28 Nov 2014
Africa's GDP Could Grow 92% if it had Internet Parity with the West
In the first of a two-part report, delegates at AfricaCom the continent's largest digital communications conference, call on governments and businesses to start working together to help boost the region's under-resourced digital economy.
In the city of Chongqing, in south-west China, the local government has built a walkway for mobile-phone users, allowing them to text, talk and WeChat without causing harm to themselves, other pedestrians or traffic. It seems unlikely, though, that there will be a similar initiative in Lagos, Cairo, or Johannesburg any time soon.
Africa's insatiable appetite for digital communication, though, looks set to grow, especially when it comes to mobile financial services, e-commerce, mobile data and social media sites. With very low internet penetration rates, however, compared to the developed world, the continent desperately needs more widely available broadband networks and cheaper data.
It may still be early days for the internet in Africa – as one delegate at the November 2014 AfricaCom convention in Cape Town put it – but the economic prospects for the African telecoms market are nevertheless hugely exciting. According to Chris Daniels, Vice-president of Facebook's Internet.org division, there is an "enormous opportunity ahead in Africa".
The question is, though, are the various industry stakeholders in Africa's digital 'ecosystem' up to the huge challenge of overcoming the seemingly insurmountable barriers to connecting Africa to the internet? And will they be prepared to collaborate to reach that goal?
Taking place in Cape Town and now in its 17th year, AfricaCom is Africa's largest communications conference and exhibition. The event programme covered the strategic issues affecting companies in Africa's digital market. Overall, it achieved its aim of providing an environment where the constraints affecting Africa's digital economy could be debated, challenged and – hopefully – resolved.
African internet penetration
Although internet penetration in Africa continues to grow at double-digit rates, the continent still lags behind most of the rest of the world, with fixed-line broadband penetration at just 5.2%. Analyst Ovum's broadband development index, for example, ranks South Africa 103rd out of 191 countries in terms of the adoption of fast broadband.
About 80% of the continent is not connected, with strategies for bridging this digital divide featuring high on the agenda at AfricaCom. According to Africa's digital telecoms industry leaders, wider access to broadband and cheaper data rates are essential. Overall, inaccessibility in large segments of the continent is seen as constraining the growth of a theoretically lucrative economic sector.
Bill Lan, a broadband consultant for Huawei, said it was critical that access to broadband is increased in Africa. Identifying the correct investment model, though, is one of the main challenges for improving connectivity, along with establishing network construction costs and achieving collaboration along the value chain. Lan believes that a PPP strategy is the most effective way to develop affordable broadband, especially in the more remote areas.
He says the most economically viable model for developing the necessary infrastructure to enable broadband access in Africa is a multi-technology approach, using a mix of existing submarine cables, optic-fibre networks and wireless technology. This, however, is something he says remains a long way off.
Lan said that increased internet access must be strategised in the policy arena as a "core economic competency", in much the same way that the steam train was the primary driver of industrial development in the 19th century.
Addressing delegates at the conference, Facebook's Daniels said that he looked forward to the day when "everyone in the world is connected to the internet". To support this ambitious vision, he said, in 2011 the UN declared access to the internet a basic human right. The tangible benefits of getting Africa connected, he believes, will be innovation and economic growth.
Citing a report by Deloitte, Daniels said there would be a 92% increase in Africa's GDP if internet penetration on the continent equalled that of the developed world. Additionally, 44 million new jobs would be created and there would even be a significant reduction in child mortality.
The sort of utopian digital society Daniels hopes for is not going to be achieved easily. In Africa, only one in five people are currently connected to the internet, compared to just over a third globally. Daniels believes the main barriers preventing the African population from going online are illiteracy, cost and the lack of a true digital infrastructure.
Taking into account the infrastructure barrier alone, about 85% of the world is covered by a data network of some form. In Africa, that level of penetration drops to 70%. The continent simply doesn't have enough coverage. Closing this divide requires massive investment from all of the players in the digital ecosystem.
Even if the investment were there, it would still not be feasible to connect the continent using the standard forms of infrastructure, such as fixed cables. In a bid to counter this, Daniels spoke of Facebook's efforts in researching the use of high-altitude solar-powered planes to provide connectivity to areas that lack fixed-wire or satellite infrastructure.
Currently, new submarine cables around Africa's coasts have brought down bandwidth prices in some regions. Independent fibre-optics companies are also racing to connect homes and businesses with new fibre optic networks. The constraints, though, are huge.
Andile Ngcaba is the former Secretary General of South Africa's Department of Telecommunications and the chairman of Convergence Partners, an ICT investment company. Commenting on the challenges, he said: "The main obstacle to providing affordable broadband in Africa is the sheer size of the continent and its low population density."
With a surface area about three times the size of Europe's, but with half the population density, Ngcaba said the investment needed is massive. He believes the best strategy for supplying broadband is a mix of fibre optic and spectrum-based technologies, such as Wi-Fi, satellite and LTE (4th generation mobile networks). He also maintains that, unless the lower-band spectrum is released by state authorities to provide digital connectivity, Africa will take a very long time to get connected.
Leon-Charles Ciss, Marketing Director at the Orange group, had a predictably different perspective. He believes that, for Africa, the device component is just as important as the network. To this end, his company has initiated a programme providing low-cost mobile smartphones across Africa.
Satellite has already made significant inroads into Africa's broadband space, but many view it as a technology that is losing its momentum. Jean Philippe Gillet, Regional Vice-president of Intelsat, a commercial satellite company, believes that satellite still has an important role to play in connecting the less populous areas of Africa.
Of all of the issues that exhibitors and delegates raised at AfricaCom, it is reform of the telecoms regulatory and policy environment that was deemed the most pressing. The necessary reforms include infrastructure sharing, open access, accessing spectrum and the costs that regulators charge for licensing the services.
Commenting on these challenges, Arthur Bastings, Executive Vice-president at Millicom, a Swedish telecommunications and media company said: "Many governments misunderstand the economic potential of investing in ICT. Governments' short-term focus on heavily taxing the installation of digital infrastructure restricts economic growth and is counter-productive. Policy makers are viewing connectivity as an end rather than as a means to a greater economic goal. Taxes will have to come down to attract more investors.
"Government is a very important stakeholder in the digital ecosystem. The decision by regulators not to release spectrum for broadband is holding back economic investment in Africa by US$30 billion a year."
Despite having arguably faced similar constraints to Africa, China has been incredibly successful at overcoming many of these challenges. Wei Leping, Chairman of the Science and Technology Committee of China Telecom Corporation, is well aware of the economic and policy challenges of delivering broadband to a huge country. In China, though, the government played a leading role in shaping the economic strategy for the internet environment, while encouraging private investment through PPP. According to Leping, a similar strategy is now required for Africa.
Nic Rudnick, Chief Executive of Liquid Telecom, a South African internet service provider, said: "In Africa, people cannot enjoy the benefits of the internet in the same way as in the West. Some 98% of Africans rely on mobile devices to connect, so the volume and speed of data are a constraint to customers."
Rudnick believes that the next wave of investment in broadband provision will be from private enterprise. He said: "Government policy in this area, on the whole, has not played the part it could have in order to improve affordable connectivity."
Rudnick advocates a move away from the current environment of "delinquent state-owned telecom operators" to a more entrepreneurial mode. This, he believes, would be better suited to rolling out connectivity, particularly in rural areas. He is also highly critical of the swingeing tax increases in the sector which he identifies as "causing significant harm to the telecoms industry".
Jose Dos Santos, Chie Executive of Cell C, a South African mobile phone network, maintains that phone operators will only become more efficient and affordable when the market is opened up to new players.
An end to hostilities?
Telecoms industry players agree that the digital industry is entering an era of far greater collaboration and co-operation, particularly between content providers and the operators that host their services. Traditionally, the relationship between the two has long been thorny. Historically, operators have viewed over the top (OTT) service providers, such as Facebook, as a threat. According to many of the delegates at AfricaCom, however, it seems that these stakeholders may finally be entering a more co-operative phase, seeing partnership as the way forward.
According to Daniels, the economics of online access only truly works for operators if the appeal of the internet brings more paying subscribers to their networks – the role of OTT providers, such as Facebook and Twitter. He said: "Any value proposition that we put on the table has to make economic sense for the operators. If OTTs don't provide attractive products, then the operators won't make money through new subscribers, and they won't be able to invest in essential infrastructure.
"As a result, operators and the new wave of OTT providers need to make their relationship work. The various players seem to have finally woken up to the fact that this is a consumer choice, not one that can be controlled by the industry. If the internet is relevant to users, in the form of basic information provision, news, platforms to communicate socially, and access to healthcare and financial services, they will be prepared to pay for it."
What Daniels sees as a symbiosis between OTTs and operators has not always been the way operators have viewed the model. They have long seen the OTTs as more of a threat than an opportunity.
Bastings, too, believes that peace may have finally broken out between the two parties. From his perspective, partnering with the major social-media OTT providers will lead to greater subscriber numbers.
Ahmad Farrouk, Chief Exceutive of MTN, a South African mobile network, believes that greater co-operation is clearly the way ahead. He said: "It can be a win-win situation between operators, like us, and Facebook and Twitter, and others. Providing a network, however, comes with huge costs, including near prohibitive taxes and licensing fees."
While Farrouk didn't quite say it, there was something of an implication that this investment burden should be shared by all parties operating in the internet space. It seems, then, from what industry leaders are saying, that OTTs and operators now see themselves as sharing the same economic space rather than fighting for market share. Missing from the picture, though, in this collaborative environment is government – and a coherent regulatory vision as to how to bring connectivity to vast numbers of Africans.
The 17th Annual AfricaCom was held from the 11–13 November 2014 at the Cape Town International Convention Centre. The event attracted 380 exhibitors from 120 countries, as well as some 9,000 preregistered visitors.
Part two of this report can be found at "Opportunities Emerge in Africa's Growing Mobile Data Sector", 1 December 2014.
Mark Ronan, Special Correspondent, Cape Town