Africa's Digital Market Going Forward

Where are things heading post Covid and economic slowdown?

Africa's digital journey continues to develop, though not always in a straight line.  Both Covid and the war in Ukraine, like the traffic in Nairobi (pictured above), are slowing economic growth.  In part because Egypt, Senegal, Sudan, Tanzania and other countries are dependent on wheat and corn exports from Ukraine as well as Russia.  How will the related blockages and sanctions along with the economic slowdown affect digital progress across Africa?

Before answering the question, keep in mind that Africa's digital momentum is often in the eye of the beholder.  Some observers, especially distant ones, believe the smartphone is pervading the continent as is m-pesa.  Others point to the metric of actual users of mobile money, which can lag dramatically behind how many persons have signed up for the service.  In the case of internet use overall, it depends on the focus.  Is it on North or South Africa or the rest of the continent, where the levels average under 30%.  Limited network coverage, lack of electricity, low incomes, and reliance on oral languages or languages without web presence limit digital access and use.

At the same time, Africa has been the source of digital and broadband innovation.  From m-pesa to regional IXPs, much has happened on the continent.  In Somalia, mobile money use is reaching Kenya's level, in part because the same groups that offer mobile service also operate the banks.  As a result, they make money on the floats and do not charge fees for fund transfers, thus increasing usage.

At the operator level, prior consolidations were mostly country specific (such as Airtel Kenya with Telkom Kenya) or sell-offs (Orange's withdrawal from East Africa).  More recently, independent tower company growth has been robust, along with government efforts to encourage infrastructure sharing.  Most of the latter have faltered, however.  Even Rwanda's 4G wholesale JV with Korea Telecom has hit a wall, as 4G subscribers have declined.  Other such initiatives have had pushback from operators who want direct control of their next-generation deployment strategies.

Meanwhile, capacity growth at the international level is strong, with more undersea cables being deployed around the continent.  Yet, possibly, overinvestment is occurring given the low internet use and growth in Content Delivery Networks and data centers, which localize traffic?  Plus, the competition from cross-border terrestrial networks (notably Liquid's), which are often better suited to serve short-route cross-border links to access the CDNs?  The regional IXPs in Kenya and Nigeria could also play a role.

Finally, at the ownership level, some expansion continues.  One example is Thelma/Axian's entry into Tanzania and Comoros.  Axian is partly owned by the owner of Free in France, with affiliated operations in Madagascar, Senegal, Reunion and Mayotte.  Another example is Africell, which operates in four African countries and is launching in Angola with financing from IFC and private investors.  And PE-owned Rain has launched a data-only 5G operation in South Africa.   But will this new round of players find enough niches and market buoyancy? 

The above questions, along with potential regulatory developments like the introduction of technology sandboxes (see above), will punctuate the next few years.  No single answer is likely to apply across Africa's 55 countries.  However, countries with rare mineral resources may fare well as may those that have allowed viable market structures to prevail. At the same time, increased sector taxes and the presence of pirate video services will increase market stress, even as reduced service prices and implementation of regional roaming agreements should help limit it. 

Kalba International offers experience in 50+ of the region's countries

Focusing on Africa since 2008, our firm and consultants now offer sector experience in all but two of the continent's 55 countries.  Our consulting cases span the continent and include advising on a $4 billion operator acquisition and  the formation of a broadband PPP as well as preparing the business model and strategy for a new wholesale entrant. We have also determined why six million individuals registered for a mobile money service but fewer than 5% of these used it in the year that followed.  And we have completed auction and training cases as well as the formation of a national digital economy strategy.

Last but not least, we have authored 20 case studies on the viability and investment impact of regulatory, spectrum and taxation frameworks for broadband development and on the prospects for 5G startup. In the process, we have served a wide range of private and public clients, including Etisalat, Eurasiasat, GSMA, IFC, MTN, and the World Bank, along with several ministries and regulators.  Plus our consultants add experience from their prior work at  Airtel, Dark Fibre Africa, Djezzy, Ericsson, Ethio Telecom, Huawei, Nokia, Safaricom, Seacom, Sonatel (Orange) and Wananchi, along with fluency in Afrikaans, Amharic, Arabic, Ewe, French, Hausa, Kiswahili, Portuguese, Somali, Tigrinya, Twi and Wolof.