You research how economic opportunities arising from the Internet spread across locations and world regions. How does this look in African countries?
I would mention two key developments: The first is growing access to the Internet. Available bandwidths have increased dramatically since 2010, and with the arrival of subsea fibre optic connections on the west and east coasts of the continent, the availability of mobile broadband has improved and become cheaper. The prevalence of smartphones and digital applications has been constantly rising ever since – at least in the middle class.
However, it’s still far from the truth that everyone has access to the Internet. The gap between poor and rich countries, as well as between cities and the countryside remains very significant in Africa, even today. Let’s look at two countries that have a population size similar to Germany: In the Democratic Republic of Congo, only 9 of 100 people use the Internet; in Egypt it is 45 of 100. To this day, half of all people in Africa do not have a mobile or landline connection, and in rural areas in particular, usage rates are still relatively low.
The second development is the rise of innovations originating in Africa. The most well-known of these is the M-Pesa from Kenya. It is now the most commonly used service for making payments by mobile phone, and is currently utilised by approximately half of the 50 million people in Kenya. Other examples of success for digital companies can be seen in Nigeria and South Africa. However, there is a gap here too, between the developments that can actually be observed and the hopes linked to them.
Which hopes have been fulfilled, and which have not?
In the early days, there was an idea that a few digital economy centres would form in African countries, following the model of Silicon Valley; the “Silicon Savannah” in Nairobi, the “Silicon Lagoon” in Lagos, and so on.
Today we see that the business models of African companies are set up differently; they have to take different paths. Many companies are highly successful at local and regional level, however, their markets are more fragmented and also smaller overall. So far, the most successful companies have been able at most to scale to national level in high-population countries.
What exactly are African companies doing different?
Our research has identified a consistent overarching feature: localisation. This means that many companies proactively and deliberately use their geographical location to gain a competitive advantage. For example, a company is very familiar with the needs in a hospital or an administration in the local area, and can adapt its software to those needs.
We call the most interesting strategy that we have observed “platforms for the last mile”. Many consumers and even small companies only have rudimentary Internet access, and interestingly, digital African platform companies close this gap using analogue means.
Can you give an example?
Take the farming company Agrocenta based in Ghana, for example. It sends representatives into thousands of villages to ask smallholders about their harvests locally. The representatives then feed the data into a digital platform using their tablet. Producing companies can then use this information to find out what quantities of which products are available overall. The company also coordinates transports when large orders are received from producers. In this way, supply and demand for agricultural goods is aggregated throughout the region. Similar developments with which companies make available their own analogue structures such as representatives, vehicles or warehouses also exist in e-commerce.
Today, there are innovation hubs at many locations. What happens there?
Hubs in Africa are comparable to co-working spaces in Europe. They are collective work spaces and places of administration where self-employed individuals and founders come together and share knowledge and experience. At the same time, hubs are the connecting link in networks of investors, associations, tech companies, development organisations, and local governments. The number of hubs has grown to several hundred since the start of the 2010s, with Nigeria, South Africa, Kenya, and Egypt the trailblazers in this area.
The hubs encourage young companies as they not only offer stable Internet but also an address where they can make themselves visible in places where the business realm is frequently rather informal. At the same time there is the hope of creative collision and serendipity. The intention with the hubs is to pool capital and entrepreneurial knowledge as well as to generate it.
However, it has become clear that this approach is only effective when certain resources are already available in the hub’s environment. So it has worked well in Nairobi, but not so well in poorer and smaller cities. A hub alone does not create a Silicon Valley – that would be an unreasonably high expectation.
What influence does Internet regulation have on innovation?
Above all, regulation can promote or block supranational structures in the digital economy. From a long-term perspective, it’s about whether technical infrastructures are open, who benefits from them, and what innovations are created using them. For example, it’s positive for African companies that they are able to use programming tools or open-source code from Silicon Valley and elsewhere. However, there can also be dependencies that arise; about which there is very little they can change.
Where can this be specifically seen?
One example is in initiatives such as Free Basics and Facebook Zero, in which Facebook, Wikipedia, and other services are offered in partnership with mobile services providers, without additional data fees. As such the offering is pre-structured by the big players in such a way that users might not have access to innovative African applications. The same is also true for bundles, i.e. applications pre-installed on end devices. African providers are hardly represented at all in this area.
What do you believe is the answer?
The element that is missing is integrated infrastructure – both for the production and distribution of new digital products. Above all this can be seen with mobile payment services: M-Pesa and other offerings are widely used, but not linked with one another. To put it more simply, a start-up in Nairobi is not able to offer its service in the neighbouring country of Uganda because different mobile payment services are used there.
In turn, this means that economies of scale remain very limited for African companies. In my view, this is where the major challenge lies: separate, supra-national platforms ought to be created, at least in places where Silicon Valley solutions do not help the local economy.
Is there anything that companies, for example in Germany, can learn from your research?
The research shows time and time again that digital business models and strategies cannot simply be transferred to other locations – whether that’s from Silicon Valley to Harare or into Sauerland. The available resources and conditions vary enormously across geographical locations. When it comes to market access, capital and personnel, digital companies are also heavily dependent on the conditions and their environment.
At the same time, major US platforms have created market realities: although an African company could try to become the new Facebook, it is very unlikely to be able to compete with the Internet giant’s position, which is built on economies of scale and network effects. As a result, it is perhaps more useful to build upon Facebook and other platforms. Platforms can question other companies’ business models, but also help them opening up new markets. In this respect, it is crucial to find a specific market niche, set realistic goals, and take into account opportunities that one’s location offers, for example through localisation or partnerships in the immediate area and in the region.
This interview was conducted in German and translated into English.