Africa’s Challenge to Entering the Digital Economy
Open Market, Kumasi, Ghana
Sub-Saharan Africa accounts for nearly a tenth of the global mobile subscriber base and is expected to grow faster than every other region over the next five years.
The mobile industry plays an increasingly important role in the social and economic development of the region: mobile connectivity has become the main platform for innovation and the driving force for greater inclusion, while the mobile ecosystem, including mobile network operators and device vendors, contributes significantly to economic growth and jobs. Across the region, mobile is enabling life-enhancing services that directly impact the UN Sustainable Development Goals (SDGs), complementing the efforts of governments and their development partners.
The GSMA anticipates that within Sub-Saharan Africa 700 million smartphones will be in use by 2025, but the stubborn fact remains that owning a smartphone and grasping its significance as a gateway to the digital economy are two very different realities. “Smartphones are misnamed,” says futurist Ray Kurzweil. “They should be called ‘gateways to all human knowledge.’”
Africans are acquiring smartphones at the proverbial speed of light, but most have not yet grasped the power of digitally networked enterprise to create wealth, to alter the fundamental concept of what twenty-first century business can be, and to shape human capital to unleash the economic potential of the continent. In effect, they have not yet decided their equivalent of Morpheus’s challenge to Neo in The Matrix: “You take the blue pill, the story ends. You wake up and believe … whatever you want to believe. You take the red pill … you stay in wonderland … and I show you just how deep the rabbit hole goes.”
Morpheus’s challenge to Neo frames well the digital crossroads facing African SMEs, entrepreneur-focused FBO networks, and the latent universe of business-to-business and business-to-consumer transactions. Take the blue pill and see the smartphone as an appliance that allows you to do more of what you already know you want to do. Or take the red pill and experience the transformative potential of the smartphone as a gateway to a world you did not even know existed.
Right now, African MSMEs are still analog, leader-focused, local, and cash-based. They have yet to enter “the matrix” of the digital economy, even though smartphones are becoming ubiquitous. But what is the smartphone? Smartphones are digital gateways that, along with the applications that extend their reach into virtually every industry, enable easy transfer and tracking of information. But the unrealized power of the smartphone is its ability to service the needs of networked enterprise.
Bestselling author Don Tapscott writing in 1995 described the arrival of the Internet in the United States and Europe as ushering in “an Age of Networked Intelligence — an age that is giving birth to a new economy, a new politics, and a new society. Businesses will be transformed, governments will be renewed, and individuals will be able to reinvent themselves — all with the help of the new information technology.”
The economy for the Age of Networked Intelligence is a digital economy. In the old economy, information flow was physical: cash, checks, invoices, bills of lading, reports, face-to-face meetings, analog telephone calls, blueprints, maps, photographs, and direct mail advertisements. In the new economy, information in all its forms becomes digital — reduced to bits of data stored in computers and digital appliances and racing at the speed of light across networks. Sub-Saharan Africa is on the cusp of the new economy.
The most powerful current forces in the international development community (United Nations, International Finance Corporation, USAID, major U.S. and European foundations, private investors) all keenly discern the power of the smartphone to drive the global push toward financial inclusion, financial literacy, and financial access among the three billion unbanked individuals that currently subsist outside of the formal financial system. This makes a great deal of sense, but the linchpin to it all in Africa (and elsewhere) is still missing.
In Africa, what is missing is an understanding of the transformative significance of the new reality — the digital economy — that the smartphone has opened up. There is an irony here: Africans are acquiring the digital tools before fully grasping their transformative potential as gateways to the digital economy. This is the essence of technological leapfrogging, which is by definition an uneven process, akin more to a zigzag motion than to a standard growth curve.
Yet, despite this irony, Africa is in the midst of a tectonic shift in finance, and particularly in business-to-consumer solutions like mobile banking products and other digital payment mechanisms. E-payments and mobile money are reaching and benefitting remote and underserved populations, but other fintech solutions also warrant attention. Though perhaps less developed, innovative business-to-business solutions represent a tremendous boon for microfinance institutions, MSMEs, and other institutions looking to create economic value and advance financial inclusion. Among their many benefits, new business-to-business solutions have the potential to improve internal operational efficiencies drastically, lowering the cost of doing business, which in turn supports lower prices for financial services and expanded access to excluded populations.
A few examples of business-to-business fintech applications are: artificial intelligence that provides cognitive analysis and advice to credit officers evaluating the creditworthiness of previously unbanked individuals; distributed ledger technologies (blockchain) that enable the viability of new forms of collateral that otherwise would not be trusted or usable without digitizing them in a ledger of value; and data analytics to better predict risks such as liquidity issues, client desertion, or loan default.
The gaping hole in the business-to-business digital ecosystem is the relative absence of African trading platforms. Full stop. But that situation is made worse by the fact that the two biggest retail platforms in Africa — Jumia.com and Konga.com — treat mobile as an afterthought. Access to laptop and desktop computers is minimal across Africa and these platforms are focused on the elite 10% that use these devices. Global trade for African MSMEs is an essential factor toward long-term economic growth, job creation, poverty reduction, and the strengthening of civil infrastructure.
What is desperately needed, in the near term, are business-to-business platforms that facilitate the economic independence and empowerment of African entrepreneurs by providing tools and services that enable a vibrant and flourishing business community.
All of this, however, is dependent upon grasping the transformative potential of the smartphone and having the right apps to get the job done. Where will this happen first? How long will it take for the digital economy to become the new normal?
The open question is whether the African economy can “skip an adoption step” and get to the real game changing impact of connectedness or will it have to muddle through the steps like the West, just at an accelerated pace. Of course, this question will be answered in different ways and with varying time frames in technologically savvy cities such as Accra, Cape Town, Lagos, and Nairobi versus less technologically inclined cities, villages, rural settings, agricultural zones, and more.
What role will government and international NGOs play in jump starting and sustaining digital adoption? Not to mention the ongoing and, likely increasing, significance of Facebook, WhatsApp, and LinkedIn to support rapid digital adoption rates by making the game changing impact of connectedness ever more palpable to millions of people. What took the West nearly twenty-five years to accomplish in terms of digital adoption may take only a fraction of that time in Sub-Saharan Africa.
The digital economy, smartphones, the right apps, and entrepreneurial networks are all inextricably linked. They enable one another, and they will drive one another. When Africans understand how smart technology corresponds to networked enterprise, they will begin to unlock the latent potential for unprecedented economic growth on a continent-wide scale.