South Africa’s Internet to GDP ratio

South Africa’s iGDP, which measures the Internet’s contribution to overall GDP, is at 1.4%, putting it fourth in Africa, behind Senegal, Kenya, Morocco, and neighbour, Mozambique.

This is according to a new report by global management consulting firm, McKinsey & Company titled: “Lions go digital: The Internet’s transformative potential in Africa”.

McKinsey said it has developed the concept of iGDP to measure the Internet’s contribution to the overall economy as a share of total GDP by adding up all the activities linked to the creation and use of Internet networks and services in four major categories: private consumption, public expenditure, private investment, and trade balance.

For Africa, the group assessed 14 countries that together account for 90% of Africa’s GDP and found significant variation among them.

Senegal’s iGDP stands at 3.3% and Kenya’s at 2.9%—levels comparable to those of France and Germany. By contrast, the continent’s largest economies, South Africa and Nigeria, have iGDPs of 1.4% and 0.8%, respectively, the consulting firm said.

“This suggests that there are major untapped opportunities to harness the power of the Internet to drive growth and development.”

In dollar terms, the consulting firm estimates that Africa’s iGDP currently totals some $18 billion.

It said that private consumption of Internet-related services and equipment, including
smartphones, accounts for two-thirds of this total.

Public expenditure on the Internet, including digitisation of education and health services, contributes only $2 billion. Private investment in infrastructure and digitisation accounts for a further $1.5 billion, while the remainder is a positive trade balance created by
BPO services.

Internet GDP
Internet GDP

McKinsey forecasts that by 2025, Africa’s iGDP should grow to at least 5% to 6%, matching that of leading economies such as Sweden, Taiwan, and the United Kingdom.

“However, if the Internet achieves the same kind of scale and impact as the spread of mobile phones in Africa, iGDP could account for as much as 10% or $300 billion, of total GDP while producing a leap forward in economic and social development,” it said.

The report said that Morocco and South Africa could become future leaders on the continent with particularly strong showings for business environment and financial capital.

Citing statistics by Internet World, McKinsey pointed to South Africa’s mobile penetration rate is at 135%, with internet penetration at 17%, while urban penetration is at 54%.

Online retail penetration is at 0.49%, while internet use within companies is a paltry 5.3%.

Retail

E‑commerce will open up a new shopping experience for Africa’s growing middle class, said McKinsey. By 2025, it could account for 10% of retail sales in the continent’s largest economies, which will translate into some $75 billion in annual revenue.

More on Africa’s internet and GDP

SA online economy at 2.5% of GDP by 2016

Fix the internet, boost employment: economist

How mobile is lifting South Africa’s GDP

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South Africa’s Internet to GDP ratio