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Digital Africa

Read the report of our Digital Africa event on the 10th July 2003.

NMK event report, July 2003.

Russell Southwood, Balancing Act (www.balancingact-africa.com)

Russell Southwood originally worked as a management consultant in Britain, and was looking for a new challenge. Having read an article by John Perry Barlow which suggested how Africa could leapfrog the Industrial Revolution and catch up with more developed economies, Russell was inspired to found Balancing Act, an organisation to support entrepreneurship and ICTs (Information and Communication Technologies) in Africa. (Subscribe to the weekly e-letter at www.balancingact-africa.com.)

Russell described the situation regarding computer use and Internet access in Africa. There are over one million Internet subscribers in South Africa, less than one million in Egypt; Uganda has around 10 to 15 thousand; for some countries the number can be in the low thousands, or even hundreds. Low incomes, the state of the economy and the cost of computers are all prohibitive factors. However, there are more cyber caf?s in Africa than in the UK. These are how most people access the 'net.

Most African countries have production- rather than service-based economies. Telephone companies are generally state-run monopolies, and consequently are under no competitive pressures to offer additional services. The high cost of bandwidth is another inhibiting factor to online companies. Despite the high barriers to entry, foreign technology companies are investing in Africa, and African companies themselves are launching and establishing successful ventures.

Russell explained the importance of diaspora networks in encouraging and supporting entrepreneurial and technology ventures in Africa. Many companies, such as Ivoritech in the Ivory Coast, would not get off the ground without significant investment (both financial and intellectual) from Africans who have raised capital and honed their business and technology skills overseas. (Diaspora networks are also an important driver of email and internet use in Africa, as a means of keeping in touch with families and friends abroad.)

There are few opportunities for creative designers in Africa. Web design is particularly weak due to low demand the absence of companies in the service sector. However, there are opportunities for creative designers working with low bandwidth.

Most people in Africa access services via mobile phones rather than fixed phones or PCs. Mobiles offer a terrific platform for value-added services. There are also opportunities for those providing management and project skills and training, as many African corporates are seeking to update their skills base.

With the exception of South Africa, the African market is one of the toughest in which to do business, but for those that accept the challenges, opportunities and rewards do exist.

Kennedy Mambwe, Dispatch (www.dispatch.co.zm)

Kennedy Mambwe of Dispatch, Zambia's first online news publication, spoke about the many challenges faced by digital media ventures in Africa. A great future had been predicted in 1997, but revenue dried up during the global recession of 2001. (Kennedy founded Dispatch in 2000.)

Kennedy explained why content-driven internet ventures in Africa are unlikely to have a smooth ride. Media buyers, wedded to print and broadcast, remain skeptical, while low internet usage contributes to low advertising revenues, holding back growth.

As an FT correspondent, Kennedy had an ideal vantage point from which to observe the development of online services in Africa. Many digital platforms have been over-delivered, and have failed to find a market. Only the handful of e-commerce sites that have identified the products and services for which there is a genuine mass market have prospered. Free news delivery, conversely, has had a negative effect on the commercial development of digital media.

Dispatch logged Zambia's highest-ever hit-rate, but failed to deliver paying audiences for its online news service ? a task that is even more difficult in Africa than it has been in Europe and the US. Consequently, Kennedy now believes that it is difficult to see how an exclusively internet-based commercial news or information service could be viable in Africa at present. Rather, growth will come from interactive services offered in conjunction with offline businesses or media channels.

Dr Ayo Salami, African Business Research (www.africanbusinessresearch.com)

Dr Ayo Salami, co-founder of the African Business Research Institute, gave a persuasive presentation on the benefits of investing in African financial markets. Ayo argued that in order to drive sustainable and significant economic growth, and reduce reliance on aid, it is necessary to promote the business case for investing in Africa.

There is still a great deal of ignorance around the world about African economies, and to combat this Ayo is in the process of setting up www.africanfinancialmarkets.com, a research-driven information portal providing data on investing in Africa, company analyses, macro-economy and politics, all-African equity analysis, news and research. The site is due to go live in Autumn 2003.

Ayo is on a mission to challenge people?s perceptions of Africa, and correct what he considers to be our misconceptions about doing business there. He began by considering the concept of risk. Most African countries are viewed in the west as incredibly risky places in which to invest, with insurmountable regulations, unstable governments, corrupt officials and no investment opportunities. But all investment is about managing risk, and the higher the risk the higher the potential returns. Good fund managers do not avoid risk if they want their investments to grow.

Furthermore, most African economies now pose far less of a risk to your money than you might expect. Ayo provided a battery of facts and statistics to support his claim:

• The number of democratic countries in Africa has grown from around 10 in 1980 to around 30 in 2003.
• The IMF and World Bank reforms have been a painful pill for African countries to swallow, but African GDP growth is starting to outperform population growth, and economic growth is beginning to impact positively on living standards.
• More than a million Africans live in Europe, providing a significant amount of capital flow into their home countries.
• Budget deficits have declined, and public finances are in a healthier state.
• Inflation is increasingly under control and declining.
• Currencies are still subject to fluctuations in value, but share price appreciation outweighs currency risk.
• Average daily turnover is growing.
• Although there are few African companies with a market valuation in excess of 500 million dollars, there are a substantial, and growing, number of medium-sized companies valued between one million and 100 million dollars.
• Returns to African equity markets are better those for G7 countries, with Egypt, Ghana, Kenya and Namibia all performing particularly well in Q1 and Q2 2003.
• It is untrue that there is 'nothing to buy' in Africa.
• The average daily turnover on the African stockmarket is increasing.

Returning to the problem of negative perceptions of African countries? prospects, Ayo asked the audience whether they would consider investing in any of the following:

• a country that had endured a long and bloody civil war, the assassination of its president, a financial panic and a massive influx of poor immigrants;
• a country that had started a regional war, suffered a humiliating defeat, endured heavy bombing that destroyed its infrastructure, and has no history of civil liberties or democratic government;
• a country divided after a long and destructive civil war that is still technically in a state of war.

He was describing the United States of America, Japan and Korea.

Ayo concluded by re-emphasising that Africa offers significant growth and profit opportunities, but for that to happen the continent requires capital flows which are based on business logic rather than on emotional factors. It is vital for this project to succeed, for the development of efficient financial markets is fundamental to the long-term alleviation of poverty.

Judith Middleton, Director, Cape Information Technology Initiative

Finally, Judith Middleton gave a presentation on the opportunities for ICT businesses and investors in the West Cape of South Africa, which is by far the largest and most important market on the continent.

Judith outlined key facts for business and investors in the West Cape region: it has the largest number of ICT companies on the continent, with over 1200, 40% of which serve global markets. South Africa is the world?s twentieth largest market for ICT products and services and the sector, currently worth R43 million (?3.6 million), has shown 22% growth rate in the last three years. This, along with the favourable exchange rate and good infrastructure, makes the West Cape a lucrative choice for foreign investors.

Judith continued by explaining the current business strengths in the region. These include software development and services, mobile technologies, multi-media applications, including film and interactive publishing, a high skill level amongst the population, supported by two universities and three tertiary institutions. Business opportunities are further strengthened by the existence of the ICT incubator ?Bandwidth Barn? and Judith?s own CITI, a not-for-profit ICT development centre.

Judith concluded by outlining the numerous business opportunities within the Cape area. These include business processing outsourcing, software development with a particular focus on financial software, applications and development software, point-of-sale and online gaming. Further opportunities exist in the mobile market, where South Africa has the biggest market outside of Europe, exhibiting the fourth largest growth rate in the world. There are opportunities for training and research by foreign clients in the Cape region. This is dubbed 'edutourism' and includes international students studying at the universities in the region and companies taking advantage of the cheap rates in the Cape by sending staff for ICT training.

This event was presented in association with:

Sponsors

Burns Owens Partnership is a consultancy working with policy and decision makers to research and develop the links between the creative economy and social and economic development.

Take a look at the original event here.