Quick, what’s the world fastest-growing economy?
Here’s a hint: It’s in Africa.
Still not sure? It’s Ghana.
The West African nation’s gross domestic product jumped an estimated 6.2 percent, making it the world’s fastest growing economy in 2010, according to the International Monetary Fund. It has plenty of regional competition – five other African nations made the top 10. The continent as a whole offered the world’s highest returns on foreign direct investment.
Commodity continent shifts to “mobile rush”
Africa was labeled the Dark Continent in the 19th century, because it was little explored by outsiders. The advent of quinine made malaria less of a threat to Europeans, opening up the continent. But on today’s satellite maps of the world, much of Africa remains dark at night, a sign of lack of development.
That is changing. African economies, including Ghana, have long been rooted in commodities like cocoa, coffee and minerals. But now they are experiencing a “mobile rush.”
Mobile phones have swept through the continent – 57 percent of all adults in sub-Saharan Africa alone now have a mobile phone. These phones are used to ring up transactions as well as people. In fact, mobile phone banking now rivals traditional banking in countries like Kenya and South Africa.
This is growth calling
“Mobile technology has taken off in Africa,” says Miguel Granier, founder and CEO of Invested Development,a Boston-based direct investment fund that capitalizes seed-stage alternative energy and mobile technology companies around the world.
“There is an eager market for mobile technology and people are very adaptive and receptive to the technology.”
For the last five years, for example, mobile phone use in Africa has increased at an annual rate of 65 percent, according to MIT’s Entrepreneurial and Programming Research on Mobile initiative.
Just over the last year, Granier says his company has invested $2 million into several small companies pursuing opportunities in mobile markets, like Nigeria’s Slimtrader, which makes mobile commerce software, and Village Telco, a South African company that sells low-cost telephone systems aimed at rural areas. Invested Development, which also invests in energy startups, plans to seed another $8 million over the next 10 years.
Making money go mobile
“Mobile money in Africa is the Holy Grail,” says Brian Sangudi, a Tanzanian who is Co-President of the Africa Business Club at MIT’s Sloan School of Business. He sees this area as one of the most lucrative opportunities for foreign investors on the continent. “Every phone becomes a bank account. You can wire money to and from each phone. Look at mobile access in Africa and do the math. ”
In Kenya, transactions worth more than a quarter of the country’s GDP come through a phone-based currency called M-Pesa. Before they got cell phones, farmers and rural traders had to transport large volumes of goods to market without any assurance that they would be sold. Today, using mobile networks, they can pre-sell their products and plan to transport and deliver precise amounts based on their customers’ orders.
In Nigeria, the government began licensing mobile money operators in the country about a year ago. At least 17 licensees, often banks and telecommunications firms partnering, are rushing to deliver mobile banking across Africa’s most populous country, to populations substantially unbanked.
To manage the mobile transactions, the Nigerian banking community set up an interchange called Interswitch to control and process the transmission of mobile e-payments. In 2010, Helios Investment Partners, a U.K. based investment firm, bought the majority share of Interswitch for $170 million.
Brightening the Continent
The mobile rush is accompanied by huge new investments in connecting Africa to the rest of the world. French Telecom is laying sub-marine fiber optic cable along the west coast of Africa, as part of a multi-billion dollar, 20-country public/private partnership. Wasace Cable plans to lay cable connecting Africa to the U.S., South America and Europe. These investments will help move Africa from slow satellite-based internet connectivity into the modern broadband economy. That in turn should dramatically increase Internet access rates, currently stuck at about 11 percent across sub-Saharan Africa.
Satellite connections don’t mesh well with modern information technology, in part because there is a gap between when a signal is sent and when it is received, called latency. “There is always a delay when you click on something,” explains Sangudi.
The fiber optics cables create an obvious opportunity for global tech companies. They are investing in the terrestrial connections or “local loops” that extend from the fiber optic cable into the African mainland. Sangudi, who spent the summer teaching technological entrepreneurship to graduate students in Kenya helped organize the Sloan School’s first conference on innovation in Africa in April last year. After he graduates in June with his MBA, he plans to start a company selling mobile-to-Web access in Kenya.
Other huge opportunities exist. For one, the continent remains largely in the dark — about 90 percent of the continent is still off the grid, according to Invested Development market research. But that should change, and along with it Africa’s fortunes.
“By 2020, Africa will have the youngest work force in the world and, possibly, the largest middle class,” says Granier. “There’s a bit of a great transition happening.”