Many of South Africa’s major towns and cities, including Johannesburg, were built during the Europe-led gold rush that took place over the second half of the 19th Century. Now a new gold rush is gripping Africa – the race to connect its remote regions to the World Wide Web and start a digital revolution.
This gold rush is not being led by European settlers but the world’s biggest technology companies and investors. Which inevitably means it is American and Chinese investors who are jostling for position to fund Africa’s digital revolution.
It can be presumed that connecting the world’s ‘last billion’ of populations whose day-to-day work, home and social lives are still conducted entirely offline is not an altruistic endeavour. These are private companies who see connecting Africa as an investment.
How do they plan to realise a return on that investment? And what’s their plan to connect such a vast continent? Much of which lacks the other kinds of infrastructure we take for granted in the economically developed world like a maintained transportation network and basic utilities like electricity, gas, and clean, running water?
Why is giant tech investing in building Africa’s digital infrastructure?
At some point over the next 5 years, quite possibly sooner rather than later, the growth rates of the world’s biggest internet companies like Facebook and Google is expected to slow. The reason why is simple. It won’t happen because these companies start doing something wrong. They’ve just grown so large, so internationally, that the potential pool of new users is drying up.
One of the most important metrics to how internet companies are valued is ARPU – average revenue per customer. It shows how well companies are monetising users. If user growth starts to flatten or decline, ARPU must rise or investors start to get skittish.
The biggest internet companies are seen as close to now becoming a victim of their own success. In their core geographies of Europe and North America, they are not only running out of new users but showing signs of starting to find it harder to wring more revenue out of existing users.
Facebook is a leader when it comes to ARPU among internet companies but in November investors had a bout of nerves when the social network company announced its number of active users in the USA and Canada had dropped from 198 million to 196 million over the third quarter.
Not only that, but there was no reassurance from Facebook it expects that softening of growth to prove a dip. Rather, it expected its user base in North America to either remain flat or dip again over the fourth quarter. It’s a similar story in Europe, where user numbers were flat.
And in North America, many analysts expect there isn’t much space left for Facebook to improve its ARPU, which stood at $39.63 in the third quarter. That compares to just $12.41 in Europe, $3.67 in Asia-Pacific and $2.22 in the rest of the world.
Yes, Facebook still has significant ARPU growth potential outside of North America. But it could also really do with a significant new reservoir of potential users to sign up and then start monetising.
Google is in a similar position. Outside of China where it doesn’t operate, and the Russian-speaking world where Yandex is a genuine rival, Google enjoys a near monopoly in its core search engine market. In the UK, Europe and North America Google has an over 90% share of the search engine market.
It also needs new users. Africa, with much of its population still unconnected, is an obvious source of new users. In the first quarter of 2020, less than 40% of Africa’s population had access to the internet. In North America, that figure is almost 90%. And most have personal access from personally-owned devices and contracts with internet providers. In Africa, a big chunk of the 40% of the population with theoretical internet access, rely on access to third-party owned devices and connections.
And even if around half of Africa’s 1 billion
That means a pre-condition for Africa’s untapped population becoming potential new, or more active, users of giant tech companies like Facebook and Google, they need affordable, personal internet access.
And these global internet companies have reached the conclusion that if they themselves invest in upgrading Africa’s digital infrastructure, they will be in a much stronger position when it comes to being able to offer that affordable access.
How is bit tech investing in Africa’s digital infrastructure?
Google is building a subsea internet cable that will connect Lisbon in Portugal with Cape Town in South Africa. The project’s first phase is due to be completed this year. Facebook is one of the major investors in another digital infrastructure project, a 37,000 km cable that will circumnavigate the coastline of Africa, with the capacity to transfer 180 terabits a second. It’s due for completion by 2023 or 2024.
In December Netflix appointed its first ever African director, Strive Masiyiwa. Mr Masiyiwa is the founder of Liquid Telecom, Africa’s biggest independent fibre operator. Mr Masiyiwa is also a backer of another operator, African Data Centres. The latter received a $300 million cash injection last year from the US International Development Finance Corporation.
Industry body GSMA forecasts of the 500 million Africans who don’t have proper internet access, 200 million will by 2025, taking total numbers of mobile internet subscribers to 475 million. That still leaves more than 500 million people. And by 2025, it is expected nearly 30 million Africans will have 5G connections. That’s a tiny fraction of the 1.7 billion predicted worldwide, but huge growth on the current number of almost zero 5G connections.
But the target is big numbers of ‘meaningful’ connectivity in Africa, defined as internet speeds up to the equivalent of the average 4G connection. The data centres and the rest of the ‘internet plumbing’ needed to provide that will be expensive. The biggest challenge will be the ‘last mile’ between the big urban centres along Africa’s coastline and secondary towns and cities inland.
The lack of reliable grid power that still afflicts much of Africa is another major hurdle – perhaps the biggest. Chinese investment in Africa’s power infrastructure is ongoing and telecoms giant Huawei is also investing heavily in telecoms infrastructure, as well as trying to sell its hardware, the subject of security worries in North America and Europe, into Africa.
The big Chinese tech companies also see Africa as fertile ground for future growth and will be competing with US equivalents for market share. But it will require major investment from companies from both of the world’s economic superpowers to open up access to the untapped potential of Africa’s huge, young, population.
Both sides also know that it is only that investment that will allow for affordable access to the internet on an individual level in Africa. Hopefully the incentive will also benefit Africa and its population itself from the boost to economic development connectivity will bring.
There will be fierce proponents on both sides. Some will argue that Africa will have a net benefit from big tech’s investment in its digital infrastructure. Others will say that these companies have too much power anyway, and shouldn’t be allowed to take ownership of African infrastructure in their own economic interests.
But is their a viable, and realistic alternative? Maybe another billion people losing an hour of their days to Facebook scrolling is a price worth paying from an African point of viewoint of view.