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Technology will drive growth in Africa over the next five years

January 22, 2015 • Top Stories

(Image Source: Techcabal.com).

Africa is booming and a lot of this economic growth stems from investment in technology. (Image Source: Techcabal.com).

Chika Nwobi and Kresten Buch of Nigerian startup accelerator and funding programme 440ng discuss, with IT News Africa, the tech trends which will shape Africa in the next five years.

Africa is booming and a lot of this economic growth stems from investment in technology. According to World Bank projections for global growth, out of the 20 fastest growing economies in the world right now, 11 are in Africa. Driven by increasing industrialisation and the proliferation of free markets, the continent’s development can be seen via the move away from labour intensive economies to ones which largely rest on telecommunications, banking and retail. Although the African growth story is far from homogeneous, many agree that the continent’s prospects for the future largely depend on investment in technology.

Confidence in the technology and startup sector across Africa is reflected in the fact that senior executives are starting to leave secure positions in banking and telecoms in order to start their own tech businesses.

With the West faces continued economic uncertainty and stagnation, the next five years are set to see an upsurge in the development of African economies and businesses. Factors such as the declining cost of high-speed internet, the rise of smartphone use across the continent, innovations in banking and payments technology and the increasing availability of early stage investment funding will all play major roles in the development of Africa.

The biggest tech trend in Africa, and the one that is making the biggest impact on the everyday lives of people is the rise of smartphones and feature phones. Africa has seen the fastest uptake of mobiles in the world and mobile subscribers are set to hit half a billion in the next five years, according to the GSMA. Nigeria based Obiwezy is an example of a company both contributing to and benefiting from the mobile explosion. Acting as a marketplace for refurbished mobiles and gadgets, Obiwezy provides individuals with smartphones at relatively low cost. The mass adoption of these devices is leading to increasing transparency and efficiency in business and disrupting sectors such as, media, health, education, entertainment, financial and retail. As a result, we are seeing business costs reduce as a result of higher efficiency and productivity.

Mobile phones are also transforming both banking and payments across Africa. With many across the continent lacking bank accounts, innovations which allow individuals to transfer money via their mobiles could potentially boost the growth of countless startups, as their customers demand safer and more affordable ways to transfer money and pay for products. Key players in this space include M-PESA in Kenya, which currently has more than 18 million active users and the popular Paga, based in Nigeria. The rise of mobile payments not only provides smaller businesses with stable platforms to conduct financial deals but is also leading to the growth of mobile commerce across the continent.

For sectors like retail, which rely on the buying power of consumers, the growth of the middle class and their access to mobile  internet has provided many fledgling companies with access to millions of potential customers. As summarised in a recent CNN article , mobile commerce is accelerating the development of retail in Africa by leapfrogging the need for capital-intensive mall infrastructure and quickening the establishment of robust logistic networks.

Further examples of services enabling businesses to reach new customers include mobile ad network Twinpine and content discovery platform 8bit. These both bring down the cost and time required to bring a product to market.

Another factor to bear in mind is the demographic make-up of Africa. For example, in Nigeria the middle class is estimated to stand at 23 million, which represents a six-fold increase in 14 years. It is this expanding middle class that is going to fuel the economies of African countries in future decades. The youthful populations of countries such as Kenya and Nigeria are also key users of new mobile services and products. As well as being key consumers, young people offer a huge potential talent pool. However, the challenge faced by startups in countries where the average age is around 19, is finding, training and mobilising this potential talent. Addressing this issue is important as the lack of talent is still a major barrier to growth and could continue to be over the next five years.

For the countless African startups benefiting from new technological developments, growth isn’t simply hinged on a burgeoning smartphone-carrying middle class. Many of the small startups and businesses which are driving Africa’s technological revolution are heavily reliant on capital investment. Early stage funds, headed up by plucky investors are growing fast. For example, in the last year alone the number of early stage funds operating in Nigeria jumped from zero to seven. In 2015 these funds will distribute financing to over 100 startups. These funds aren’t unique to hotspots such as Nigeria, Kenya or South Africa. Uganda, Ghana and Senegal are all beginning to develop their own tech communities.

Due to the sheer scale and diversity of Africa it is very hard to make sweeping statements concerning the future of the continent. However, one thing we can be sure of is that growth in areas such banking, retail and telecommunications will largely stem from an increasingly healthy ecosystem of tech startups and early stage investors. Nairobi and Lagos, with their respective locations in East and West Africa are natural hubs for business and are already well on their way to becoming global tech hotspots. We predict that the next five years we will see many more African cities start to stand out as hubs for startups and businesses.

Staff Writer

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