Seeds of Opportunity: The African Growth Series

In this week's issue, you will learn more about:

Africa, Be Smart About New Cities

In November 2022, the global population reached 8 billion, with Africa’s population comprising one-fifth of that total. By 2050, this will increase to 25%, with one out of every four people being African. Small, medium and large cities across the continent are experiencing increasing strain as people are moving into urban areas in droves, with a 44% urbanisation rate in 2021¹. Ageing infrastructure, food security, and adequate service delivery are a handful of issues these cities face. In response, officials and various city stakeholders propose constructing new Smart Cities as the solution to leave old towns behind. Africa has a long history of announcing smart cities, but high upfront infrastructure costs and socio-environmental complexities are why the continent has built only a few of these developments. People are not waiting for new cities, hence, implementing smart city initiatives in existing towns and cities is a more reasonable strategy to keep up with the growing urban population.

Since 2000, the number of residents in urban areas has steadily grown as cities attract people looking to improve their access to education, healthcare, and jobs amongst other amenities and opportunities. By 2050, cities across Africa will house an additional 950 million people² but the existing infrastructure is struggling to support this growth. City officials suggest we start afresh in Smart Cities that use digital and ICT-based innovation to generate new economic opportunities and improve the efficiency of service delivery within cities. In response, Africa had an ambitious first wave of Smart Cities announced before the 2008/09 global economic bust. From Konza Tech in Kenya, Eco Atlantic in Nigeria, Cité du Fleuve on an island in the Democratic Republic of Congo (DRC) and Kigamboni in Tanzania. More recent announcements include Lanseria's Smart City in South Africa, Akon City in Senegal, and Elon Musk's plans to build a US$20 billion smart city in Botswana called Neo Gardens. The slow pace of development and high costs for new cities has left many of these developments dead in the water. The Cape Coast Green City project in Ghana is an example of an ongoing development that has seen some praise. However, Modderfontein New City in South Africa³ is an example of an innovative master plan reduced to a desolate development with pockets of suburbia. A pipeline of Smart City developments exists, but most projects fail due to financial, environmental, and social complexities. African countries should instead use digital technologies to solve issues in existing cities.

Cities can leverage low-tech solutions such as USSD technology or simple mobile apps to improve access to at-home healthcare, education, and inclusion into community safety groups or financial services, such as mobile money. Cities can use advanced Fourth Industrial Revolution (4iR) technologies such as artificial intelligence (AI) and machine learning (ML) to improve well-being by analysing big data to sustain biodiversity and improve natural disaster predictions, whilst creating robust food, water, and waste management systems. The same 4iR technologies can defend against growing data sensitivity threats posed by rapid urbanisation and a lack of cyber security awareness.

It is callous to talk about advanced technologies, mobile devices, and sensors without considering the power issues across Africa. Many areas would struggle to charge such devices consistently, hence policies to encourage investments in renewable energy and smart grids are critical in helping the existing cities use digital technologies and reap the benefits of smarter cities.

¹ The African Development Bank Group (AfDB), Frost & Sullivan

² Organisation for Economic Cooperation and Development (OECD), Frost & Sullivan

³ Megaprojects article: Modderfontein New City: The Failed ‘New York’ of South Africa

Global Population Growth: The Rise of Tech Infrastructure in Africa

As of the 15th of November, the United Nations estimates that the global population has reached 8 billion (from 7 billion in 2011). However, despite the exponential rate at which the population has increased, experts indicate that going forward, fertility rates may decrease in the Global North and become more concentrated in countries with more youthful structures, such as sub-Saharan Africa (SSA). More specifically, by 2100, it is estimated that the African population will grow to 3.9 billion (from 1.4 billion in 2022). While the population of Asia will still be the largest, at 4.6 billion – it has been forecasted to decrease by 100 million by the year 2100. In fact, the African population is speculated to not only increase threefold but to be the only region in the world where the population will continue to increase by more than 150 million between 2022 and 2100.

 While the lack of current infrastructure in the continent is a constraint, analysts argue that for rising economies, the innovation economy is of crucial importance to ensure that socioeconomic needs are met as well as to accelerate the achievement of sustainable development goals. Throughout Africa, there are multiple indicators of growth in this space, such as current monthly service subscription figures, which have been forecasted to reach 615 million users by 2025 in SSA alone. Nigeria is a key figure in this market, growing by 1 million users between July and August 2022, with a teledensity figure of 109%. In addition to this growing demand for tech-based infrastructure, the tech ecosystem in the continent is rapidly growing. This is clear in the venture capital (VC) funding secured across Africa in 2022 (USD 1.5 billion) in comparison to 2016 (USD 400 million).

Virtual Reality in the Classroom

In large parts of Africa, the sharp growth in the population has caused educational infrastructure to be left behind. This has left large groups of students unable to receive a proper education. Many schools do not have the necessary school benches, blackboards or even classrooms to best accommodate all students. In Nigeria, for example, 10.5 million children are not in school even though primary education is officially free and compulsory.

A possible solution to this issue is through Virtual Reality (VR). VR could enable students to be taught mathematics and science in a lab by Albert Einstein or entrepreneurship from Jeff Bezos. Students could also learn French while on a virtual field trip through Paris, all while sitting in one place. The student could even attend classes at Harvard, from their bedroom in Cape Town. This could all be done in a classroom setting, with other students in the metaverse, or by themselves. All aspects could be customized and personalized to the particular student’s interests, abilities and learning style. As such, through the various educational offerings available, VR has an enormous growth potential.

This technology is already available in sub-Saharan Africa, by a company called Imisi 3D. ​ Imisi 3D is a Nigerian Virtual Reality creation lab, founded by Judith Okonkwo, campaigning the move from technology consumption to creation. They have started The VR for Schools program, which is an initiative to bring the power of immersive technologies to learning. In 2019, Imisi 3D, with support from UNICEF, combined with teachers in Nigeria to create curriculum-specific content for Nigerian high schools and set up the first VR lab in a public school. The company are planning on evaluating the impact of the modules on learning outcomes and are currently seeking funding to expand the project’s scope. Imisi 3D are in good company, with Nigeria’s tech start-ups flourishing since the COVID-19 pandemic, reaching $904 million in funding in 2021, six times more than the value in 2020. This looks set to be even more before the end of 2022.

The Growing Start-Up Scene in Africa

Africa’s innovation ecosystem started 2022 off strong, riding high from the successful and record-breaking 2021 investments into the start-up scene. While Africa’s Venture Capital (VC) funding contributes only 0.2% to the global start-up ecosystem, the continent’s start-up scene has shown bullish trends resisting global turmoil, such as surging inflation and an unfavourable investment climate. The global VC market contracted considerably year on year; Africa’s ecosystem, however, saw a YoY growth of 133% between H1 2021 and H1 2022. This may have been driven by African governments trying to enable entrepreneurship and investment to thrive through supportive legislation and policies, specifically in Nigeria, Kenya, Egypt and South Africa. The economic downturn has, however, finally affected Africa, with VC funding falling by 54% in Q3 2022, in line with the global decrease in financing. This downturn has been associated with venture capital firms changing their investment focus from funding growth-stage start-ups to early-stage start-ups, which could be beneficial for Africa, which requires increasing support at the early and seed funding stages. Similar to 2021, West Africa continued to attract the most deals (33%), followed by East (22%) and North Africa (20%) in H1 2022. While African multi-region deals make up only 10% of the total deals, they account for 44% in value, followed by East (18%) and North Africa (16%). On a sector basis, Fintech remains the leading industry attracting the most deals by both value and volume. One emerging sector is the CleanTech industry, which grew by 420% YoY between H1 2021 and H1 2022, which includes Tech companies focused on harnessing or developing technology which seeks to improve sustainability or reduce negative environmental impact. Africa’s ecosystem is projected to reach new heights in 2022, further cementing its growth in 2023.

Leta, a Kenyan B2B supply chain and logistics SaaS provider

A Kenyan B2B supply chain and logistics SaaS provider, Leta is expanding its operations to West Africa after raising USD 3 million in pre-seed funding during its expansion phase. Leta was launched last year to optimise fleet management by utilising an operating system for logistics and software to determine the most efficient and quickest route for distributors to their customers. ​ The company’s platform optimises fleets while increasing the order of fulfilment by automatically assigning vehicles to trips based on capacity, traffic, and driver schedules while proactively monitoring the driver and vehicle metrics and the automated movement of goods in real-time in Africa. This SaaS application offers distributors reduced costs and carbon footprints by monitoring fuel consumption and enabling logistics businesses to transform operations to maximise productivity and increase profits. Currently, the start-up is looking to tap some of the biggest distributors and e-commerce players in Ghana and, thereafter, Nigeria. Leta hopes to grow beyond Kenya in the future, tapping the Tanzanian, Ugandan, Zambian and Zimbabwe markets.

Since its launch, Leta has optimised over 500,000 deliveries, delivered more than 20,000 tons of goods and managed 2,000 vehicles.

Kiana Steyn

Author, Frost & Sullivan Africa

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Unlocking the African Logistics Sector

"Logistics is the lifeblood of trade and economic growth" cited Craig Parker, Research Director at Frost & Sullivan Africa, in the recent Think Tank, which echoed key pockets of opportunity present in the sector. In Africa, unlocking the potential of the logistics sector is crucial as the region faces high economic fragmentation due to low intra-regional trade. In 2021, total intra-African Trade was only 13% (valued at $71 billion), with 66% of the share being within the SADC region, compared to 67% and 58% of intra-trade in Europe and Asia, respectively. The region's supply chain challenges were further accentuated during 2020, covid-19 pandemic. However, challenges seen in the last few years are spurring some positive growth in various business sectors. Providing key insights, speaker Lars Veul, founder of Pargo pointed to dynamic growth in private-sector innovation in solving challenges of accessibility, through e-commerce and last-mile delivery. Lars highlights how re-evaluating the traditional route-to-market approaches has to be key to further unlocking the sector. While in the retail business space, trends being seen include centralization, split models, inbound logistics, etc., which were highlighted in detail by Friedel Spies, and Craig Parker. With key policy frameworks in place such as the AfCFTA - African Continental Free Trade Area, the continent is on the right path, however, the way forward requires collaboration in infrastructure development, investment, sector automation, and increased private sector participation. These insights and more can be accessed in the full recording on https://lnkd.in/dD2uBSM6

Pharmaceutical Manufacturing in Africa

Africa imports about 70-90% of all pharmaceuticals consumed on the continent. The unfortunate consequences of this dependence on imported medicines were on full display during the height of the COVID-19 pandemic, when supply chain disruptions caused widespread shortages of even the most essential medicines in African countries.

While the need for increased local manufacturing of pharmaceuticals has long been recognised, the pandemic made Africa’s vulnerability to supply chain disruptions the subject of global attention, serving as a catalyst for discussions on the manufacturing of pharmaceuticals on African soil. The result was the establishment of the African Pharmaceutical Technology Foundation by the African Development Bank Group earlier this year. A strong regulatory system has been identified as a necessary condition for the advancement of pharmaceutical manufacturing in Africa, where an estimated 42% of global counterfeit medicines are distributed. Accordingly, a key focus of the Foundation is to strengthen regional regulatory systems through reform and harmonisation.

The African pharmaceutical market is ripe for growth: The market is severely underpenetrated, with only 375 manufacturers serving the continent’s 1.3 billion people. In contrast, India has about 10 000 pharmaceutical manufacturers serving a population of 1.4 billion. Although the pharmaceutical industry in Africa is concentrated, with most manufacturers clustered in Algeria, Egypt, Nigeria and South Africa, a rapidly growing population, urbanisation and increasing wealth are all factors pointing to significant market growth potential in other African countries. Africa is particularly ripe for growth in the manufacturing of generic pharmaceuticals, which comprises a meagre 40% of sales in Africa. In comparison, generics make up about 70% of sales in the Chinese and Indian markets. Increased local manufacturing, especially of generic medicines, has the potential to greatly improve the accessibility and affordability of healthcare in Africa.

Onwards and Upwards, Space Africa

Africa launched its first satellite over 20 years ago and, to date, 13 countries have launched 51 satellites. Including recent announcements of Botswana's first satellite launching in 2023 and a further 125 satellites from 23 other countries set to launch over the next three years. Africa could gain US$2 billion yearly in benefits through the data collected and analysed from space and it valued its space economy at US$19 billion in 2021. This market could grow by 16% to US$23 billion by 2026 because of increased investment from the government, demand for accurate weather forecasting, improving internet and decreasing satellite manufacturing costs.

African countries allocated USD$534.9 million to operate their respective space programmes in 2022. Economic hubs across the continent are vulnerable to the changing climate and satellites could help predict the increasingly erratic weather. Africa has a growing number of mobile phone users, but only a third of the population has access to adequate broadband. More communication satellites could reduce the need for tower infrastructure and better connect people in remote areas to the internet. African space programmes, labs and manufacturers gravitate towards developing Rubik's cube-sized satellites (CubeSats) because they are more cost-efficient than larger satellites. An example of their use is with Zimbabwe and Uganda's first CubeSat satellites, ZimSat-1 and PearlAfricaSat-1, launched this year. A CubeSats' operational lifespan is roughly 24 to 30 months, hence labs using this technology are looking to invest in building and launching more of these satellites.

To find out more about opportunities in Africa, please contact Lynne Martin.

Lynne Martin

Sales Contact, Frost & Sullivan Africa

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lynne.martin@frost.com+27 21 680 3260