Mobile phone, Internet and social media investment and usage in Africa is expected to continue surging over the next five years, significantly boosting the continent’s growth prospects, says Standard Bank Group analyst Simon Freemantle in a report about trends set to change Africa.

The first two reports in a series – aimed at unpacking that which he sees as the five most prominent trends driving Africa’s ongoing economic and commercial reinvigoration – deal with the continent’s rising, youthful and urbanising population.

Freemantle notes that by 2015, there is expected to be about 800 million mobile subscribers – up from 500 million in 2010 – with East and Central Africa enjoying the highest mobile subscription growth rates in the world. Nigeria is already the world’s 10th largest mobile market.

More Africans connecting

The report finds that more Africans are connecting to the Internet and are eagerly embracing social media faster than populations in other regions.

There are presently about 120 million Internet users in Africa. While penetration is relatively low, Freemantle says growth rates have been profound, with Internet usage in Africa growing by 2 527%, compared to a world average of 480% between 2000 and 2011.

“Much of this growth has been inspired by elevated mobile penetration. While overall subscriber numbers are comparatively small, Africa is also one of Facebook’s fastest growing markets,” he says.

According to the report, there are currently around 32 million Facebook users in Africa. In all, 27% of African Internet users have Facebook profiles, compared to 18% of Internet users in Asia.

“Of Egypt’s 6.5 million Facebook users, almost half joined in the first six months of 2011,” the report adds.

Internet growth restrained by costs

Freemantle notes that despite the growth, Internet costs remain exorbitantly high, limiting uptake. In 2010, the cost of a fixed broadband subscription basket in Africa was 291% of gross national income, compared to 27% in Asia and 2% in Europe.

“The availability and affordability of mobile and broadband services can, as it already has in key markets, support economic growth and provide one of the means through which Africa’s human capital advantage can become pronounced,” he says.

The pace of change is likely to continue to be robust, the report notes, adding that companies, institutions and governments approaching these alterations innovatively will be rewarded.

“Through embracing telecommunications with such vigour, Africans have bridged a gap in the developmental trajectory with much of the emerging world, creating solutions based on local market fundamentals, suited to the proclivities and pockets of African consumers, and geared toward broadening the beneficiaries of nascent socio-economic gains,” says Freemantle.

Key growth market: East African hub

South African company, Internet Solutions (IS), has increased its stake in Internet Solutions Kenya from 51% to 80% for an undisclosed sum, with an option to acquire the remaining 20% as the group looks to expand its East African business interest.

IS Kenya managing director Loren Bosch said that East Africa was experiencing a boom, with the telecoms sector playing a vital role in fuelling the rapid growth through massive investments in fixed line and wireless infrastructure.

This was largely due to the increased international bandwidth capacity supplied by undersea cable systems including Seacom, the Eastern Africa Submarine Cable System, and The East African Marine System, of which IS has secured substantial capacity.

“Kenya forms the hub of the East African operation, as it is strategically well placed to serve a number of other key countries such as Tanzania and Uganda,” Bosch said. “This investment will ensure we have the resources and capabilities to successfully roll out into these key regions and secure sustainable market share.”

IS has identified Kenya as a key growth market due to the strength of the local economy and the rapidly increasing data demands in the consumer and corporate markets.

“As greater capacity comes online, we are starting to see an increase in the demand for cloud-based services, specifically the delivery of software as a service,” said Bosch.

To meet this demand, IS has made a substantial investment into upgrading its local data centre, to the point where it is currently the only tier 3 data centre in the country.

Paradigm shift toward outsourcing

Kenya is seeing a paradigm shift in terms of how service providers provision services: local infrastructure providers historically have built out their own infrastructure, but now are increasingly looking toward outsourcing as a means of reducing large-scale capital expenditure as well as
operating costs.

“This has opened up the market by creating a provider-agnostic environment where a good mix of technologies can be delivered,” Bosch said.

As the Kenyan market continues to develop as the innovation hub of East Africa, and serve as a springboard into the other important emerging economies in the region, it was important that the company establish a strong presence in the market, he explains.

“This increased investment will greatly assist to position IS Kenya at the forefront of the corporate ICT [information and communication technology] sector and serve the needs of this rapidly growing market.”

Bosch added that Internet Solutions had plans to roll out into Rwanda and Burundi in the near future, and to enter South Sudan.

BRICS exposure to developing markets

The stock exchanges of the BRICS emerging market bloc – Brazil, Russia, India, China and South Africa – are busy with initiatives to cross-list benchmark equity index derivatives on each other’s boards, in an effort to expose investors to opportunities in the world’s leading developing markets.

“Global investors are increasingly seeking exposure to leading developing markets,” said Ronald Arculli, chairperson of the Hong Kong Exchanges and Clearing, and the World Federation of Exchanges. “The close relationship of the BRICS stock exchanges is behind this initiative, through which investors worldwide will gain easier access to benchmark equity index derivatives that will now be offered in local currency on these exchanges. These cross-listings are planned to take place by June 2012.”

This was an important moment in the history of developing countries, he added. “The alliance enables more investors to gain exposure to the BRICS bloc of emerging economies, with its increasing economic power.”

From a global perspective, the alliance pointed to the growing relevance of the BRICS economies and financial markets in the coming decade and further underlined the reason for the BRICS relationship, Bosch added.

As well as being barometers of market performance, indices form the basis of other tradable products including exchange traded funds. “As a logical second phase in the alliance, the exchanges have agreed to work together to develop new products for cross-listing on the respective exchanges,” said Johannesburg Stock Exchange chief executive officer, Russell Loubser.

The second phase will include the development of products combining exposures to equity indices of all alliance partner exchanges. “These products would then be cross-listed and traded in local currencies,” said BM&FBOVESPA CEO, Edemir Pinto.

“They will also allow investors to gain exposure to other emerging markets through a locally listed product.”

Opportunities to participate in growth

The third phase may include product developments and co-operation in additional asset classes and services.

“Apart from cross-listing products, there are other opportunities that can be explored, which have great potential and will promote greater development and understanding of the respective markets,” said MICEX stock exchange president, Ruben Aganbegyan.

Bombay Stock Exchange CEO Madhu Kannan said the BRICS exchanges alliance was promising, as it would create avenues for Indian investors to diversify and expand into other emerging markets. “It will provide unique opportunities to investors in other BRICS nations to participate and contribute in India’s growth.”

“BSE will actively work toward bringing world-class products to India, and developing new products for other BRICS markets.”

The interest in the BRICS economies is prompted by above-average growth predicted for these regions, and rising consumer power generated by growing middle classes in each nation. “The growth of this consumer class implies demand will accelerate within these countries,” says National Stock Exchange of India MD, Ravi Narain.

Staff reporter