Although Africa remains behind global ICT trends, lagging in terms of both penetration rates and users, the continent is seeing accelerating growth in its Internet markets, with the fastest growth in Internet users in the world.
As other regions near saturation point for household PCs and broadband Internet access, Africa's large population and low user base offers businesses untapped market potential, while increased Internet access and usage will contribute to economic growth.
- On a global scale, Africa has recorded some of the strongest telecom growth rates over 2005-2010, as falling prices and greater competition have allowed a greater proportion of the continent's populace access to networks and services. Sub-Saharan Africa alone saw a rise of 428.7% in Internet users over 2005-2010, by far the largest regional increase;
- Africa's youthful and rapidly expanding population is a ready market of eager telecom consumers. The total population of Sub-Saharan Africa expanded by 12.9% over 2005-2010, while its median age stood at 18.4 in 2010. Young consumers typically drive Internet penetration rates;
- However, as things stand Africa remains the least-developed ICT (information and communications technology) market worldwide. This is due to poor telecom infrastructure, low levels of computer literacy and high costs of Internet services compared to average wages. 3G penetration and high-speed Internet availability are woefully low. Nonetheless, Sub-Saharan Africa's Internet user penetration, expanded from 0.6% of the population in 2000 to 10.5% by 2010 (compared to a global rate of 29.0% in 2010);
- E-commerce opportunities in Africa remain limited due to low Internet user rates, but comparatively high mobile phone subscription penetration rates (42.4% of the population in Sub-Saharan Africa in 2010) offer strong mobile-commerce potential. There is especially strong demand for m-banking services across a number of African economies;
- Africa overall provides a diverse if somewhat raw portfolio of emerging Internet markets, ranging from the highly populated such as Nigeria and Ethiopia, the dynamic Maghreb countries, small island nations with high-level telecoms infrastructure (Seychelles, Mauritius), to South Africa, the region's most profitable ICT domain.
Africa's largest Internet markets
- Nigeria, with a population of 158.3 million in 2010 is home to the most Internet users in Africa, at 53.4 million in 2010. The country has a dynamic telecom market, but low disposable incomes mean that there were only 1.4 million PCs in use in 2010. Instead, Nigerians flock to Internet cafes or use web-enabled mobile phones for access. With the most mobile telephone subscribers (86.9 million) and the largest remittances inflows in 2010 in Africa, the mobile Internet market holds promise for businesses in terms of m-commerce opportunities, such as banking and money transfer services. A highly liberalised telecom environment is also conducive to businesses entering the market;
- In terms of consumer purchasing power and market maturity, South Africa is the most prospective market and the largest economy in the region. South Africans had the highest per capita annual disposable incomes and the second-largest number of PCs in use (5.7 million) in 2010 in Africa. 9.4% of the country's Internet subscribers had broadband connections in 2010. However, the domestic market is extremely unbalanced, with many poor areas having no web access;
- Nonetheless, South Africa's large urban areas, such as Johannesburg, Durban and Cape Town, are home to some of the wealthiest households in the region, offering a strong market for premium, high-speed Internet services. Demand for web-enabled wireless handheld devices (tablets, PDAs and smartphones) is also high. South Africa provides the most developed market for e-commerce in the region, with around US$1.0 billion in Internet retail sales in 2010;
- Egypt is the largest Internet market in North Africa. The country's large population was stirred into a communications revolution by the Arab Spring movement in January 2011, as Egyptians utilised online social media such as Facebook and Twitter en masse. Following the revolution in January 2011, military control of communications has been relaxed and the country's young populace is embracing Internet use. As of August 2011, Egypt had the largest number of Facebook accounts in Africa, at 8.5 million according to an ITU report;
- Ethiopia remains an untapped market with huge potential, considering its population of 82.9 million in 2010. However, it remains one of the few African countries where all ICT services are monopolised by the national telco (ETC), closing the market to competition and inhibiting innovation. There were only 555,000 Internet users in 2010. Expected privatisation could see rapid market expansion;
- The small island nations of Mauritius and Seychelles contain some of the region's most developed telecom infrastructures, with the two tourist economies topping ITU's ICT Development Index (IDI) for Africa in 2010. Strong opportunities are present for niche Internet and digital media services aimed at tourists, such as navigational apps and entertainment packages.
Internet's significance for Africa
- One of Africa's primary problems in furthering economic progress has been underdeveloped infrastructure, too few educational establishments and a lack of qualified personnel. High costs of construction, insufficient resources and geography have been the main impediments. Internet, especially wireless, can overcome this by replacing physical sites with virtual services, providing access to a far greater proportion of the population, shifting both geographic and class barriers. Internet access will improve the business environment, attract foreign direct investment inflows and contribute to economic growth;
- Sectors especially standing to benefit from improved web access are banking and education, with online facilities substituting costly visits to banks and schools/universities. Despite a global trend of rapidly increasing consumer spending on education, in line with the rising middle class, in Africa the sector has seen low levels of growth. In Sub-Saharan Africa, for example, consumer expenditure on education expanded by only 6.0% in real terms over 2005-2010. As African Internet penetration levels rise, consumer demand for e-learning and e-banking will increase;
- However, wages across Africa are extremely low, with average annual household disposable incomes ranging from as low as US$2,686 in Kenya to a high of US$14,842 in South Africa in 2010. At the same time, monthly dial-up and broadband Internet subscription price rates in Africa are at Western European levels. There is great demand for budget Internet providers;
- Local businesses pass on the high costs of Internet infrastructure to consumers, while African ICT regulatory bodies are often mismanaged and fail to enforce fair competition and pricing. Telecom monopolies, meanwhile, remain in countries such as Ethiopia (ETC: full ICT monopoly) and South Africa (Telkom: fixed-line provision and VoIP monopoly), restricting innovation and competition-led price reductions;
- Nonetheless, there is vast market potential in Internet penetration via web-enabled mobile telephones. Mobile telephones are much cheaper than PCs, fixed-line connections and contracts are unnecessary, and they take up less space and are easier to transport. In Algeria, for instance, only 20.4% of households owned a PC in 2010, while 96.1% of households had a mobile telephone;
- In several African markets mobile Internet use is already predominant. In Morocco, mobile broadband Internet (via wireless handheld device or dongle) represented 76.0% of total broadband subscriptions in 2010 according to the ITU. Meanwhile, Kenya's M-PESA mobile telephone Internet money transfer service, launched in March 2007, had 14.0 million users as of April 2011, according to its operator Safaricom, around a third of the country's population;
- Although Africa is well placed for mass online access via mobile telephones, web-enabled handheld handsets remain expensive and out of reach for many households while wireless broadband infrastructure is underdeveloped. Vast swathes of the continent have no Internet access, with 3G and Wi-Fi services located in urban centres. With the urban population making up only 37.1% of Sub-Saharan Africa's total populace in 2010, telecom providers will need to invest heavily in rural ICT infrastructure.
On the bandwidth side, international Internet connections via submarine cables, such as WACS, ACE and SAex, are expected to go live in Africa in 2011. According to the ITU, this will mean that 31.0% of Africa's population will be living within 25km of a fibre node in 2011. The technological leap will be necessary for Africa to cross the “digital divide”.
Several African governments are initiating nationwide ICT programmes to expand Internet use and develop telecom infrastructure. The Kenyan government began creating technology parks across the country in 2009 under its “Digital Villages Project” and over the 2010s is expected to provide wireless Internet to the entire country. Kenya is expected to see one of the fastest Internet subscription growth rates in Africa over 2011-2020, rising by 204.0%.
Sub-Saharan Africa's mobile telephone subscriptions are expected to reach a penetration rate of 70.5% of the population by 2020, while Internet user penetration is expected to stand at 24.7%. Over 2011-2020, growth in both indicators will be faster than any other region worldwide.
The continent's two most important Internet markets, South Africa and Nigeria, will see contrasting fortunes going forward. South African Internet subscriptions will see fairly muted expansion of around a third over 2011-2020, while Nigeria's surge by 110.9%. Nigeria will remain the largest Internet market on the continent in 2020.
Republished with permission from Euromonitor Market Research Blog, originally posted on 10 October 2011