29 Apr 2019
Africa is a large continent, and investors tend to pick and choose their markets based on a multitude of criteria. Some see opportunities in emerging arenas while others focus on more developed and mature opportunities. However, while Africa has emerged as a popular site for investors (Ethiopia is a current attention hotspot) thanks to telecom privatisation), there remains substantial risk that needs to be considered alongside the significant potential, no matter which market is being eyed.
Urban opportunities remain great
Africa is the fastest urbanising continent in the world, with the Sub-Saharan region transforming faster than anywhere else. Even though fibre dispersion is still low in most African countries, and general investment in basic infrastructure is still below where it needs to be, ICT investment has helped digital technology hubs in the likes of Nigeria, South Africa and Kenya to flourish.
Nairobi, with its "Silicon Savannah", is an example of just such an urban success story. The combination of enthusiastic investors, the latest in digital technologies, and a government committed to creating a fair competitive business environment, has helped to accelerate economic growth and opportunities for the city's inhabitants.
It's typically in these private-sector-friendly settings that global cloud services companies, like Microsoft, Google and Amazon, are making significant investments. This presents an opportunity for other organisations to leverage these investments and cooperate with the global giants in delivering new services to prime business and home markets.
Using the example of Nairobi again, the Kenyan capital is a pioneering smart city, utilising broadband infrastructure as a foundation to better its service provision and economically empower residents. However, Nairobi isn't the only smart city in Africa, and it won't be the last.
High-revenue areas naturally get first attention from private companies but moving ahead, as these markets become saturated, it will pay to look beyond capitals and powerhouse urban centres to secondary cities in the region. These smaller second-tier or intermediate cities, are often outperforming their country's primary metropolitan area in GDP growth. With the space for expansion and infrastructure development, these centre Africa's smart cities of tomorrow are primed for ICT and other forms of investment right now.
Getting around rural challenges
For broadband providers, the fundamentals of any business case are that there are adequate sales and revenue opportunities to justify the capex and opex to roll out the infrastructure and support the service in that specific market. This drives private companies to focus first on high-revenue generating business and residential areas, with less focus on smaller, less-revenue-dense locations.
Rising tides may lift all boats, but generally not those with holes in them.
Unsurprisingly, rural areas are the losers in this scenario, even though these underserved populations are arguably most in need of the socio-economic inclusion and upliftment that high-speed Internet infrastructure enables.
Entrenching the Digital Divide here is chiefly the cost of developing and deploying infrastructure in rural areas, as there is little in the way of existing infrastructure, like road access and electricity, to utilise for new developments. Multiple resilient fibre routes, extra protection of fibre routes and access points, emergency power backup, all cost money and make network deployment costlier than it should be, while low-income levels restrict revenue prospects.
Yet, a move away from primary urban centres presents clear potential. The challenges facing 5G's rollout in South Africa reveal problems with only relying on revenue-dense areas for market introduction. Given these locations already have fibre infrastructure that can deliver high-speed data connectivity via FTTX, coupled with a well-designed WiFi deployment, the question is: What does 5G bring to the table in this area? Most mobile network operators are still trying to recover their investments on 3G and 4G/LTE while facing flat revenue growth. The prospect of 5G being a "gap filler" in fibre-saturated markets may not justify the significant investment in 5G equipment and backhaul.
That said, 641.5 million people in Sub-Saharan Africa live in rural areas, a majority 60.4% of the total population. While this spend-limited group tends to suffer from geographic access problems and live in low-density areas, it consists of mobile users and subscribers already embracing the likes of digital banking. These rural dwellers demonstrate a hunger for life-enhancing connectivity that matches their urban counterparts. By 2025, mobile broadband connections in Sub-Saharan Africa are expected to reach 87% of total connections (up from 38% in 2017), with 300 million additional Africans coming online by then. These numbers can only be achieved by penetrating markets outside saturated urban areas.?
Also, many resource companies, such as mining organisations, have operations in Africa's rural areas. They require high-speed, latency-free connectivity, especially as Industry 4.0 takes hold with its key automation and Internet of Things components. Despite cost being a barrier to entry, it is outside the major cities where the market and business case for 5G may be strongest providing a huge opportunity for investors and sellers of 5G-ready network equipment.
While this scenario unfolds, fibre operators can expand their networks on the back of established revenue streams and success in metropolitan centres. They may, in fact be first to bring high-performance Internet connectivity, and its requisite infrastructure, to outlying towns and then rural areas, helping to alleviate poverty in these areas.
Africa is certainly not a risk-free business environment, whether looking at urban or rural markets. This said, investment opportunities are there for private companies although it still takes the basics of running a tight operating model to succeed. Rising tides may lift all boats, but generally not those with holes in them.