By Titus Nampala, Head: Africa Financial Institutions and Sovereigns coverage at RMB
While laudable in its ambitions, African policymakers focused on the industrialisation ambitions of the African Union Agenda 2063 may need to rethink this ambition as technology pervades and a lack of reliable energy supply is a growing constraint.
Agenda 2063, a framework formulated to guide Africa’s development in the next 50 years, could already be ageing and in need of a refresh to adapt to fast changing economic realities. Its timeline is so long term that it will inevitably need frequent course correction along the way.
Many commentators and policymakers have argued that Africa’s development and economic growth depends on how quickly Africa can industrialise and reach economies of scale in order to compete on a global scale.
But the global infiltration of digitalisation and associated technologies provides Africa with a unique opportunity to embrace these latest developments. This will allow it to leapfrog the slow and expensive grind of industrialisation, while providing access to meaningful jobs with better pay while expanding access to international markets.
Besides, for manufacturing to flourish, an excellent and reliable power supply is needed.
With its chronic power shortages, Africa is not likely to reap any immediate dividends in this area. Even one of Africa’s most industrialised economies – South Africa, has struggled with rolling power cuts for over a decade.
Rapidly advancing technologies across the digital spectrum means that the historically prevalent development paths whereby a ladder of development is followed, starting from light manufacturing and advancing to higher levels of sophistication, is no longer applicable or desirable.
Instead, sectors such as e-commerce and fintech have become increasingly important and will continue to be more and more relevant across Africa’s economic advancement.
For example, Nigeria, largest economy on the continent and one of the many African giants that struggles with power supplies, has become a technology hub with most of the African fintechs based in Lagos, the country’s financial capital. The same can be said for the various other tech hubs across Africa such as Kenya, Uganda and Ghana, which have been able to successfully leapfrog the manufacturing path and become leading players within the fintech space.
Given that time to job proficiency in traditional manufacturing is so much longer than in jobs with a digital focus, it makes an argument on its own.
With traditional manufacturing, there is a long lead time for education, followed by apprenticeship, before a country starts reaping the benefits thereof. In the case of engineers, it could be as long as 10 to 12 years before they have completed all education and training and are net economic contributors.
We can’t consider the shift to digitalisation without also recognising the importance of access to quality education.
But with digitalisation, online education can help African youths to access education beyond the national education structure and at a fraction of the cost of in-person training.
One key infrastructure need for all of this to take off and advance is access to reliable, affordable and high-speed internet, which can be provided through mini grid towers powered through renewable energy sources such as solar panels. Africa has abundant sun power.
In the digital space, one is able to secure a job that pays above minimum wage with only a high school diploma and just six months of coding training.
Search giant Google and Andela, a global talent network that connects companies with remote engineers in emerging markets, are amongst many companies that have trained and placed thousands of coders, programmers and related technologists in meaningful employment across Africa.
Moreover, the tech space promotes entrepreneurship, allowing firms and startups to grow rapidly with less physical capital and little to no geographic brick & mortar presence.
It is clear that digitalisation can foster the creation of meaningful new jobs while also developing its human capital base, thereby helping Africa achieve its demographic dividend and avoid its demographic curse.
International investors have noticed
Technology-based sectors have shown resilience in finding funding sources. Even during the Covid pandemic, data shows that funding for African fintechs grew fourfold between 2019 and 2022.
The first six months of 2022 alone saw venture capital (VC) funds investing as much as $3 billion in African fintechs. This amount is expected to grow to about a $180 billion by 2030.
Most of these investors have typically been from the US and to a lesser extent Europe, indicating that there is no shortage of capital or appetite for the sector. The world’s capital is willing to come where the talent and market is, which could help with reversing the brain drain that the continent has chronically suffered from over the years.
Curiously, there is a lack of a strong presence of African-based fintech investors, who should be willing to invest alongside their international counterparts given their on-the-ground expertise and long-term interest in the sustainable development of the continent.
With the right policy adjustments, Africa is abundant with opportunities in the digitalisation space. It can shape Africa’s next few decades, ensuring the continent emerges economically long before this century ends.
And certainly before 2063.
This article first appeared in Business Day on November 17, 2022