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Seizing the 'Internet Plus' moment in Africa 05 Aug 2015

Over the last four years, I have spent every month of July in China lecturing an MBA course at the University of Saint Joseph and meeting with clients in Macau. I have come to the realization that although I teach on the subject of China and Africa in my international business programme at Nichols College back in the United States, I had missed the point when it came to China's profile. I kept thinking about how Taiwan, with all of its tall gray buildings, seemed more like a communist country than China. I have come to realize that Chinese communism today isn't anything like my antiquated vision of it which was shaped by the Soviet Union, and living in the United States.
    
What impacts me the most is the optimism of the Chinese, in contrast to the cynicism I hear constantly in the West, that the Chinese seem to have lost their excitement about the future. In Hong Kong and Macau, people yearn and strive for more than what they have. It reminds me of Jim O'Neill's assertion that “China is the most important economic story of our generation.” China's general macroeconomics is very promising. It scores well for its stable inflation, external financial position, government debt, investment levels, and openness to foreign trade. At the micro level it falls just below average on corruption and use of technology. But the latter is changing rapidly. China's middle-class, which is larger than the entire population of the United States, is ready to spend online. Just consider the success of Chinese internet ventures such as Baidu and Alibaba Group. During last year's Black Friday, Alibaba made its first $1 billion from sales in just 17 minutes.

China's example for Africa

Africa has a lot to emulate from China. I am not referring to China's political ideologies though. However, I recognize that its communist party is the largest political party in the world, with 80 million members. I'm referring to China's great developments in the past few decades. I am highlighting the aggressive growth rates experienced by China in only three decades. China has the world's largest chamber of commerce. But if O'Neill believed China was the most important economic story of our generation, I believe Africa has all the ingredients and potential to be the next greatest economic story, even greater than China, by 2050, if not much earlier. One just has to look at the numbers.

There are significant opportunities in Africa, especially considering the fiscal position of many of its leading economies, its young labour pool, and improving productivity. It's plausible to assume that Africa's economy will grow more than 14 times by 2050, when it could exceed current economic output of both the U.S. and the Eurozone. Of course, we must be watchful of Africa's deepening economic ties to China, which makes it vulnerable to a slowing Chinese economy. Also, African markets are not without risks, as local politics are complex, and there are still several pockets of corruption and instability. Furthermore, in several countries in Africa, liquidity is still very scarce, transaction costs can be steep, and currency risk is still very real. There's also the risk of nationalization of industries.

Power of Internet Plus
    
I would, however, encourage Africans, particularly the youth, to take full advantage of the opportunities offered by a new and vast marketplace created by internet-based services. I actually would urge university students in Africa to capitalize on their youth and knowledge in the Internet age. I would like to remind universities and internet service providers (ISPs) of this new web-based economic growth engine known as Internet Plus as an example of what should inspire local African youth to look beyond the traditional job markets.
    
It is true that well-established African e-commerce business, Kalahari, the advertising firm InMobi, and e-classified site, Mocality has retrenched, reorganized, or closed down. Kalahari, the digital arm of South African media giant, Naspers, which launched the site back in 2009 as an inventory-based e-commerce site, emulating the successful Amazon model, had to close down only a couple of years later citing unprofitability as a reason. InMobi, the India-headquartered mobile advertising giant, backed by Japanese Softbank, also had to pull out of Africa in 2012 due to slow uptake and low sales performance. Mocality, which launched online directory services in Kenya and Nigeria in 2009 and 2011, respectively, also had to close in 2013 as it realized reaching profitability was not a reasonable near-term prospect.
    
But if I have had the chance to advise these companies I would have recommended them to hang on a little longer. In this industry, as I tend to advise hedge fund managers, a few years makes a lot of a difference. Just consider the Internet World Stats (internetworldstats.com), as it profiles Africa as holding almost 10 percent of the world's Internet users as of Q2 of 2014. Google and Facebook, according to an article by Joe Brock published in Reuters last March, are now at the forefront of a “scramble to win over new African Internet users, offering freebies they say give a leg-up to the poor but which critics argue is a plan to lock in customers on a continent of 1 billion people.” McKinsey & Company's data shows that Africa's Internet penetration will reach 50 percent by 2025, and it is expected there would be 360 million smartphones on the continent by then, roughly double the number in the United States currently.
    
The Internet age, in my opinion, has arrived in Africa, even though disproportionally across the continent. There is more penetration in some countries such as Nigeria, Egypt, South Africa and Kenya – the top four in Internet usage in Africa – more than in others. Of course, it does not mean all internet connectivity is via broadband, as a recent survey by the U.N. Broadband Commission reported that eight of the 10 countries with the lowest levels of Internet availability in the world are in sub-Saharan Africa, including Ethiopia, Niger, Sierra Leone, Guinea, Somalia, Burundi, Eritrea and South Sudan, with Internet penetration in all eight countries accounting for less than two percent of the population. But let's not ignore, however, that massive broadband fiber optic cables are being laid everywhere from the West coast to the East, North and the South.  
    
Faster internet connectivity aside, Internet plus in Africa also does not mean that web shoppers typically enjoy the advantages found in city-wide broadband places such as Hong Kong and Macau, or advantages of well-developed logistics sector, an internationally recognized accounting system, and a mature and effective rule of law, which are all key factors for a growing e-commerce and e-business industries.
    
What it does mean is that Africa has a robust model to follow and an impressive clientele to serve. Although Internet Plus is relatively new, not even fully embraced in Hong Kong, and significantly much less in Africa, I believe it is safe to say that a web-based growth engine will flourish in Africa sooner than later. Don't take my word for it. Take Google's instead, which predicts massive growth in Africa by 2017. In an interview with eCommerce Africa Confex in Cape Town last February, Google South Africa, country director, Luke Mckend predicted considerable growth in Africa's e-commerce sector. Mckend affirmed that this year will be yet another growth year, and suggested that Africans are increasingly Googling with the intent to buy.

Birthing Africa's tech millionaires

In addition, as argued by Mfonobong Nsehe in his article published in Forbes a couple of years ago, “hungry techies from Nigeria to Ghana, Kenya and South Africa are building web-based companies providing simple solutions for some of the most daunting challenges and inconveniences.” The success of many emerging web-based services companies in Africa such as Nigerian's Wild Fusion, one of Africa's leading digital marketing agencies founded by Abasiama Idaresit, a Nigerian-born digital marketing expert; One Africa Media (OAM), Africa's largest online classifieds group, co-founded by Justin Clarke and Carey Eaton (South African and Kenyan, respectively); and MXit, Africa's largest social networking site with about 20 million people in more than 120 countries across the world and the continent's first mobile instant messenger, founded by Namibia's Herman Heunis; trigger the battle for pole position in Africa between Google and Facebook. This indicates that Internet Plus is opening the doors for web savvy and young entrepreneurial talents.
    
African young should have every reason to look beyond the boundaries of African countries. In this Internet Plus space, youth is an advantage. One just needs to look at Facebook's Mark Zuckerberg, Napster's founder Sean Parker, Snapchat's Evan Spiegel, and 27-year-old entrepreneur Gossy Ukanwoke who is dubbed Nigeria's Zuckerberg. Gossy is the founder of Beni American University (BAU), Nigeria's first private online university, launched in late 2012. I strongly believe that in the next five to seven years, there'll be an unprecedented explosion of Internet millionaires in Africa.

Internet Plus policy advocacy

Internet plus in Africa can be significantly profitable, but it will take time and effort. Policymaker's must provide support for these entrepreneurs. Besides launching web services, there are still many other elements in which entrepreneurs need to be profitably successful. It will require a better integration of the disparate African economies and in particular, much greater investment in infrastructures, from postal system and transportation networks to ubiquitous broadband, as in Hong Kong and Macau. In addition, there is a need to set up a pan-African system to prosecute fraud and improve online business trust in African Internet Plus.

For continuous and long-lasting growth, literacy rates must be improved. African policymakers must also focus less on how to improve the number of total Internet domains registered and focus more on fixing the physical business ecosystem instead, which continues to be neglected. This is imperative in order to unleash the wealth-creating powers of the web services in Africa.