Phenomenal growth in Africa’s information and communications technology (ICT) sector is rapidly changing the continent’s macroeconomic landscape. With smartphone use already firmly established for individuals and business, African governments are embracing wide-ranging ICT development, increasing internet access and making ICT a crucial plank of their development plans.
Dramatic changes are taking place across Africa, with markets being liberalised and more sophisticated regulatory bodies emerging. Competition has also greatly driven down what were, until very recently, some of the highest communication prices in the world. Operators are battling it out for new customers by offering very affordable packages and tacking on a range of services on their products.
Currently, African consumers are spending approximately $4.4bn a year in the ICT sector.
In the past, telecommunication services were only accessible to a privileged few, but now lower-income countries are catching up. In 1998, right at the start of South Africa’s telecommunications revolution, the country accounted for 86% of all subscribers in sub-Saharan Africa, but by 2008, that figure had fallen to 18%, as other markets gained importance and Nigeria overtook South Africa as the biggest national telecommunications market.
The mobile phone industry is the exemplar par excellence of this rapidly growing and important sector, which has increased from 15m subscribers in 2000 to 500m in 2010. This escalation is expected to continue, with predictions pointing to 800m subscribers by the end of 2015. East and Central Africa are expected to register the highest mobile phone subscription growth rates in the world; Nigeria is already the world’s 10th-largest mobile market and saw its market penetration rate double from 2006 to 2008.
The telecommunications industry’s outstanding growth is reflected in the rising levels of international investment that have been surging into one of Africa’s most lucrative sectors, with international companies such as Bharti Airtel, MTN and Vodafone expanding their operations across the continent.
This interest is very much fuelled by a rapidly expanding middle class, with larger disposable incomes and a strong appetite for new emerging technologies. There are now more middle-class households in Africa than in India.
While companies have long understood the importance of ICT in maintaining and increasing profitability, governments across Africa are also officially recognising ICT’s positive impact on economic development by making it one of the fundamental pillars for growth.
For instance, Nigeria’s Federal Government has stated that the ICT sector is key to reaching its goal of raising nominal GDP from $215bn to $900bn by 2020. Total spending on ICT in 2010 stood at $12bn, with the Nigerian industry already expected to be worth around $160bn.
Another nation keenly embracing the ICT development route is Rwanda. Since 1998, the government has followed its Vision 2020, a policy road map that paves the way for transforming Rwanda from an agricultural to a knowledge-based economy. This ambitious vision commenced by creating the National Information and Communication Infrastructure (NICI) plans, which established the relevant ICT policies and institutions, including ‘smart-gov; ‘e-government’ and other applications serving government purposes.
The second phase of Rwanda’s programme includes the installation of a $107m fibre-optic cable, which will bring high-speed internet to the entire country. Nkubito Bakuramutsa, the coordinator of the famous One Laptop Per Child (OLPC) programme, says that this investment is expected to reduce broadband costs by nearly 90%.
Rwanda also has plans to open a $5.5m state-of-the-art National Data Centre by the end of the year. This will provide valuable backup for government ministries and the private sector by securely storing and processing data. This will be the first data centre of its kind in sub-Saharan Africa and will provide leverage for bandwidth-thirsty applications throughout the country.
The much-hyped benefits of cloud computing technology, providing faster and cost-effective solutions for data storing, will also be available as a result.
No mention of ICT developments in Africa can be complete without including Kenya. The country was a pioneer in mobile technology in Eastern and Central Africa and has gone on to blaze a trail of innovations, including Safaricom’s M-Pesa money transfer system and the ‘one-network’ concept originally formulated by Celtel, which became Zain, and is now Airtel. The country’s technology incubators have become a hive of innovative applications that are taking the world by storm, and $7bn technopolis Konza Technology City, outside the capital Nairobi, is ready to begin construction. (See page 88.) The mobile technology space in Kenya in particular and Africa in general is now referred to as Silicon Savanna after the original in California.
Between 1998 and 2008, an average $5bn a year was invested in sub-Saharan Africa’s telecommunications sector, about 1% of total GDP. The private sector was the biggest investor and primarily targeted mobile infrastructure, especially after mobile markets were liberalised.
The majority of investment is financed through debt, in the form of bank loans or, to a lesser extent, the issuance of bonds on local securities markets. More than half of this financing originates from Europe and North America and around 20% from the Middle East and North Africa.
Where local financial markets exist, investors have been very successful in tapping into them to fund telecom investments. On certain exchanges, telecommunications operators constitute a significant amount of the total value of securities (both equity and debt). Experts state that borrowing on exchanges by telecommunications operators has played an important role in the growth of loan syndication and financial markets in Africa.
However, there are still important disparities in investment across the continent, with Nigeria and South Africa together accounting for more than 60% of the total network investment in sub-Saharan Africa. In general, countries that have taken the decision to promote competition within the sector by encouraging new operators to enter the market have witnessed higher levels of investment than those that have chosen to close their market.
The World Bank predicts that an estimated $15.5bn in expenditure will be needed between 2007 and 2015 to roll out GSM network coverage to Africa’s entire population. From this figure, $6.9bn will be used on areas that are potentially commercially viable: the total cost of expanding it to networks that cover the 8% of the population that lie outside these areas is around $8.7bn, or around $1bn per year.
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