In Africa hi-tech is taking centre stage

In many countries, the ICT sector is no longer marginal

For 48 long hours, employees of Senegal’s National Telecommunications Company cut telephone and Internet connections to the rest of the world. That bold action, in August 2010, sought to force the government to back down on a plan to grant a US company exclusive rights to manage incoming international phone calls.

The shutdown itself sent shockwaves throughout the Senegalese economy. Dozens of institutions were affected: banks, travel agencies, customs offices, call centres, calling card vendors, the airport, the harbour. Newspapers ran angry editorials. “Our economy lost CFA50 billion,” (US$100 million), one headline complained.

The event vividly illustrates just how important the information and communications technology (ICT) sector has become in Africa. It is not only a major industry in its own right, but also a backbone for many others.

Unparalleled growth

Nascent only a decade ago, ICT in Africa has been growing in recent years at an unparalleled pace. In some countries, various studies note, the “information economy” is becoming one of the main drivers for growth more generally.  In 2009, South Africa’s ICT sector generated $24.2 billion and contributed more than 7 per cent to the country’s gross domestic product (GDP). In Tanzania, its share reached 20 per cent of GDP. Everywhere on the continent, the ICT sector is expanding rapidly, with annual revenues now estimated at around $50 billion.

Investments in mobile phones, the continent’s dominant information technology, have grown from $8.1 billion in 2005 to almost $70 billion today, reports the UN’s International Telecommunication Union (ITU). Mobile phone companies are now major sources of tax revenue for African governments, averaging 7 percent of tax receipts.

‘Ongoing success story’

Behind these impressive numbers lie three major changes over the past decade. The first was Africans’ unexpectedly fast adoption of ICT services. In 2000, 11 million people in Africa had mobile phones. Five years later the number had grown to almost 200 million, and is now approaching 400 million.  The pace of growth has defied all predictions and is an “ongoing success story” in Africa, notes the ITU.

There also has been steady growth in Internet access on the continent, from 3 million users in 2000 to more than 100 million in 2010. This upward trend will continue as Africa literally becomes wired to the rest of the world with the completion  of a number of undersea communications cables. In the meantime, Africa has emerged as a world leader in “mobile web” technology — Internet access through mobile phones –and a pioneer in the development of sophisticated mobile banking, health and education services.

Outside investors rush in

A second major development has also contributed to ICT economy’s rapid growth: the rush to Africa of foreign investors attracted by the sector’s high profit margins.

In 2008, Britain’s Vodafone, the world’s largest mobile operator in terms of revenue, started an African shopping spree in Ghana when it acquired 70 percent of Ghana Telecom for $900 million. It has since made its way into Egypt and Kenya, and has become the majority owner of South Africa’s Vodacom.

France Télécom has also gotten into the act, announcing plans to invest more than $8.8 billion in Africa and the Middle East. Most notable among foreign investors in Africa’s ICT economy, however, is Bharti of India. In March 2010, Bharti’s aggressive search for a continental presence led it to acquire the Africa assets of Kuwait’s Zain for a record $10.7 billion.

This frenzy of acquisitions is a sharp break with the past. A decade ago, only a handful of African businessmen and companies saw opportunities in the continent’s changing landscape. When Sudan-born Mohamed Ibrahim launched the Celtel mobile phone network in 1998, his company shared much of the African market with just two other companies, South Africa’s MTN and Vodacom.

No more. And even though returns on investments in the region’s ICT sector are now less than they once were, they still remain attractive to Western companies struggling with stagnant markets and low profits at home. Five years ago in Africa, “it took half a year to recover investments in infrastructure for new clients,” says Marc Rennard, head of France Télécom’s African and Middle Eastern operations. “Now it’s more than two years. But that’s still pretty good.”

Regulatory reform

And third, the policies and institutions needed to help Africa’s ICT sector reach its potential are finally in place. “Telecommunication growth has been encouraged by the easing of regulatory restrictions by African governments and increased liberalization across the market,” notes the influential international accounting and business services firm Ernst & Young.  Today most African governments have opened up their mobile phone and Internet markets to competition and to private investment and set up new regulatory authorities to oversee the burgeoning sector. Their powers usually include issuing licences and arbitrating disputes.

As governments devise multi-year plans for ICT development, national regulatory agencies have also aggressively promoted public wider access to information technologies. In Kenya, where parliament adopted an ambitious plan to transform the country into a regional ICT hub, the national regulator recently asked operators to extend coverage to rural areas in exchange for reduced licencing fees. It also required them to bring down their charges for mobile phone banking.

Rwanda, Egypt, Tunisia, Kenya, South Africa and the Seychelles are among the countries that have adopted ambitious ICT plans with a view to developing their own knowledge-based economies. Long known for mining and tourism, Africa’s booming ICT sector is making a great many people think again.

By André-Michel Essoungou

Editor’s note: In little more than a decade Africa’s embrace of mobile phones and the Internet has revolutionized the ways Africans talk to each other. Now the technology is revolutionizing the ways Africans do business. Africa Renewal’s Andre-Michel Essoungou follows the money to the future.

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