25 May 2018

Africa: Business Roundup By the Ashburton Investments Africa Fund Management Team

Talk of artificial intelligence (AI) and the advent of the fourth industrial revolution, has created fear in developed countries that many jobs will be lost to machines and robots, and that economic growth will be stifled by technological advances.

We, however, believe that the African continent may well be able to benefit from these technologies in ways that possibly aren't envisaged in more developed economies. The continent should also be able to avoid the expensive roll out of outdated technologies and leapfrog to the latest innovations. After all, as Naadiya Moosajee, a World Economic Forum Global Shaper said: "necessity is the mother of invention and in Africa it has been the mother of innovation."

History shows us that people on the continent have been strong adopters of new technologies and that Africa has even bypassed existing developments. After skipping the roll out of land lines, mobile technology users were quick to see the benefits this could bring, especially mobile money. Sub-Saharan Africa, with just under half of all the mobile money platforms in the world, is leading the globe in rolling out financial products to masses of people who were previously excluded from this area of the formal economy. By the end of 2017, there were 122 million active mobile money accounts in the region, with users transacting $20 billion per month (63% of the value of all mobile money transactions in the world).

Even if changes are needed to localise software or technologies, there are enough expert hubs across the continent with strong information technology and engineering capabilities to do this.

Education will be key to making sure that the requisite skills levels are available so that Africa can benefit from new technologies. Although investment in education should be a driver for economic growth, and therefore an important focus for African governments, we have seen that the take up of services and the use of telecommunications has not been limited by current education levels. By way of example, almost 90% of Safaricom's clients use its mobile money platform, M-Pesa, many of whom are rural and have not had much senior schooling.

Despite the concern that the relatively unskilled African workforce will be left out of the knowledge economy, advances in technology make it possible for niche businesses to access their clients efficiently. The use of social media as a marketing tool for the myriad of small and medium enterprises (SMEs) that Africa is well known for, can enhance sales without excessive costs. New applications also create new opportunities. Uber, as an example, has increased the number of people using taxi services and has also made it possible for entrepreneurs to start a small business, leading to more employment. Think of the increased marketing reach someone running a small bed and breakfast can achieve through a service like AirBnB, and with almost no capital outlay. We are already seeing mobile money platforms used to provide short term loans to SMEs to enable them to expand working capital. Support for and growth in SMEs will help to address Africa's unemployment, promote inclusive growth and encourage gender equality. If SME's are going to be the driver of jobs and economic growth in Africa, technology will be a key enabler in this part of the continent's future.

But, it is not just at the level of mobile technology, mobile money and smartphone applications that the continent will benefit from new technologies. Some of the larger industrial parts of the economy are also being transformed. As advances in solar and other renewable energy reduce the capital costs of installing these systems and the storage of electricity (in batteries and the like) becomes cheaper, we will see the transformation of the electricity grid. In the past, low cost electricity meant building very large power stations (to get low unit costs for power) that used fossil fuels like coal;oil or alternatively very large nuclear power stations. These power stations were connected to a very large electricity grid that ultimately had to be rolled out across the country to connect individual households. A massive capital expense for a poor country before any benefit could be derived.

New and renewable electricity generating technologies will allow regional grids to be developed at a reasonable cost that don't need to be connected to the national grid. New use of remote sensors will enable easy and remote management of these grids and smart meters will allow efficient and remote billing including prepayment for power to reduce bad debts.

These new technologies can even lead to the smallest grid, an individual home. In east Africa, combining mobile payment technologies with solar power allows even the smallest home to be lit. The M-Kopa IV Solar Home System includes a solar panel, control unit, three low-energy LED light bulbs (one of which is a portable, rechargeable torch) and a rechargeable radio. The control unit also has a USB port for charging cellphones. Purchasers can make small daily payments using M-Pesa to pay it off over a year.

Although a stable, reliable and reasonably priced electricity supply is key to the industrialisation of Africa, rolling out regional grids into key hubs could avoid the capital cost of expensive country wide transmission networks. The benefits for agricultural processing in the continent with most of the world's underutilised arable land would be immense. Electricity would also allow the implementation of a cold chain from farm to fork. Agriculture still employs and supports the largest percentage of Africa's population and improving the productivity of rural farmers and providing a global market for their products. Bring on technology to the continent.

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