Is Africa’s Digital Economy Ready For Web3?
It is now evident e-Commerce won the pandemic. Which has had the unintended consequence of speeding up Africa’s digital economy. The transition to digital services and the adoption of transformative mobile technologies have been rapid in the last two years with e-commerce being the biggest beneficiary.
This digital transformation has been driven by homegrown solutions – some built on blockchain and crypto. The world is moving to Web3, a new iteration of the worldwide web-based on decentralisation with blockchain and crypto technology, allowing companies to build new things that provide unique value to society. Here is how it will all happen.
In 2020, the International Finance Corporation (IFC) and Google estimated Africa’s internet economy as likely to reach $180 billion by 2025, representing 5.2 per cent of the continent’s gross domestic product (GDP). By 2050, they project it to reach $712 billion, or 8.5 per cent of the continent’s GDP. This growth is driven by a combination of increased access to faster and better-quality internet connectivity, a rapidly expanding urban population, a growing tech talent pool, a vibrant startup ecosystem, and Africa’s commitment to creating the world’s largest single market under the African Continental Free Trade Area (ACFTA).
The Mobile Economy Sub-Saharan Africa report by the Global System for Mobile Association (GSMA) in September 2021, puts mobile technologies and services at 8 per cent of the GDP of sub-Saharan Africa. One that in 2020 contributed more than $130 billion in economic value-add. This was made up of $31 billion from the mobile operators and $7 billion from other industry stakeholders. Indirect benefits made up $11 billion and productivity gains brought $83 billion of benefits. The economic contribution is set to grow past $150 billion by 2025, including benefits from improved productivity.
Google and IFC are estimating the Internet economy to reach 8.5 per cent of GDP by 2050, the GSMA puts the Mobile Economy in Sub–Saharan Africa in 2020 at 8 per cent of GDP. While the Google and IFC work is limited to the internet economy, the GSMA’s is about the mobile economy which includes services such as SMS, which is a non-internet service and is predominant in Africa.
For example, Mobile Money (MoMo) which is the leading form of electronic payment in Africa is an SMS-based service that does not need the internet to function. This explains its availability in the remotest parts of Africa where there is limited to no internet access. Recent interactions of MoMo link it to the web so that it can be used for online purchases.
The GSMA report also looks at other ancillary services born out of mobile services such as agents accepting and processing cash into and out of MoMo. It is a totally new entrepreneurial addition to every economy where MoMo operates. They create employment and generate economic activity.
The GSMA report gives a more accurate account of Africa’s digital economy at 8 per cent of GDP in 2020. My estimation is, 25 per cent of Africa’s GDP by 2025 and more than 50 per cent by 2050. A prediction I use to illustrate the larger point; Africa’s digital economy is going to be dominant by the middle of the century if not earlier. Web3 will be a crucial part of that development.
The venture capitalists (VCs) who provide the funding for these tech ventures have invested more than $5 billion in 2021 according to a 1 January 2022 report by Briter Bridges. This is equivalent to the combined African startup inflows recorded in 2018, 2019, and 2020.
While it is regrettable the majority of the funding is international, local capital seems to find validation in international capital which suggests that we are going to see more local capital going into these tech ventures going forward. Fintech accounted for more than 60 per cent of this funding, and rightly so because of the innovation in MoMo which is the foundation for Fintech in Africa. It is impossible to participate in the digital economy without the existence of an electronic payment system, but now that we have a well-established Fintech ecosystem, it is having a cascading effect on e-Commerce and delivery.
For example, Hubtel, a Ghanaian fintech, branched into e-Commerce and during the pandemic, their food delivery business took off. They were also one of the three Ghanaian companies that built Ghana.Gov – a payment platform for government services in Ghana. Flutterwave, a Nigerian fintech launched Flutterwave Store – a portal for African merchants to create digital shops to sell online.
They followed that with the acquisition of Disha to enter the creative space. Egypt’s ride-sharing company, SWVL is going public via a SPAC merger that would value it at $1.5 billion. It is the beginning of many more such deals. Global e-Commerce jumped to $26.7 trillion during the pandemic. Online retail sales’ share of total retail sales rose from 16 per cent to 19 per cent in 2020, according to estimates in a UNCTAD report published on 3 May 2021.
The pandemic encouraged healthtech innovations like Bisa from Ghana which allows you to get first-hand information about COVID-19 and other medical conditions, as well as access medical professionals online by logging into the app.
Over the last 12 months, healthtech deals have reached over $77 million in 56 funding rounds. mPharma from Ghana just closed a $35 million series D, while Africa Health Holdings closed an $18 million series A last November, and Nyaho closed $5.2 million – which was partly used for their healthtech platform, Serenity Health. South Africa’s RecoMed raised $1.5 million to scale its online healthcare marketplace.
In December 2021, AlitheiaIDF, a leading female-run fund manager, raised $100 million to invest in more female founders. Aruwa Capital Management, another female founder-focused fund made three investments in November 2021. Future Females Invest Angels (FFI Angels), an all-female angel investor group based out of Mauritius, made four deals in 2021. Efforts to close the gender disparity in funding in Africa is changing, but a lot more needs to be done to close the gender gap in Africa’s digital economy.
“Our review of African countries’ policies and strategies demonstrates that most African countries have digital agenda documents. These are found as legal texts, stand-alone digital strategies, as sections of national development plans or within aspects of other policies,” said Olumide Abimbola, Faten Aggad, and Bhaso Ndzendze in their recent publication which looked at the availability of digital agendas across the continent.
In Zambia, part of the government’s digital agenda is to launch their own satellite. A local start-up, Ignitos Space, has a slightly different ambition. To use satellite data for precision agriculture, etc. When the pandemic hit, Ghana’s Ministry of Education moved to use eCampus as the online learning platform for students who were home because of school closures. Ethiopia’s Ministry of Education announced a partnership with Cardano to create a blockchain-based digital identity for five million students and teachers. Cardano, one of the leading crypto platforms has a programme focused on Africa.
African blockchain and crypto companies like Topit, Luno, and Yellow Card which recently raised $15 million, are leading the building of exchanges that trade globally. According to the BBC, Nigeria ranks 3rd globally in terms of countries with the highest bitcoin trading volumes last year, after the US and Russia.
But in February, Nigeria abruptly announced they were barring their banks and financial institutions from dealing in or facilitating transactions in cryptocurrencies. The Central Bank of Nigeria launched the country’s own electronic currency, eNaira, in October – the first in Africa. Ghana’s central bank plans to do the same.
These technologies started off on Web1, which was predominantly text-based with SMS as the holy grail in Africa, with a subsequent move to Web2, a combination of the spoken word and moving images, aka multimedia. We are now moving to Web3, characterised by a great decentralisation of the web using blockchain and crypto that creates transparency.
The biggest pain point of Web2 was the centralised and controlled nature of multimedia databases that predominantly rested with big tech companies, including Facebook, Google, YouTube, Twitter, etc. Web3’s fundamental premise is to change that, so we don’t need permission from big tech to use our data from their databases. A permissionless world beckons.
Kenya’s ranking as the world’s leader in peer-to-peer (P2P) trading volumes for the second consecutive year in 2021 will challenge other countries to adopt a friendlier attitude towards cryptocurrencies. Emurgo Africa’s $100m dedicated Africa blockchain fund is going to be a game-changer. Also, Senegalese American award-winning artiste, Akon, argued that crypto could change Africa’s future. That future is here.