Africa s Emerging Technologies

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1 Africa s Emerging Technologies August 2015

2 Africa's population will double and its economy quadruple in exactly the coming age of hyper-connectivity, robotics, genomics, and space colonisation. But Africa will have to develop without a manufacturing base, with brutally restricted migration, and with hunger, poor healthcare, all-present populism and violent crime, and unprecedented destruction of nature. - EPFL Afrotech project Africa is not a place you would think to look for emerging technologies, but due to the continent s unique challenges, Africans are leading the way in adopting new technologies in mobile banking, renewable energy, drones and telemedicine. The Challenges To understand where Africa is leading the way in technology, it s important to understand the challenges. 1. Population growth: Africa has the fastest population growth in the world. According to the U.S. Census Bureau Nigeria will increase nearly 2.5 times from 166mn people to greater than 400mn by Ethiopia will more than triple from 91mn to 278mn by These populations are growing and they are young, 42% of Africans are under 14 years old. For governments and businesses it is an urgent challenge to provide services such as healthcare, electricity, and financial services to these ambitious youth, without much of the legacy infrastructure of developed countries. 2. Africa is poor: African countries need solutions that are affordable. They can t just throw money at the problem. The average GDP/capita of many African countries is growing, but still between $1,500 and $3,000 per capita. High interest rates make borrowing prohibitive. For businesses products need to be affordable for low income customers. For example, mobile phone services need to be profitable at $8/month in Africa instead of $40/month in the U.S. For governments there needs to be cost effective ways to provide power, healthcare, education and transport without spending tens of billions of dollars. 3. Africa is vast: The distances in Africa are immense. Lusaka, for example is a growing city of 1.7mn people, but it is 1,700 km from the nearest port with no functioning railroad. Kampala in Uganda is a city of 2 million and is 1,000 km from the port of Mombasa in Kenya and it can take a truck 20 days to get there. These distances become very expensive when trying to build a network of gas pipelines, fiber optic cables, power lines, railroads, and six lane highways. It makes African governments and businesses very open to new technologies and alternative solutions. The development of Africa will not be the same as the U.S. or China.

3 What works in Africa and why: mobile phones and M-Pesa. Mobile phones The African mobile industry has been a big success. It is one of the fastest growing in the world with penetration rates of % (adjusted for the % of population under 14). But, why is mobile so successful in Africa when fixed line telephones have been such a disaster? For example, In Nigeria there are 140mn mobile phone customers, but just 2.5 million telephone lines. Leading mobile phone companies like MTN, are loved, aspirational brands, while NITEL the Nigerian government fixed line telecom company is an embarrassing symbol of mismanagement and failure. There are two reasons. 1. Privatization: Africa s successful mobile companies, Safaricom, MTN, Vodacom, AirTel, Econet are all private companies, whereas the incumbent fixed line operators were mostly government controlled (Telkom South Africa, Telkom Kenya, NITEL in Nigeria, TelOne in Zimbabwe). This is a common theme in Africa. Private businesses find solutions where the governments cannot. 2. Lower cost infrastructure: The technology of mobile phones is better suited to Africa. Rolling out fixed line networks requires expensive civil works to dig up streets and connect every home and building. These lines also have to be maintained when they get cut, which happens often in Africa. In contrast cell phone towers can be deployed less expensively using wireless microwave links and satellites to backhaul traffic to the central sites of the cellular operator. This is another theme in African technology. From cell phone towers, to payments systems to logistics, Africa is looking for the solutions that can work using limited resources and infrastructure

4 M-Pesa In 2007 Kenya s leading mobile operator, Safaricom, launched M-Pesa, a peer to peer payment system, using mobile phones. Similar to buying airtime, subscribers could deposit and withdraw money from their account at any of Safaricom s airtime resellers. Users could also text money to anyone with a mobile phone. This was a big deal. Suddenly, all Safaricom s 10 million customers had a bank account, a mobile payment system and use of 2,300 physical branches across the country. Every mobile phone was also a bank. Kenyans love M-Pesa and usage has surpassed all expectations. There are now over 13 million subscribers and $11bn is transferred annually from peer to peer. It has been such a success, that Safaricom s sister company, Vodacom, has rolled out M-Pesa in Tanzania, Mozambique, the DRC and South Africa. Why does M-Pesa work so well? 1. It s simple: M-Pesa uses existing mobile phone accounts. 2. It uses existing infrastructure: Safaricom already used local shops to sell prepaid airtime for them. By enabling these same airtime resellers to also become M-Pesa agents, M-Pesa quickly had a national branch network in areas where it was not economical to have a traditional commercial bank. People working in the city could electronically send money home to their family living in the rural areas. 3. It is cheap: M-Pesa tariffs are attractive compared to using a bank (assuming both parties have a bank account) and compared to traveling in person to make a payment. The cost to transfer $50 is 1.2%.

5 Africa is pushing forward in mobile financial services. The success of M-Pesa has been the springboard to many other African mobile financial services innovations. In many ways African mobile financial services are ahead of what we see in Europe and the U.S. MTN Mobile Money: MTN Group, another leading African mobile operator has 32 million users on its version of M-Pesa. M-Shwari: This is Safaricom s new mobile lending business. Users can get a small loan instantly over their phone. It has 3 million active customers and a loan book of $21mn so far. Lipa Na M-Pesa: This is Safaricom s M-Pesa merchant payment system. It is transitioning M-Pesa from a person to person money transfer system to a national payment system for businesses as well. Equitel: Kenya is the market everyone needs to be watching in the battlefield for mobile financial customers. Kenya s second biggest bank is fighting back against M-Pesa by partnering with a competing mobile operator, Airtel, and offering a combined bank account and mobile payment system of its own, called Equitel. Equity Bank is subcontracting network availability from Airtel, and issuing its customers a new SIM card that they can use in their phone to directly access Equity Bank accounts and also transfer funds to any other mobile account in Kenya. This is the first time we ve seen a bank also become a virtual mobile phone operator As Equity Bank says in their strategy objectives they want to, transform Equity Bank from a physical place that customers come to, to something they do. Invent the future where banks may not be required, but banking services will be necessary. This is very forward thinking and not something you will see in a Wells Fargo or JPM presentation.

6 Econet: Zimbabwe s leading mobile operator, Econet is also interesting in that it is the first mobile operator to directly acquire a bank. Usually mobile operators use a custody account at one of the leading banks to manage a mobile money platform. Econet acquired its own bank. It now has 4.2mn customers using its EcoCash platform, and last year did $5.5 billion in transactions. Econet has also gone on to also sell inexpensive funeral insurance through its EcoSure subsidiary. Econet is also an example of the evolving model for mobile operators in Africa where low cost voice and data services are used to build a customer base to sell additional overlay services such as loans, payments, insurance, media, healthcare and even electricity.

7 Renewable Energy is a great fit for Africa. Africa is in desperate need of low cost reliable electricity. Nigeria with a population of 160mn people has generation capacity of just 6,000 MW. Kenya with 40mn people has just 2,300 MW. In comparison the state of Arizona with 6 mn people has generation capacity of over 4,000 MW. This power deficit results in constant outages. Hotels and restaurants run expensive back up diesel generators just to stay in business. Unfortunately, for Africans this problem is not new and never seems to change. Similar to fixed line telephones, service is unreliable and the power supply is unable to keep up with the growth of Africa s cities. The electricity networks have proven challenging to maintain and building the necessary number of new power plants is prohibitively expensive for many countries. Its early days, but renewable energy sources like solar power could be a big part of the solution. Solar is affordable, and doesn t require expensive long distance infrastructure to maintain. EcoNet Solar: Zimbabwe s mobile operator noticed many of its customers didn t have power to charge their phones. To Econet this meant lost mobile revenues, but also a business opportunity. EcoNet Solar launched a suite of low-cost solar powered products designed for Africa. The Home Power System is a combination of a solar panel and a battery. It also includes a suite of products that are adaptable to the battery, such as wireless lightbulbs, a TV, a fan, a radio and a tablet. It is a simple solution to provide basic power to homes in Zimbabwe and is available now.

8 If the upfront cost of the Home Power System is too much, there is the option to pay as you go. The system can come equipped with a SIM card. The customer prepays for electricity the same way they prepay for airtime.

9 Olkaria geothermal plant Geothermal Energy It s worth noting that Kenya is fast becoming a leader in geothermal energy. Geothermal is already 51% of the generation mix and the Olkaria project, which is currently under construction, is the largest single geothermal project in the world. Kenya even created a separate Geothermal Development Company to promote new public private partnerships, and to develop local expertise. It makes sense given Kenya is situated on the Rift Valley, but it s still a bit surprising to hear a utility in Africa trying to be a leader in geothermal energy or to hear the CEO say, To stimulate industrial growth, we need to go full throttle in our quest for sustainable energy. Kenyan Geothermal Development Company visits Iceland.

10 Telemedicine Providing healthcare for Africa s growing population is going to require some new techniques. Doctor to patient ratios in Sub-Saharan Africa are on average 2 per 10,000, which is 10x lower than in the United States. Even South Africa has just 8 per 10,000. One solution is telemedicine. Telemedicine can bring the expertise of world leading physicians to any hospital or clinic in Africa. In one example, the government of Nigeria is partnering with a leading U.S. telemedicine company, called GlobalMed, to improve its healthcare by supplying hospitals with interactive telemedicine carts and portable examination kits for remote locations. So far this is just a start, but African governments are likely to be more receptive to new techniques than their Western counterparts where the system may be expensive, but it still works. Other mobile healthcare initiatives. Hello Doctor: Mobile health service launched by MTN in South Africa. Users can have direct confidential online chats with a doctor. Pricing is by the hour. M-Pedigree: a mobile application launched by a start-up in Ghana which verifies if prescription drugs are authentic. Each package is labelled with a 10 digit code. The user types the code into a mobile application and finds out if the medical drugs they are buying have been registered and are authentic.

11 Surveillance drone in the DRC. Drones The Afrotech initiative at Lausanne s EPFL believes Africa will be the first continent to build out unmanned air cargo on a massive scale. They are working to set up the first robotic cargo route in Africa by The route will be 80km and deliver blood to a route of rural clinics. This will be designated a Red route. By 2020 Blue Routes will be developed for heavier cargo drones bringing freight to Africa s major cities. Again, it might be Africa with its underdeveloped roads and railroads which is the first to leapfrog ahead to new solutions such as robotic cargo routes. Meanwhile the FAA in the U.S. will spend the next 10 years working on regulations. Summary Africans are adopting new technology to provide services in an environment of limited infrastructure and tight budgets. We should be watching these developments closely and note that the challenges Africa is facing might be shared in the future by an increasing number of countries.