August 16, 2018

A few months back, President Trump referred to African nations as “shithole countries”. It is also alleged that, in an Oval Office meeting about immigration he said that Nigerians “live in mud huts.” His remarks are crude and offensive, but they also miss the vibrant economic engine the continent has become.

In sub-Saharan Africa as a whole, growth in 2018 is forecast by the World Bank to be 3.1%, rising to 3.6% next year. If you exclude the “big three” – Nigeria (2.5%), South Africa (1.1%), and Angola (1.6%), where oil prices and other special factors come into play – it’s closer to 5%. And the 3.1% average for all 49 nations obscures an even more interesting statistic – Africa hosts six of the world’s ten fastest growing economies:

“Most of 2018’s top performers are non-commodity intensive economies. The list is led by Ghana (8.3%) … Ethiopia (8.2%), Côte d’Ivoire (7.2%), Djibouti (7%), Senegal (6.9%) and Tanzania (6.8%).”

For comparison: while the US just announced an annual growth rate of 4.1%, according to a recent Bloomberg report it’s likely a blip (driven by the short-term impact of tax reform and anticipation of a trade war); the recent norm has been around 2%. The latest UK figure is a miserly 1.2%.

Africa hosts six of the world’s ten fastest growing economies

The African game-changer has been the mobile phone. By 2019, according to the World Economic Forum report, there will be 930 million mobile phones in Africa, which works out at almost one for per person: “There is greater mobile penetration than electricity penetration. Now, people are able to connect, get news, trade, get access to healthcare and even transfer money.”

It may seem counter-intuitive, but could the lack of traditional infrastructure actually be enabling this? I put this to Dr. Nagy Hanna, global innovation guru and former head of strategy with the World Bank.1 “That’s half the story. But yes – there are no legacy systems. There are mobile-based systems. Moving fast to a cashless society.” So what’s the other half? “The other story that is promising is the development of innovation hubs. Mostly in South Africa but also Kenya, Ghana – they’re not evenly spread.”

Innovation hubs in the West have historically been funded by venture capital. The most famous is Silicon Valley’s Y Combinator that has nursed a succession of star starts-ups including DropBox and AirBnB.

In Africa it’s a different story. In some cases, foreign aid is funding the hubs, Dr. Hanna tells me. In others, it’s smaller-scale private/local funding, mostly tailored to small-scale enterprises. Local inventers and innovators flock to them. “These are well-educated people…. Their problem is scaling up – to have a major impact on development.”

Major western companies are showing increasing interest. “The hope is that multinationals will move in, fund, bring scale. IBM, CISCO, Apple, are all engaged.” That’s because they see vast potential. Given the pace of both economic and population growth in these countries the potential of their markets is huge. What’s more, Dr. Hanna says, through participating in the local innovation scene in booming economies like Kenya and Ghana, these major companies “have a big opportunity to learn how to meet unique African needs and challenges.”

Of course, working in an environment without legacy infrastructure brings its own special problems. For example, logistics bottlenecks, which offer particular challenges to e-commerce, including high transport costs. There’s also a continuing need for a more business-friendly environment right across the continent. Kenya, for example, is still ranked number 91 in the world for business-friendliness. It takes an entrepreneur 25 days to set up a business in Kenya – in the United States, where I live, it literally takes less than half an hour.

Yet Kenya is an African success story, and host to one of the most innovative tech applications worldwide – the mobile banking app M-PESA. In the west we getting used to various payment systems that use our mobile phones, but M-PESA, launched over a decade ago, was way ahead of the game. (For comparison, Apple Pay was launched in 2014.) The statistics are stunning. M-PESA processes 48% of Kenya’s entire GDP. It’s used by 93% of the adult population.

Unlike more complex western systems, M-PESA doesn’t need an app – it’s based in the phone itself (many Africans do not have smartphones); SMS (texts) facilitate money transfers. Since it was launched, the number of ATMs in the country has dropped by a third. And its success exemplifies the need for western companies to engage on the ground – and the opportunity when they do. In the case of M-PESA, the prime mover was Vodafone’s Kenyan subsidiary, And, as is often the case with wildly successful innovations, the original goal was quite limited – to manage micro-lending.

Will these fast-growing African economies be the successors of the Asian tigers? Aid agencies funding innovation hubs and multinationals taking the long view and seeing vibrant markets down the road are marvellous signs of hope. But the real challenge lies in the hands of governments. Countries like Kenya are steeped in colonial-era regulation and a post-colonial tradition of heavy-handed political leaders. For Africa to realise its economic potential, those nations need to work their way up the business-friendly rankings, enabling them to capture the energies that technology and its entrepreneurs are letting loose. Getting rid of red tape is now the challenge.