to the governments’ revenue collection agencies.

Blockchain is also being used to improve traceability in the diamond mining and trading industry of Africa, boosting the value of genuine diamonds and thereby reducing profitability in the black market. Whereas, existing solutions such as mobile money are transforming the way salaries can be paid to private and government employees and the way fines can be collected by governments across the region.

New initiatives like mobile salary payments, which is being run by the Liberian government in partnership with the Mobile Solutions Technical Assistance and Research (mSTAR), are being used to pay salaries to Ministry of Education and Ministry of Health workers.

The system not only makes the whole disbursement process efficient and faster but also clears out inefficiencies in the form of ghost workers and assists in reporting obligations to the governments’ revenue collection agencies.

Technological disruption continues to completely revolutionise the business landscape in Africa. New innovations and technological leapfrogging are creating new markets and business opportunities boosted by a fast-growing middle-class population and urbanisation.

Naturally, there still remain many challenges, including the lack of proper, consistent regulation across the region. However, with the correct research and navigation of the legislative landscape, the opportunities and rewards for companies willing to invest in digital and technological disruption are huge, and for those who chose not to embrace the change, the risks are potentially existential.

ALN’s 5th Africa Investment Conference, to be held on 7-8 November in Dubai, will bring together key industry players to debate how African countries can drive innovation in areas like education, social networking, service delivery, cloud computing, artificial intelligence and fintech and discuss some of the risks and opportunities large corporates need to consider as they develop and adopt disruptive technologies in Africa.