Surveillance Africa

Africa’s Digital Economy is About to Take Off

2 Mins read
Africa’s Digital Economy is About to Take Off

 Big opportunities exist for disruptive transformation and investment on the continent.

A new report from Endeavor Nigeria paints a bullish picture of Africa’s prospects for a booming digital economy. Released earlier this month, The Inflection Point: Africa’s digital economy is poised to take off [registration required – Ed.] suggests that an exciting period of growth beckons for tech businesses in Africa.

“Africa is the next growth frontier in technology. The combination of our young and digitally savvy population, increasing digital penetration and the impact of the Covid-19 pandemic on behaviours has triggered an inflection point in our digitisation journey,” writes Endeavor Nigeria’s Tosin Faniro-Dada.

In raw numbers, the report estimates the current size of the African digital economy to be around $115 billion. Endeavor expects this to balloon to $712 billion by 2050. This represents a compound annual growth rate of around 7%.

Boosted by the pandemic

Some of this growth is undoubtedly due to the rapid pace of economic development on the continent in recent years – African countries have regularly featured among the fastest-growing economies on the planet in the past ten years. But Covid has also been a significant driver of digitisation.

The report details how electronic transaction volumes in Nigeria spiked as a result of the pandemic – there was a 600% increase in volumes over what had initially been predicted for 2020.

NIP account-to-account transfers – 2021 Volume based on Jan-Jun 2021 NIP (instant transfer payments) volumes annualised; Source: McKinsey & Company Covid-19 Nigeria Consumer Pulse Survey 16/6/16–6/18/2020.

Even more interesting is the insight into what the online transactions paid for. Predictably, the big winners were online streaming, restaurant deliveries and grocery orders. Education also featured strongly.

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Source: McKinsey & Company Covid-19 Nigeria Consumer Pulse Survey 6/16–6/18/2020

Continued growth in the online economy will inevitably have a knock-on effect on both internet penetration and jobs. But Endeavor goes further, suggesting that it will improve the overall economic well-being and boost global recognition for African businesses and talent.

Based on data from various sources, the research suggests that:

  • GDP per capita increases by 2.5% for every 10% increase in mobile penetration, compared to a 2% GDP per capita growth worldwide.
  • GDP per capita increases by 1.9% for every 10% increase in digitisation (conversion of information into a digital medium), compared to 1% in OECD countries.

Regarding jobs, the report suggests that if Africa’s internet penetration reaches 75% (up from the current 43.1%, according to Statistica), it could create 44 million jobs.

Opportunities abound

Interestingly, in this report, Endeavor suggests that conditions are primed for a disruptive transformation in a number of sectors on the continent:

  • Financial services
  • Commerce
  • Transport
  • Healthcare, and
  • Education.

As a note of caution, the report concludes with some cogent advice for investors, listing five key things they should consider before investing on the continent:

  1. Follow the money
  2. Build local market intelligence
  3. Understand the market dynamics
  4. Look beyond the ‘usual’ opportunities, and
  5. Map out exit pathways.

“The widespread fragmentation, informality and non-consumption across Africa has made many sectors ripe for disruption, and our entrepreneurs are rising to the challenge,” writes  Faniro-Dada.

But, she warns that the success of digital transformation efforts is contingent upon enabling as many local innovators as possible to scale their businesses to extend their reach on the continent and abroad. She adds: “As more innovation stories emerge, we need to make sure that as many of these ventures as possible scale.

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“Some of the infrastructure to support these entrepreneurs exist, but we need to identify existing gaps and work on bridging those gaps. Then, with the proper financial and strategic support, we can catalyse Africa’s digital economy to drive higher GDP, create more jobs and address many of the other challenges that impact the lives and livelihoods of many on the continent.”

Faniro-Dada concludes that research shows that high-growth scale-ups, such as mid-sized companies with 50 or more employees, typically drive the bulk of economic growth, productivity and job creation in an entrepreneurship ecosystem.

Source: BRIAN BAKKER  | Inafrica.com

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