Seeds of Opportunity: The African Growth Series
July 2022 | Issue 4
In this week's issue, you will learn more about:
- Pan-African Trade Enabling Africa's Fourth Industrial Revolution
- Is natural gas still a viable option for Africa to use as a base load energy source
- Start-up Investment Hotspots in West Africa
- Tech To Tackle Africa’s Cable Theft Crisis
- e-Health Innovation in Africa
- African Energy Landscape: Is privatisation the route to achieving the clean energy transition?
Pan-African Trade Enabling Africa's Fourth Industrial Revolution
The world is rapidly becoming inter-connected through advancements in technologies such as robotics, artificial intelligence (AI), machine learning (ML), the Internet of Things (IoT) and much more. These technologies are associated with the Fourth Industrial Revolution (4IR) and increased intra-African trade can help the continent apply and develop 4IR technologies to develop its economies and infrastructure.
Nineteen months have passed since trading began in the African Continental Free Trade Area (AfCFTA), which is the largest free trade area in the world as it holds 54 out of 55 members of the African Union (AU). The agreement aims to revolutionise trade on the continent by creating a market of almost 1.3 billion people, with a combined gross domestic product of USD 3.4 trillion. The trade area holds 93% of Africa's population and could attract investment into the region's digital infrastructure and 4IR to build sustainable economic development. This industrial revolution uses disruptive technologies, such as artificial intelligence, machine learning and the internet of things to collect and analyse data to solve complex problems in Africa's physical and digital economy. Digital solutions such as automated cargo tracking and digital reporting of non-tariff barriers are used for efficient cross-border trade across Africa, with the Nigerian Customs Service (NCS) working on a cross-border trade platform. Aside from trade, Africa struggles with access to good quality data, and 4IR technology can digitise the current infrastructure to collect and analyse the metadata to mitigate against and predict future natural disasters. For example, a digitalised map of KwaZulu-Natal could be used as a duplicate (a digital twin) with plug-in technologies to predict the extent of future floods, generate flood routing plans and create the safest and fastest evacuation routes for civilians.
The AU realised the socio-economic benefits of investing in digital infrastructure and has created the African Digital Transformation Strategy (ADTS), which plans to create a single pan-African digital market by 2030. However, creating this market and reaching this goal requires Africa to heavily invest in creating an affordable, accessible, and reliable digital infrastructure. The issues with internet access are not only a lack of electricity but a lack of broadband penetration. In 2020, only 28% of Sub-Saharan Africa's population was connected to the internet, but 89% of their web traffic was generated through accessing the internet via smartphones. 20% of the population lives in areas without mobile broadband coverage. However, there is an opportunity to quickly increase mobile internet usage as 53% of the population live in an area with mobile broadband coverage but do not use mobile internet. The two maps below show the current internet access by country and how many countries have consented to trade in AFCTA. The willingness of Sub-Saharan countries to participate in the trade area can help increase mobile internet usage in the countries with low access.
According to the World Bank, Sub-Saharan Africa requires more than USD 100 billion in capital to achieve a reasonable level of digital access by 2030. Which is a large sum of money; however, policies that support intra-African trade and digital transformation are attracting investors—most investors funding digital infrastructure projects in Africa fund through equity investments. An example is Convergence Partners, a private equity firm specialising in Africa's digital infrastructure, announcing they had successfully closed their Digital Infrastructure Fund (CPDIF) at USD 120 million in mid-2021. Another is Digital Realty's USD 500 million investment commitment to Africa and Liquid Intelligent Technologies' (Liquid) USD 500 million investment into its subsidiary, Africa Data Centres (ADC). In conclusion, physical and digital pan-African trade is attracting capital which can advance the use of 4IR technologies to develop Africa’s economies and infrastructure.
Sources: Frost & Sullivan, Women in Science, African Business, Knowledge 4 Policies, African Union, Statista, World Bank, Engineering News, African Mining Brief, White & Case, GSMA, Investment Monitor, Tralac
Is natural gas still a viable option for Africa to use as a base load energy source during the continent's transition energy transition period?
The Frost & Sullivan energy team recently discussed the energy situation in Africa in a Frost-hosted “Think Tank”. For this, the team got together with energy experts Derek Boulware from Welligence Energy Analytics, an African natural gas industry expert, and Berrie de Jager from Standard Bank Group, who has extensive experience in energy project financing. Investments in the energy space are increasingly focused on renewables (Solar PV, Wind); Africa’s energy portfolio is expected to slowly move from a fossil fuel-dominated landscape to a more renewable-dominated portfolio. But energy experts argue that renewables alone won’t be able to meet Africa’s growing energy demand. One abundantly available resource is Natural gas. However, this resource faces investment challenges due to its polluting CO2 emissions. But Africa’s emissions in the global context are negligible, according to Derek. “In terms of the overall global carbon footprint, Africa plays a very small role in that. […] Some statistics suggest that if every person in Africa tripled their energy consumption overnight, that increase in carbon intensity would equate to 1% of the global emissions.” Derek continues to say that Africa is in a transition period and that the continent will still need some form of base load supply of which natural gas is an ideal candidate. “The EU has just declared natural gas a green power source, and gas can play that bridging fuel [for Africa] and probably is the answer to the question for the transition period.” Derek further argued that while renewable should undoubtedly take centre stage, but there are also other ways of producing Oil & Gas. “Africa is a particularly carbon-intensive region when it comes to Oil & Gas production. […] Carbon abatement can be imposed through policy or goodwill of international Oil & Gas companies wanting to reduce their carbon footprint, i.e., reinjection of gas, reduced flaring other new carbon storage technologies to reduce carbon footprints.” He concludes that reduced investment and the impacts of the covid-19 pandemic have slowed down exploration of Oil & Gas on the African continent, increasing fuel prices. The discussion is available here should you want to learn more about the natural gas topic and the general discussion about energy in Africa.
Start-up Investment Hotspots in West Africa
In May 2022, global venture capital funding (VC) fell below USD 40 billion due to falling start-up valuations and the selloffs of once-booming stocks in vibrant sectors. Africa, however, was the only region in the world to record three-digit growth in the first quarter of 2022, compared to the US and Asia, which recorded 1% year-on-year declines in venture funding. During this period, African venture capital reached USD 1.8 billion, up 150% compared to USD 730 million in the same period in 2021. Nigeria, Kenya, Egypt and South Africa dominated African start-up funding; however, since 2019, west African start-ups have attracted more investment funding than northern and eastern Africa combined, representing 41% of the total funds raised in Africa. Nigeria, Ghana, and Senegal have claimed 99% of west Africa’s start-ups. Nigeria alone attracted 86% of all the funds raised in the region during the same period, making Nigeria the continent’s most vibrant venture capital market. Ghana had a solid start to 2022, with more funding raised in 5 months (USD 143 million through 24 deals) than it had raised in the previous three years combined. While Senegal welcomed sizeable start-up investments posting USD 243 million since 2019.
Tech To Tackle Africa’s Cable Theft Crisis
Copper cables are vulnerable to theft which poses a large challenge for African economies. Various countries such as the Democratic Republic of Congo, Tanzania, Zambia, Botswana and Kenya report losing money due to cable theft, with South Africa reporting an estimated annual loss of nearly $420 million. Industries involving transportation, power, telecommunications and railways are most affected by cable theft. Transnet, South Africa’s freight rail company, reports a total of 684km of cable lost over a seven-month period, an increase of 388% from 2016's total loss of 140km. Mamela Luthuli, the CEO of Take Note IT, decided that her tech startup would tackle this issue head-on by developing Radio Frequency Identification Tags (RFID) to mark and track vital infrastructure and technology assets. The tags are equipped with Global Positioning System (GPS) and connect to the host country's mobile infrastructure through the system's Internet of Things (IoT) network. Users strategically place the sensors into a comprehensive 24-hour monitoring system that detects intrusion and tampering which gives operators real-time data to quickly dispatch armed response. Currently operating in South Africa, the system has helped reduce vandalism and theft at the Western Cape's Bonteheuwel interchange by 95%. Whilst helping the Passenger Rail Agency of South Africa (PRASA) arrest more than 2,000 vandals and thieves in Gauteng's City of Ekurhuleni substations. Cable theft is a massive challenge throughout the continent hence Commercial ICT, Ntamo Technologies and other companies are developing anti-cable theft technology and entering the market.
e-Health Innovation in Africa
The Covid-19 pandemic highlighted the shortages of vaccine availability in countries on the global periphery. However, low vaccine coverage in Africa is not a recent phenomenon; prior to the pandemic, routine vaccine coverage was substantially lower in Africa than in the rest of the world. In order to combat vaccine inequality, VaxiGlobal, an e-Health start-up founded in Zimbabwe, is geared towards the minimisation of waste in immunisation resources. The start-up estimates that over 50% of vaccines may not reach the recipients in time, resulting in US$2 billion annually, and loss of life in Africa. In addition, the start-up is set to tackle counterfeit vaccine certificates, which are gaining popularity, through advanced blockchain software. In order to address the challenges brought on by low vaccination rates, VaxiGlobal is specifically designed to meet the needs of developing countries within Africa and is well positioned to address challenges such as low smartphone accessibility and internet penetration rates. In order to overcome these barriers, the start-up has developed offline functionality and AI technology to identify patients without IDs, and works with NGOs and governments to collect metrics. The service offered by VaxiGlobal, and the value it generates, has been recognised globally, most recently at the Kofi Annan Awards, where it won US$250,000. This start-up highlights the talent and innovation in Africa and demonstrates the room for growth and development in the healthcare sector.
African Energy Landscape: Is privatisation the route to achieving the clean energy transition?
The topics of transition to cleaner resources and privatisation have been echoed loudly in the African energy sector in recent years. With targets set globally for this energy transition to cleaner resources, the million-dollar questions around how and when are important to address, specifically for the African landscape. Reliable energy is vital for industrializing African economies, yet currently, Africa’s energy mix is still dominated (75%) by fossil fuels, being more than 80% in South Africa, pointing to some challenges linked to the transition topic. As a step toward addressing some of these questions, Frost & Sullivan Think Tank speakers, Berrie de Jager, Derek Boulware, Hendrik Malan, and Patrick Prestele recently delved into topics around Africa’s current energy mix, the continent’s carbon footprint, privatisation and funding mechanisms. The African energy topic "is not an 'or' solution, rather an 'and' solution”, expressed, Hendrik Malan, a sentiment also echoed through Derek’s words that we are in a transition phase, not a tap African economies can simply turn off.
However, across the board, the need for clean energy transition is a necessary one as foreign investments in fossil fuels dwindle. The African landscape has a high potential for renewable energy generation but has struggled to attract sufficient private sector investments, linked to regulatory environments, current utility management, etc. In this regard, the South African president recently announced plans to scrap existing limitations on private sector-generated energy. As per the announcement, South African companies will be allowed to build power plants of any size without a license to meet their own needs and to sell them to the grid, a step as important one for unburdening Eskom. Also detailed in the announcement were plans to release tenders for natural gas and battery storage projects. These steps echo points Derek highlighted during the presentation of approaching the current energy issues through finding suitable and cleaner transition resources, while also investing in building capacity for renewables. The discussion is available here incase you missed it.
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To find out more about opportunities in Africa, please contact Lynne Martin.
