David Gyori, international resource director at The Asian Banker and known author and keynote speaker, talks about Africa’s advantages in going digital and the various reasons for the continent to take a leap into this revolution.
February 23, 2018 | David Gyori
- As a continent, Africa has ten key advantages when it comes to digitalisation, which include a young population, a rising middle class, proactive mobile network operators, and a soon-to-be high internet penetration
- These unique advantages make Africa the perfect location to fully jump ahead and embrace digitalisation
- The continent will look to capitalise on China as its business partner, with Chinese companies such as Alibaba and Tencent aiming to export their digital expertise
This is the time for digital Africa. This is the time for the vast continent, soon accounting for one quarter of humanity, to jump ahead and to embrace digital revolution – as opposed to a much more cautious Western approach of digital evolution. Everything is given, the scene is set, and the first buds of this burge oning opportunity are already visible.
One of the most important areas determining whether the continent will win digital transition is that of financial services. Africa has a set of special, unique advantages making it the perfect location to not only go through but to jump through digitalisation. This is a historic opportunity in which the best financial services providers have to take a leading, proactive, and visionary role. Below is Africa's ten key advantages in digital transition.
The situation: The median age (the age that divides the population into two equal groups) of Africa is just slightly over 20 years. This is in stark contrast with the global median age of 31. According to data published by the World Economic Forum, the ten youngest populations are all in Africa, by respective median ages in 2015 of: 15 in Niger; 16 in Uganda, Chad, Angola and Mali; 17 in Somalia, Gambia, Zambia, DRC as well as Burkina Faso. It is striking to compare this data with highly developed areas of the world such as Japan with a median age of 47; the European Union with 43 or the US with 38.
Digital consequence: Being the youngest continent provides Africa a unique chance to go through radical digital transition. Young people are exponentially more inclined to accept digital solutions and to prefer them over traditional bricks and mortar and face to face channels.
FASTEST GROWING POPULATION
The situation: Africa is going through an unprecedentedly dynamic period of population-growth. Based on latest data by the United Nations Department of Economic and Social Affairs Population Division, the current approximate population of the continent is 1.28 billion. The United Nations predict that the population of Africa will reach 2.5 billion by 2050. Historic data shows an exponential surge: in 1960 the population of the continent was 0.3 billion; in 1970 0.4 billion; in 1980 0.5 billion; in 1990 0.6 billion; in 2000 0.8 billion; in 2010 1.0 billion.
Digital consequence: In markets with dynamic demographics, there are extra incentives to be innovative as an incumbent corporation. One of these extra incentives is that the relative importance of the existing clientele is shrinking exponentially; another is that instead of attracting existing clients from the competitors, market players tend to tune their core value propositions to new-to-market prospective clients. Economy of scale is also paramount in a global environment where leviathans like China and India dominate global growth. Africa – increasingly – provides the necessary and beneficial level of economy of scale.
RISE TO MIDDLE CLASS
The situation: Estimates vary regarding the exact size of Africa’s middle class. Inconsistencies in estimates can best be explained by differences in definitions. But one thing is consistent regardless of specific definition: all research shows sharp rise in the size of the African middle class. Defining "middle class" as "being able to buy items other than basic necessities", we get to estimates like the one by the African Development Bank of over 300 million people across the continent by as far back as 2011. Investor George Soros - a couple of years ago - pointed out that probably the brightest economic spot is the rise of the African middle class.
Digital consequence: Africa has a burgeoning commerce and e-commerce environment with a rising rate of urbanisation. E-commerce in particular is one of the key driving forces behind digital transition in Western countries. It is expected to be so in Africa as well. The new middle class is all of the sudden able – and willing – to buy cutting edge consumer hardware and software solutions.
RISE IN EDUCATION
The situation: Youth literacy rates have gone through a period of dynamic rise during the last three decades. Still, in Sub-Saharan Africa youth literacy – as measured between the ages of 15 to 24 – is around 70%. Tertiary education is also on the rise, yet the percentage of youth attending university is still about one fifth of the global average in Sub-Saharan Africa.
Digital consequence: As literacy rises, so rises digital literacy. Digital literacy is the ability to utilise information by using information and communications technologies. Besides general education and hundreds of different government-run programs helping young people obtain basic IT skills, there are large targeted programs provided by non-government organisations, as well as for profit corporations. Google recently revealed that it has trained over one million young people in Africa through its flagship digital education program branded as Digital Skills. Digital Skills provides nearly 100 different courses across 20 countries to boost and enhance the digital skills of young people across the continent.
LARGE GEOGRAPHIC SIZE
The situation: Africa is an enormous continent. It is almost the size of Europe and North America together. North to South the continent runs through a vast 8,000 kilometres (the greatest North to South distance within the 48 consecutive states of the US is 2,700 kilometres).
Digital consequence: Digital is location-independent. Across geographic units of long distances, digital transition has extra benefits, helping bridge otherwise hardly connected locations.
LOW QUALITY PHYSICAL INFRASTRUCTURE
The situation: According to the World Bank, road density in Africa is about one-fifth of the global average. Meanwhile, seven in ten Africans have zero or insufficient access to electric power.
Digital consequence: Digital consumer electronics solutions – especially a smart phone – require surprisingly little energy (which can be provided through micro solar projects), yet these solutions help the vast continent overcome its difficulties in physical infrastructure. Accelerated digital transition is certainly the quick and adequate answer to the infrastructure gap. In terms of getting access to sufficient electric power to run digital transition, Africa has the first place in the energy revolution. Africa is often considered and referred as the "Sun continent" and has seven of the ten sunniest countries on earth.
LACK OF LEGACY IT SYSTEMS
The situation: Large, incumbent, leading Western corporations are typically struggling with long outdated “legacy IT systems” and “spaghetti software”. While the core systems of some leading Western banks date back to the 70s and 80s, there is also an enormous complexity – and often chaos – of intertwined systems (dubbed as the "spaghetti software" phenomenon). Some major Western banks have over 1,500 different – sometimes somewhat uncoordinated – software solutions running parallel. Incumbents in Africa typically have more up to date and less complex IT infrastructure. This is a fundamental advantage driving – and granting true freedom to – digital transition.
Digital consequence: During informal conversations executives of some leading Western incumbent corporate banks, they admit that they often fail to fulfil clear and explicitly articulated digital customer needs due to inabilities of their outdated IT systems.Less IT legacy means more nimbleness and agility when it comes to fulfilling digital customer needs (including the creation of superior digital customer experience and customer journey) by African corporations.
The situation: In stagnating, saturated, mature, fully-developed Western markets, mobile network operators (MNOs) typically stick to their core competences, providing telecommunication services to their clients. In high-growth emerging markets – including Africa – the situation is different. MNOs are highly active in financial services. This is a great example for "digital convergence" – different industries merging into one digital melting pot. (Another iconic example is Chinese technology giants – such as BaiDu, Alibaba, Tencent, JD and others – immersing in financial services. US technology giants – including Google, Apple, Facebook and Amazon – are much more reluctant to cross over into finance beyond their core competence.)
Digital consequence: MNOs are highly active in a number of African countries in financial services. This drives digital transition ahead of some Western markets. MNOs are typically more digitally native than incumbent banks and they have a better image and more important role in the eyes of millennials (young people under the age of 35). This leads to accelerated digital transition in Africa across industries through the extended central role of MNOs. Africa is the undisputed world leader in mobile money and is certainly ahead in some segments of mobile financial services. A specific example for this shift is M-Pesa by Safaricom. There are currently over ten countries in Africa (out of a total of 54 sovereign countriest) where more people hold mobile money accounts than traditional bank accounts.
CHINA AS KEY INVESTOR
The situation: In the past 20 years, China has gradually become Africa’s most important business partner. Labour costs, natural resources and burning need for infrastructure all play a role in this partially ambivalent relationship. China keeps raising the stakes: In December 2015, President Xi Jinping has announced $60 billion of new investments to be channelled into Chinese infrastructure. Trade between the two entities keeps rising at the pace of 20% per year. Definitely, Sino-African relations are surging.
Digital consequences: In terms of digital transition, China is one step ahead of the West. It is especially easy to sense in industries, such as financial services. BaiDu, Alibaba, Tencent, JD and even some of the large incumbent banks are making Western peers look a little bit behind. This digital advantage is something China can export to Africa and help the continent jump ahead. Chinese know-how is at least as good and adequate when it comes to digital transition as is Western best practice. Africa should – and will – capitalise on this.
INTERNET PENETRATION CHEAP SATELLITES
The situation: Statistics show currently about 30% of Africans having access to the internet. This is the result of exponential growth. Satellite is the best technology to spread internet to vast areas of low infrastructure. The problem arises when cost calculations are made: Current satellite technology results in about $250 million cost per satellite. This cost level is simply too high to allow instant cheap internet for hundreds of millions of Africans. At this cost, there are currently about 1,300 active satellites in the sky orbiting around Earth. This number can easily double in the coming five years. Satellites are getting dramatically smaller (currently a typical satellite weighs over a ton which will go down to well below 100 kg) and new launching technology (by SpaceX and some others) will cut fixed costs by 80% to 90%.
Digital consequences: As the cost of producing satellite technology becomes a fraction of its current price in the next five years, internet coverage will spread over Africa (including rural parts) and prices will become much more affordable. Some estimates that internet penetration will be as high as 65% by 2022 in Africa. This means nearly half a billion new-to-internet consumers in the coming years – an unprecedented era of internet boom and a huge boost for digital transition.
Africa needs to see itself as a leader of digital transition. This requires a new perspective from which the region sees, respects, and understands Western best practices, cutting edge digital solutions, and state of the art of innovation; yet it produces its own initiatives and alternatives. These unique African initiatives can later become best practices for the Western world. We are at an inflexion point, “Digital Africa” is coming.
More of this will be discussed during the Digital Banking: Operative, Tactical and Strategic Best Practices training workshop on the 16th and 17th of April, 2018 in Lagos, Nigeria.
David Gyori is an international resource director at The Asian Banker and chief executive officer of Banking Reports Ltd London. The views expressed herein are strictly of the author.
Gyori will facilitate the Digital Banking: Operative, Tactical and Strategic Best Practices training workshop on the 16th and 17th of April, 2018 (Monday and Tuesday) in Lagos Nigeria. To register, click here.
Categories: The Future of Finance
, West Africa
, digital banking