The prospect of technology start-ups in Africa
Date: Nov 19, 2020 | 4th Industrial Revolution, News
Professor Tshilidzi Marwala is the Vice-Chancellor and Principal of the University of Johannesburg. He recently penned an opinion article that first appeared in Voices 360 on 18 November 2020.
Recently, I have been reflecting on the viability of creating Africa’s own Silicon Valley. This was mainly inspired by the book I recently read, Africa Business Revolution, by Leke, Chironga and Desvaux. Silicon Valley is a technology hub in the United States which houses some of the world’s blue-chip start-ups such as Facebook and Google. While other emerging markets throughout the globe provide alternatives, I have honed in on our continent. We have not had the head start that parts of Asia have had, for instance. Yet, there is much to boast about here.
From car guards in the bustling suburb of Linden in South Africa accepting micropayments on a mobile phone to drones that deliver blood supplies to remote parts of Rwanda, Africa is undergoing a digital transformation, and there are pockets akin to Silicon Valley that can be uncovered. This is not surprising when you consider that 60% of the entire continent is aged below 25 and is increasingly born-digital, with the number of youths in Africa increasing by 42% by 2030.
The growing access to digital spheres is remarkable given the gaps in infrastructure, including unstable power supplies throughout the continent. Despite this, Africa boasts over a billion mobile connections, an 80% subscription penetration and 500-million smartphones. Approximately 33% of mobile users have a smartphone, and internet subscribers in the region has quadrupled since the start of the decade. It is expected that the working-age population in Africa is expected to grow by 450 million people, or close to 70%, by 2035. The World Bank has warned that without effective policy change, there will only be about 100 million new jobs for this growing cadre of working people.
As Julian Lim, the editor of Startup Foundation, explains it, “Africa presents a unique case. As a continent, it undergoes yearly economic growth and has one of the world’s fastest-growing economies. This factor, coupled with a growing youth population, presents a foundation for rapid economic and social development.” At the same time, the global economy finds itself in a precarious position. Although we see a gradual and apparent recovery, the coronavirus just about brought the global economy to an abrupt halt, and the repercussions have naturally reverberated through emerging economies.
Here, we find ourselves at a crossroads, much like the poet Robert Frost, who wrote, “Two roads diverged in a yellow wood, and sorry I could not travel both.” One road could be a retreat from the realities of the fourth industrial revolution (4IR), with no prospect of development. The road to be taken is one which affords emerging economies the prospect of leapfrogging in order to be transformational. There is an argument which suggests that development has to be linear and sequential. However, leapfrogging is what emerging economies can do best. In other words, a quick jump in economic development by harnessing technology with consensus achieved by governments, the private sector and citizens can enable development similar to the boom in South East Asian countries which opted to tap into manufacturing.
According to the McKinsey Global Institute Report on the impact of AI on the world economy, automation will incrementally add 16% or around $13 trillion by 2030 to current global economic output – an annual average contribution to productivity growth of about 1.2% throughout the next decade. When we disaggregate this, automation of labour will add up to 11% or around $9 trillion to global GDP by 2030. In contrast, innovations in products and services could increase GDP by about 7% or approximately $6 trillion.
Consider, for example, the fact that steam engine technology in the 1800s improved labour productivity by an estimated 0.3% a year, the impact from robots during the 1990s by approximately 0.4%, and the spread of information technology during the 2000s by about 0.6%.
As AT Kearney managing director Alex Liu noted in an article for the World Economic Forum in Africa in September, Africa’s future is more effectively located in the 4IR. When you consider that the 4IR is usually coupled with fears around mass job losses, this would seem to many, to be more of an omen. But in a 2017 report, the World Economic Forum predicted that these job losses would concurrently lead to new occupations, especially in areas such as data analysis, computer science and engineering – if we are quick enough to adapt to this changing landscape.
This has already rung true in parts of the continent. Liu observed that, with a remarkable performance at 13% above the global average in early-stage entrepreneurial activity, we can be hopeful that Africa can benefit from the 4IR. The key, of course, is to continue to harness this potential. Africa’s Pulse, an analysis conducted by the World Bank, suggests that digital transformation could increase regional economic growth by up to 2% per annum, providing fresh opportunities for inclusive growth through innovation, service delivery and job creation.
There are already vast technological hubs and start-ups driven by youth across the continent. As of last year, it was estimated that there were around 440 innovation hubs and centres across the continent. Take Stellenbosch, for example, which some have called the Silicon Valley of Africa. Here, successful fintech start-ups such as Entersekt, which pioneered mobile-based authentication for payments, or Snapscan, which allows you to make payments at restaurants or retailers on your phone with a QR code have emerged. Still, there is room for more and I would be remiss if I did not allude to the challenges we face on the African continent.
Despite greater mobile connectivity, access to data and the emergence of tech hubs, Africa is still lagging behind other digital economies around the world, with comparatively low access to digital technologies. For example, Africa’s Pulse shows that 18 of the 20 least wireless-connected countries in the world are in Africa.
Compared to 90% of the households in advanced countries who have access to fixed broadband services, the median penetration rate in Africa is just 2% with 16 of 51 countries in Africa below 1%. Fixed broadband subscriptions, essential for larger data needs of growing businesses, sit at just 0.6% while Africa’s level of internet bandwidth used represents just 1% of the world’s total. Added to this, the World Economic Forum’s Readiness for the Future of Production Report 2018 showed that 22 out of 25 African countries assessed were classified to have a low readiness level for the future, because of the lack of the necessary enabling conditions.
While in many instances, Africa is leading the charge, the numbers indicate that there is a fundamental need for more investment in the digital economy for us to keep pace with the rest of the world. There are already some solutions to this. For example, digital businesses could target customers outside of Africa with a localised offering. Andela, which was started in Nigeria, for instance, identifies and develops software developers in Africa who are then outsourced to tech companies around the world. In four-year contracts, engineers are integrated into teams and offer their skills to over 200 international clients, which have included Viacom, GitHub, Cloudflare, and Invision.
Elsewhere, there is scope for technology that can be adapted to a local context. M-pesa, for example, which has been launched in the Democratic Republic of Congo, Egypt, Ghana, Kenya, Lesotho, Mozambique and Tanzania, enables customers to send, receive and store money safely and securely via a basic smartphone. Users can even top-up airtime, make bill payments, receive salaries or get a short-term loan.
Another solution is to make data more accessible to all segments of the population. From my standpoint, there is also some essential role universities can play here. After all, Silicon Valley was formed around Stanford University. As TechCrunch writer Ritika Trikher explains, the two are “chartering a self-perpetuating cycle of innovation”. The University of Johannesburg (UJ), for example, has launched a compulsory Artificial Intelligence short course for all first years. Students need to be furnished with skills that are transferable across a broad range of job opportunities and help them modify their approach to solving business problems in dynamic industrial environments.
Perhaps a critical step will be for African economies to harness digital trade through the African Continental Free Trade Area (AfCFTA), which came into effect earlier this year. Already, new markets offer new avenues for tech start-ups and e-businesses and a combined GDP of over $600 billion.
We are in a digital age, that much is a given. The continent also boasts the demographic profile to lead this age. Much like a microcosm of the 4IR, which requires a convergence of humans and technology, this requires a convergence of forces across the public and private sectors. As Akinwumi Adesina said at the Africa50 meeting in Kigali 2019, “What we need to do as Africa is recognise that it’s not oil or gas or minerals that’s going to determine our competitiveness in the world, it’s knowledge and the ability to innovate and create mega-businesses that are going to be the Google and Facebooks of this world.”.
Professor Tshilidzi Marwala is the author of the book: Closing the Gap: The Fourth Industrial Revolution in Africa. Follow him on Twitter at @txm1971.
*The views expressed in the article is that of the author/s and does not necessarily reflect that of the University of Johannesburg.
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