How the Internet can bring R3.1 trillion to Africa

Africa’s use of the Internet and technology is not only lagging behind the rest of the globe, but the continent is also massively under-reaching its full potential which could see a US$300 billion (R3.1 trillion) sector emerge.

This is according to research conducted by McKinsey & Company, looking at what could be achieved in Africa should the continent close the Internet gap in the digital divide.

According to the research firm, the Internet’s contribution to GDP in Africa averages just 1.1% – half that of other emerging economies – but has the potential to increase ten-fold in the next 10 years.

The continent’s current “iGDP” works out to be between US$18 to US$18.5 billion (R196 billion) – two-thirds of which is made up by private consumption of Internet-related services and equipment, including smartphones.

Public expenditure, investment in infrastructure and business process outsourcing (BPO) account for the remaining US$6 billion (R63 billion).

“Despite a slow start, Africa’s digital development is now accelerating. As the continent grows more connected, it is already producing innovative web-based applications and dynamic new business models,” the firm said.

“Today, Africa still lags behind other regions, but if it can bring Internet-related investment, adoption, and use up to the levels of other regions, the prize will be huge.”

iGDP growth contribution
iGDP growth contribution

iGDP contributions

The composition of iGDP in specific countries varies across the sample, McKinsey said, illustrating the different paths that countries have followed.

Some countries, such as South Africa, have already established relatively strong Internet economies through entrepreneurial hubs, strong e-commerce players and local BPO and software development companies.

McKinsey pegs South Africa’s iGDP contribution at 1.4% of the country’s total GDP.

Private consumption accounts for the biggest chunk (85%) of iGDP in Mozambique, Ethiopia, Ivory Coast, Cameroon, Senegal, Kenya, and Ghana – while Nigeria leads in public expenditure as a result of e-government initiatives.

Egypt shows relatively high private investment, which generates 23% of its iGDP.

According to McKinsey, Africa’s iGDP contribution is 3.4 times lower than that of developed nations – however, the continent’s uptake of mobile telephony is 3.4 times greater than that of the developed world.

By using the Internet and technology to catch up to “best-in-calass” countries, coupled with an uptake similar to mobile telephony in Africa, the continent has the potential to see an iGDP contribution increase to as much as 10% of total GDP by 2025.

“If the Internet’s impact in Africa is as big as mobile voice’s, iGDP could jump to 10% or more than US$300 billion (R3.1 trillion) – roughly the size of Nigeria’s economy today.” the firm said.

iGDP growth plan
iGDP growth plan

Reaching full potential

The firm noted that the full iGDP potential for the continent can be achieved through taking advantage of a growing young and urbanised generation; producing cheaper smartphone devices; and fostering more growth opportunities (such as BPO) through government initiatives and private business investments.

Notably, the firm said, entrepreneurs are a vital force in developing the Internet ecosystem, and are faced with many opportunities in ICT as Africa builds up its technology community and infrastructure.

Governments will need to make good on ICT policies with a “coordinated national vision”, while private companies will need to innovate or lose out to the entrepreneurial drive.

Part of this, McKinsey said, large telecoms players will need to prepare for voice to data migration, and along with other tech companies should partner with government to drive the digital revolution.

“Public-private partnerships could make strides in delivering infrastructure, developing ICT capabilities, or delivering e-government, education, and health services,” the firm said.

“For now, the Internet in Africa remains a wide-open space where companies and entrepreneurs can capture large opportunities if they are willing to move both rapidly and decisively.”

More on Africa and GDP

South Africa’s Internet to GDP ratio

How mobile is lifting South Africa’s GDP

Mobility impact on SA’s GDP

SA GDP growth projection cut to 2.5%

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