By Béchir Abba-Goni and Marc Bidan
Africa's mobile market, second only to that of the Asia-Pacific region, has huge potential for growth.
Figures published by the global GSM Association in Tanzania are breathtaking. Every five years, the group collects data from its 800 network carriers. Putting these figures together with research carried out in the Sahel region provides an illuminating picture of mobile use across the continent.
According to the GSMA report, by the end of 2015, nearly half of the 1.17 billion-strong African population (557 million people) had some kind of mobile phone plan.
They now amount to 12% of all individual subscribers in the world, and make up 6% of global revenue – a 70% increase when compared to figures published by the same source just five years earlier.
Two main user characteristics emerge from studies carried out in the field. First, users favour pre-paid packages. Second, each subscriber owns 1.92 SIM cards on average.
Setting aside the problems this poses for identification and traceability, and the resulting complications for operators, this means that the market for SIM cards is huge – almost a billion units (965 million) at the end of 2015, and an estimated 1.3 billion by the end of 2020.
This spectacular growth in demand should result in 730 million individual subscribers by 2020. Unsurprisingly, the figures vary widely from country to country. For instance, data from 2014 shows that the top five countries (Nigeria, Egypt, South Africa, Ethiopia and the Democratic Republic of Congo) account for about 44% of the total, while the bottom 30 countries only make up 10%.
Similarly, the actual rate of overall market penetration for SIM cards amongst people aged 15 and over is 67% (taking into account those who own several cards); some countries (Mali, Gambia, Gabon and Botswana) boast a rate of more than 100%.
A mobile shop in Kabale, Uganda | Picture Courtesy – flickr
Landlines met with little success (because customer experience left much to be desired) over the second half of the 20th century, and this seems to have boosted demand for mobile phones. This means mobile use today is inversely related to that of landlines in the past.
In a 2G continent, 4G is expanding fastThe African market remains largely dominated by 2G packages, but high-speed mobile connections (4G/LTE) are gaining ground.
In 2015, 46/LTE represented 25% of the market; this will rise to an estimated 60% by 2020. Half of the 4G networks currently in use are less than two years old and 4G has just been made available in 24 countries. Smartphone sales now account for 23% of the mobile phone market.
These sales are set to increase as infrastructure is modernised and network coverage improves, as are those of low-cost and counterfeit phones from Asia that are flooding the market across the entire continent due to ever lower prices. Currently, these low-cost phone make up 50% of the market.
Potential growth in revenue per subscriber remains high, especially when compared with figures from Europe or North America, but it is dependent upon a wider range of options, better network coverage and improved service quality. Estimated revenue for an average African subscriber is €8 per month (ranging from €2 in Ethiopia to €28 in Gabon), against €27 per month in Europe and €53 per month in North America.
The Nairobi Entrepreneurship Summit, July 2015 | Picture Courtesy – MEAACT Kenya
A 2013 report had already shown the high potential for mobiles, their ecosystem and their contribution, both direct and indirect, to growth in Sub-Saharan Africa.
In 2012, for example, economic activity related to mobile phones and their life-cycle accounted for about 3.3 million jobs and 6.3% of the region's GDP, while market penetration was less than 40%. This demonstrates a massive potential for growth, with the arrival of 4G-LTE networks (although prices are still prohibitive for most users).
This robust activity comes with its own characteristics, chiefly arising from Africa's substantial informal economy (which, as a side note, is shamelessly exploited by developed countries). Just look at how easy it is to repair a smartphone, by virtue of some creative handiwork in markets and souks like the one at Derb Ghallef in Morocco.
This does not translate to the phones being easily recycable, however. Phones are mainly disposed of in landfills and unauthorised markets like that of Agbogbloshie in Ghana. At a time when Africa is hosting the COP22, we must bring attention to the sector's catastrophic social and environmental impact.
Gaps in the marketAfrican consumers, like those across the world, are demanding and informed. They want clear, reliable, smooth running mobile solutions, especially as a way to compensate for the continent's real – or perceived – shortfalls. They have appropriated the technology in innovative ways (beeping, flashing, credit transfer).
From the electronic purse to secure commercial transactions to group savings systems, the growth of mobile banking in Africa, like that of all developing regions, is extraordinary.
Aside from network reliability, consumer demand centres around messaging, sound quality, data and ease of communication, but also e-payment, e-insurance and e-learning. Users can thus circumvent the banking and administrative red tape that is partly responsible for the seldom used formal banking system. From the electronic purse to secure commercial transactions to group savings systems, the growth of mobile banking in Africa, like that of all developing regions, is extraordinary.
Consider, for instance, the amazing success of the shopping and bill settling solutions offered by M-PESA in Kenya, or the market penetration of mobile insurance solutions, mobile learning and distance education.
But consumer appetite for mobile phones is sometimes plainly stifled. Several factors explain this phenomenon, despite the general consensus that the technology contributes to development. Simply consider the lack of coverage, where vast rural areas are still under-serviced, or the inadequate pricing offers, given the continent's weak buying power. The unreliability of operators due to technical, financial or structural problems explains why there is an average of two SIM cards per person on the continent, and the popularity of mobiles with dual SIM capacity.
Consumer appetite for mobile phones is sometimes plainly stifled because rural areas are still under-serviced | Picture Courtesy – Yenkasa Africa
We could also mention Africa's low literacy rate, or consumer reticence due to the apparent complexity of learning about, and using, information technology (despite the youth and creativity of most of the potential users).
The range of applications available is still largely inconsistent with the actual needs – be they to do with agriculture, education, health, food or services – of a large and disadvantaged proportion of the population. Few are available in the customers' regional and national languages.
Supply is rapidly adaptingUnsurprisingly, given that it represents operators, manufacturers and other producers, GSMA stresses the importance of a new regulatory framework for the digital ecosystem, underscoring the detrimental effect that taxes are having on the development of mobile services in the Democratic Republic of Congo, Ghana, Tanzania and Tunisia, notably.
In its July 2016 report, the group also stated that operators' profit margins will only decline as markets become increasingly aggressive and network investment capacities are falling. The fact that EBITDA margins, which hovered around 40% in 2010, will likely decrease to around 30% by 2020, illustrates the need to address questions about the sector's profitability, although the outlook for total revenue remains optimistic ($153 billion in 2015, rising to $210 billion by 2020.)
GSMA also highlights upcoming opportunities and challenges. First of all, opportunities for telecommunication operators to provide security, distribution and value-creation (monetizing data content) for data collected across the entire continent. There are also significant opportunities provided by the increasing, but still modest, rise of platform solutions for B2B transactions.
Digital transformation is inevitableIn addition to clients and regulatory authorities, the GSMA sees the cost of licensing and taxes on imports such as mobile phone accessories as a challenge that will be counterproductive to growth in the sector.
In addition to clients and regulatory authorities, the GSMA sees the cost of licensing and taxes on imports such as mobile phone accessories (cables, headphones, cameras, flash disks and so on) as a challenge that will be counterproductive to growth in the sector. It also highlights the lack of clarity surrounding taxation and national legislation, which deters many transnational investors, and the immaturity of regulators, which hinders the harmonisation and allocation of terrestrial frequencies.It seems clear that the digital recycling sector, relating to the life-cycle of all high-tech products, must be completely re-examined, cleaned up, made viable and profitable in the long run throughout the continent.
Digital technology in Africa can and should be sustainable. The African continent has the most remarkable potential for growth, creativity and transformation, such as the silicon moutain of Africa in Cameroon.
The issues and challenges are as vast as Africa itself. Let us hope that the key players in this inevitable, irreversible and accelerating transformation won't lose sight of the human aspect.
Béchir Abba-Goni is a Post-Doc in Management Sciences at the New Aube University. Marc Bidan is a Professor of Management of Information systems at the University of Nantes. This article was originally published in The Conversation. Featured Image Source – Huffington Post Fresh insights delivered to your phone each morning. Download our Android App today!Source: How mobile phones are changing the digital economy of Africa
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