Technology

How Ethiopia Turned Into East Africa’s Digital Leader

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Africa’s rising entrepreneurial community is a clear indicator of the continent’s improving economic health. It is not the start-up culture alone which is driving this economic growth, but also policy changes and a general awareness amongst the working youth, that Africa is progressing.

The enhancements in the ICT infrastructure and the introduction of mobile internet have catalyzed the economic awakening of the African people. Cheaper data rates and reduced costs of internet-enabled devices are continuously increasing the internet penetration rate, thus making Africa a fresh and untapped market for new businesses that directly target the consumer needs.

Many international enterprises like Google, Facebook, Microsoft, eBay, Cisco, and Siemens have already identified the immense business potential that Africa offers, as evident by their expansion projects into the continent. A rising middle class coupled with an eager workforce and a growing digital economy cumulatively make Africa a source of endless business opportunities.

On a high level, the African economy consists of trade, industry, agriculture, and human resources. Even though Africa is a continent rich in a variety of resources, recent economic growth has mainly been amounted to manufacturing, services, and commodity sales.

Sub-Saharan Africa, particularly, is expected to reach a GDP of $29 trillion by 2050. Further, the World Bank estimates that by 2025, most African countries will reach the middle-income status, which is defined by at least $1,000 per person annually. In 2017, the African Development Bank reported Africa to be the world’s second-fastest growing economy with a growth rate of 3.1% and is expected to grow by 3.6% in 2018 and 3.9% in 2019.

Economic growth has been prevalent throughout the continent, with one-third of the Sub-Saharan countries even registering growth rates of 6% or higher, while another 40% was growing at a rate of 4 to 6 percent.

The rising population rates in Africa also give way to a sizeable work-intensive population. One of the reasons for successful businesses in Africa is the low labor costs. Home to 1.28 billion people, the United Nations Population Division predicts an acceleration of annual growth in the immediate future. By 2035, this population is expected to grow by 450 million, comfortably exceeding the global average.

At a time when the rest of the developed economies will be facing a workforce-crisis, Africa will be thriving with an eager workforce. This population presents immense potential for training, thus negating the need for enterprises to outsource work to other continents. This significantly cuts down costs and allows businesses to focus on other factors like product enhancement and raising brand awareness.

Another factor that contributes to the success of good businesses in Africa is the rise of its middle class. According to an estimate derived by the African Development Bank, the continent’s middle class has roughly grown to 350 million people. As a result, private consumption has risen to an average of 3.7%, with consumer spending accounting for 50 to 60 percent of the economic growth. This imminent boom in spending power is further complemented by the growth in business and technology across the continent.

As this middle-class population continues to grow, it is expected that consumer spending will rise from a mere $680 billion in 2008 to $2.2 trillion by 2030. Today’s representative of the African middle-class is a frequent air traveler, spends money in retail stores, and is more aware of her or his overall well-being. This rising middle class has catalyzed commercial development across all sectors.

New hotels and resorts are being constructed, and apartments in cities like Nigeria match the style and layout of Western cities. As claimed by one of the world’s leading investors, George Soros, Africa has the largest and fastest growing middle class in the world and presents an infinite potential for local and international businesses.

While 63% of the African population resides in rural areas, the recent economic boom and the growing middle class is set to change this scenario. A largely agricultural economy is transforming into a knowledge-based one, thus spurring the migration from rural to urban areas. The continent’s rapidly growing middle-class is also contributing towards the fastest growing urban population. In less than 20 years, almost every second African is likely to reside in a town or a city. This would amount to over 900 million people.

The shift from rural to urban has also catalyzed the development of megacities. It is estimated that by 2030, six of the world’s 41 megacities will be based in Africa. The existing metropolitans of Lagos, Cairo, and Kinshasa would be joined by Luanda, Johannesburg, and Dar es Salaam. A paper published by the African Futures also forecasts that by 2030, Lagos would be home to 30 million people, thus marking it the largest megacity of the continent.

Not only will the megacities connect Africa to the global economy, but they will also become the key drivers in Africa’s economic performance. Urbanization and the growth of megacities are one of the critical items on the governments’ agendas. Their development strategy has developed towards developing a sustainable urban future, thus making it ready for an economic transformation.

One of the main factors convincing investors and entrepreneurs to establish a business in Africa is the lack of legacy competition. Despite the digital boom and growing middle class, there is still a lack of meaningful competition in most commercial sectors. Not only does this facilitate the challenge of entering a new market, but it also enables young firms to turn in an early profit, thus bolstering further development.

The lack of proper competition enables companies to quickly secure a significant share in a market segment, thus enabling them to expand their business and to cover more ground. It also makes it easier for companies to recruit fresh talent, and increases retention rates within organizations.

Mobile penetration in Africa has not only spurred communication, but has also driven innovation and boosted income. Africa has become the first continent to have more mobile phone users than fixed-line phone users, and the fastest growing mobile market as well. People from a variety of financial backgrounds use mobile internet for a all sorts of purposes.

Traders use it to track market fluctuations on the go, marketers use it to follow trends, farmers use it for weather forecasts, students use it to study through online platforms, and a large portion of the population uses it for online shopping. This rapid rise of mobile internet for e-commerce and other platforms also provides immense business opportunities in the online space.

According to a study published by the MIT, M-Pesa, the mobile money service provider based in Kenya lifted at least 2% of the Kenyan households out of poverty between 2008 and 2014. This can be explained by a report published by the international trade body GSMA, which states that for every 10% increase in mobile penetration in weak economies, the productivity increases by more than 4%, which further increases the annual growth in GDP per person by 0.5%.

Mobile penetration in Africa is still growing at a progressive rate of 65%, which is twice the global average, which is significantly contributing towards the growth of its economy as a whole.

Mobile phone towers are not just limited to major cities like Lagos, Cape Town, and Cairo, but they also dot across war-torn capitals like Monrovia and Mogadishu, refugee camps like Kakuma in north Kenya, and also through remote villages previously untouched by fixed-line phones. This great penetration and subsequent adoption of mobile phones and mobile internet gives online businesses a unique opportunity to extend their services to a consumer base they cannot reach physically, thus significantly increasing the business prospects.

The rising mobile and internet penetration promotes immense potential in the online market.  Given that online shopping in Africa is still in its fledgling state, there is yet an extensive scope of exploration in this sector. By 2025, 50% of the continent is expected to have internet access, and online shopping will account for an estimated 10% of overall retail sales in Africa.

E-commerce platforms in Africa provide emerging consumers with a never-before collection of retail goods by bringing global brands on their screens. Mall for Africa, for instance, has partnered with eBay to provide its customers with more than 150 global retailers. The platform offers the perfect outlet for consumers who are interested in purchasing US and UK goods, thus creating a niche market in an already booming economy.

It is important to note that e-commerce is just one aspect of the prospering online market. There are many innovative businesses in the field of agriculture, education, and fintech like iCow, Andela, and M-Pesa. Or the Rwandan a drone company called Zipline which is successfully operating the world’s only national-scale drone-run delivery system. What these successful businesses have in common is that they have recognized a problem in the community and have come up with an innovative business model to resolve it. This not only gives businesses leverage over their competitors but also secures a loyal customer base.

Africa is among the fastest expanding economic regions and has still more potential for growth. The progress of Africa’s economy is opening up opportunities in sectors like telecommunications, marketing, retail, agriculture, fintech, and many more. This presents lucrative opportunities for growth in the online market, and African economies can significantly benefit from them. Not only does setting up an online business require relatively little effort, but the growing adaptability of the internet, mobile internet in particular, promises a decidedly larger consumer base.

The online market gives business owners a chance to attract a market niche that was previously difficult to reach.  Conducting a business in the online medium ameliorates this problem as the internet can not only reach a broader audience across the barriers of geographic locations, but effective marketing strategies can be deployed through social media as well.

The visibility provided by online markets also offers the potential of converting positive revenue streams for many African economies. As the African youth becomes more involved in entrepreneurship and IT development, the online market is helping them to achieve business goals which are in line with the needs of the community. The benefits of Africa’s emerging online markets work in both ways, while at one hand it enables young entrepreneurs to generate employment options and contribute to the overall economy, it also empowers the consumers to improve their way of living significantly. This relationship of mutual growth aptly represents the creative spirit of Africa.

One of Africa’s fastest growing digital economies is Ethiopia. The country’s rise from a history of famine and conflict is driven by an increase in its industrial activity and its investments in manufacturing and infrastructure. The government of Ethiopia has been making stringent efforts in promoting the online market by investing in the ICT infrastructure and introducing an online-friendly legal framework.

Over the past few years, Ethiopia has repeatedly been spending a tenth of its GDP for IT investment and development. It has also invested more than $200 million in installing computers in the public sector, thus fulfilling its aim of equipping government offices and schools with broadband internet connections.

Ethiopia’s investment in its digital infrastructure has brought about a communication sector that contributes approximately 2% to the overall GDP. This is partly due to the emergence of a domestic online market, which includes e-commerce, product sales, and online marketing. With more than 15 million internet subscribers, the Ethiopian online market is slowly gaining momentum.

This online market promotes technological innovation, effective marketing, and allows businesses and consumers to buy and sell products in a short period. Further, by cutting across various market chains, it makes it easier for retailers to promote their brands and products on an international platform.

The online market in Ethiopia has also attracted Foreign Direct Investment, as it has made the trade of inputs and outputs more accessible in the online space. Drawing examples from other digital economies, the Ministry of Communications and Information Technology is working on drafting policies and manuals to promote a more liberal e-commerce market. Further, it has appointed a committee to prepare regulations for the monitoring of e-commerce companies in the country.

Ethiopia’s internet connectivity now stands at 20 Gbps, which is a significant leap from its previous connection speed of 3.2 Gbps in 2010. Despite its history of challenges, the Ethiopian government is continually making efforts to improve its ICT infrastructure and online market. The growing online demand not only has the potential to improve the country’s economy, but it also provides its people with an opportunity to explore endless possibilities.

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