lions go digital: the internet’s transformative potential in...

McKinsey Global Institute

April2014 Discussion document

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Lions go digital: The Internet’s transformative potential in Africa

McKinsey & Company | 1

This is Africa …


This is also Africa …

McKinsey & Company | 3 3

Some surprising facts about Africa

Consumption grew more in Africa than in India or Brazil over the last decade

Africa has as many cities with 1 million people or more as Europe

Africa today is more urbanised than India, and just below China

More than 75 companies earn over $3b each, in revenue from Africa


Africa’s major cities are embracing the Internet

SOURCE: McKinsey Africa Consumer Insights Center Survey, 2012; McKinsey Global Institute analysis

51% have accessed the Internet in the last month

25% are online daily

21% spend more than 10 hours per week online

54% own Internet-capable devices

57% of Internet users use social networking sites often

Johannesburg

Cape Town

Lagos

Abuja

Nairobi

Dakar

Algiers

Casablanca Alexandria

Cairo

Addis Ababa

Among urban residents …


All indications are that this will continue … transforming the continent, even more than the mobile phone

There is a massive demographic shift to an Africa that is urban, young and middle class;

Ambitious ICT infrastructure planned by telecoms industry and governments that will drive access

Smart devices fall below the “tipping point” of sub $50 smart devices

Almost every government on the continent has developed a national ICT strategy to harness the impact of the Internet

A large cadre of digital entrepreneurs (some well-funded) are racing to meet this demand with new business models that look to innovate around the unique challenges to Africa – investors are taking notice


Exciting examples of entrepreneurship

iROKOtv


iGDP composition varies by country

SOURCE: McKinsey Global Institute analysis

NOTE: Numbers may not sum due to rounding.

18

South Africa 65 6

Nigeria 75 25

Angola 79 -2

Algeria 82 11 0

Ghana 86 6 -2

Kenya 87 6 0

Tanzania 91 6

Senegal 91 3 -2

Cameroon 96 2 -1

Côte d’Ivoire 98 0

Ethiopia 98 0

Mozambique 99 -1

13

63 Egypt

34 14 Morocco

8 82 Average

Private consumption Public expenditure Private investment Trade balance

2 0 1 1

1 1


Senegal and Kenya are leading the way on the continent

SOURCE: Gartner; IHS Global Insight; Organisation for Economic Co-operation and Development; International Telecommunication Union; International Data Corporation; World Health Organization; ICD; iConsumer US 2012; Euromonitor; H2 Gambling Capital; PhoCusWright; Pyramid Research; UNESCO (United Nations Educational, Scientific and Cultural Organization); McKinsey Global Institute analysis

Africa Emerging countries2

Developed economies

The Internet’s contribution to GDP (iGDP) is much lower in Africa iGDP, 2012 % of GDP1

iGDP by country, 2012 %

Canada

Ghana Cameroon Tanzania Côte d’Ivoire South Africa Brazil Mozambique Italy Argentina

Angola 1.2 0.5 Ethiopia Nigeria 1.5 0.8 Algeria 1.1 0.8 Russia Turkey Vietnam Egypt Mexico

Kenya France Germany India Senegal United States Hungary Japan Malaysia South Korea Taiwan United Kingdom Sweden

China Morocco

1 GDP assessed by expenditure method, with a share of each category attributed to the Internet. 2 Aspiring countries data is from 2010.

3.4x

iGDP adjusted for oil revenues


Aspiring countries

Developed economies

Africa

Developed economies

Africa

xxxx

If government and business successfully drive adoption and demand, the Internet could contribute 10 percent to Africa’s economy by 2025 …


2025

9–11

2012

Matching countries that are best in class … iGDP, %

… combined with an uptake similar to that of mobile telephony… Mobile voice revenue as % of GDP

… could produce a leap forward in Africa’s iGDP growth iGDP, %

×

3.4x

3.4x

8– 10%


Private consumption could reach $154 billion by 2025


$ billion


2025

2012

Device revenues Internet access and usage revenues

Mobile finance revenues

e-commerce sales

Total private consumption


Global comparisons reveal significant scope to increase public expenditure on the Internet Public expenditure $ per capita


Average spending

Morocco

Japan France Germany

Canada Sweden 281.69 United States 330.55 United Kingdom 371.00

Senegal

Argentina Malaysia Brazil Hungary Taiwan Ethiopia Mozambique Côte d’Ivoire Cameroon Tanzania Ghana

Kenya Nigeria Angola Algeria Egypt South Africa

Turkey

Sample

Developed world

Emerging countries

3

32

190


Private investment in Internet-related infrastructure and digitisation is significantly higher in other emerging markets $ per capita

14.2522.58

0.030.030.24

0.370.530.72

1.831.99

2.552.77

3.28

5.257.12

8.29

Algeria

South Africa Egypt Morocco

Mexico Malaysia Taiwan 57.91

Argentina 76.94

Hungary 84.77 Ethiopia Mozambique Côte d’Ivoire Cameroon

Tanzania

Nigeria Ghana Kenya Senegal Angola

SOURCE: Gartner; IHS Global Insight; Organisation for Economic Co-operation and Development; International Telecommunication Union; International Data Corporation; World Health Organization; ICD; iConsumer US 2012; Euromonitor; H2 Gambling Capital; PhoCusWright; Pyramid Research; United Nations Educational, Scientific and Cultural Organization; McKinsey Global Institute analysis


The internet will transform six sectors in particular


Potential for capturing benefits ▪ Device

penetration ▪ Online fulfilment ▪ Information

asymmetry ▪ Need for high-

speed bandwidth

High

Low

Number of people impacted

High Low

Tourism

ICT

Transport

Professional services

Construction Manufacturing Mining

Financial services

Health

Government Agriculture

Education

Retail


Implications for the six sectors (1/2)

Financial services

▪ Opportunities in payments (P2P, B2P, P2B) micro-credit, micro-insurance could be up to US$20 billion and drive financial inclusion

▪ Interoperability will be a key issue ▪ Will require customer education, establishment of a broader ecosystem

and enabling regulation

Education

▪ Opportunities in content and learning aids, end-to-end low-cost private models, teacher instruction, management systems for schools

▪ Governments and private sector will need to work together to address gaps in infrastructure, improve access to devices and ensure buy in from teachers and

Government service delivery

▪ Three key opportunities: digitisation to improve efficiency and transparency, revenue collection, improved convenience and better service delivery for citizens and businesses

▪ Governments will need to address gaps in infrastructure, skills and devices

▪ They will also need to develop a co-ordinated ICT strategy

Implications

SOURCE: Lions go digital


Implications for the six sectors (2/2)

Agriculture

▪ Opportunities driven by increasing access to markets, and therefore, price realisation and improving access to information

▪ Number of initiatives under way, but scaling up is difficult due to limited skills and funding in some cases. Providers will therefore need to develop alternative revenue streams, e.g. logistics, insurance, etc.

Health

▪ Opportunities in automation of health care systems, remote diagnostics, practitioner training, patient education

▪ Challenges include complex ecosystem, reliance on donor funding, limited access to smart devices by patients

Retail

▪ Key opportunity is in creating access to formal retail experience, improving selection / assortment. Additional opportunities in logistics and payments

▪ Retailers could differentiate by targeting specific segments, e.g. youth, cost conscious

▪ Challenges include under-developed payments and logistics and building consumer trust in online

Implications

SOURCE: Lions go digital


i5F scores by country


Score per i5F dimension %

Angola 38 31 18

Algeria 27 39 40

Côte d’Ivoire 38 44 37

Mozambique 48 48 31

Ethiopia 56 39 33

Tanzania 48 53 25

Cameroon 46 51 30

Nigeria 49 54 25

Ghana 49 58 34

Senegal 68 53 26

Egypt 49 53 41

Kenya 59 54 38

Morocco 57 58 50

South Africa 45 67 43

National ICT strategy

Business environment

Infrastructure Financial capital

ICT skills base i5F score

50

48

47

42

39

39

37

36

36

34

33

33

28

21


The McKinsey I5F correlates with the IGDP – showing that when countries focus, they can drive their iGDP


i5F score %

51 50 49 48 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 38 37 47 46 45 44 43 42 41 40 39

iGDP %

21 0

Algeria Angola

Nigeria South Africa

Morocco

Egypt

Côte d’Ivoire

Senegal

Cameroon

Kenya

Mozambique

Algeria

Ghana

Tanzania

Angola

Nigeria Ethiopia

Adjusted for oil revenues

Standard iGDP

Punching below their weight

Emerging

Leaders

Followers


Backup


Penetration and usage vary widely across the continent

SOURCE: Internet World Stats; International Telecommunications Union statistical database 2012; World Economic Forum Global information technology report 2012; Euromonitor; World Economic Forum Global competitiveness report; McKinsey Global Institute analysis

Internet penetration and usage, 2012

1 Not adjusted for multi-SIMming, i.e., individuals may own more than one SIM card and be counted multiple times. 2 Fixed line only.

Mobile pene-

tration1

% of population

Internet pene-

tration % of

population

Urban Internet

penetration % of

population

Face-book

users Million

Online retail pene-

tration %

High-speed Internet

penetration2

% of population

Internet use within

companies Index, 0–7

Government departments

online %

Government information

systems online

%

Algeria 103 14 52 4.1 0.39 2.5 3.1 10 1

Angola 49 15 49 0.6 0.49 0.1 3.4 34 7

Cameroon 64 5 – 0.6 0.01 0 4.6 15 16

Côte d’Ivoire 96 4 – – – 0 3.9 32 17

Egypt 115 36 46 12.2 0.37 1.8 4.6 53 29

Ethiopia 24 1 47 0.9 0.40 0.8 3.6 20 4

Ghana 100 14 55 1.6 0.43 0.2 4.5 15 9

Kenya 72 28 78 2.0 0.73 0 5.0 24 23

Morocco 120 51 52 5.1 0.50 1.6 4.5 24 13

Mozambique 33 4 – 0.4 – 0.1 4.5 17 11

Nigeria 68 28 50 6.6 0.04 0.1 4.5 10 1

Senegal 88 18 70 0.7 0.44 0.6 5.3 18 3

South Africa 135 17 54 6.3 0.49 1.5 5.3 31 19

Tanzania 57 12 – 0.7 – 0 3.8 17 4


Private consumption could reach $154 billion by 2025


$ billion


2025

2012

Device revenues Internet access and usage revenues

Mobile finance revenues

e-commerce sales

Total private consumption


Global comparisons reveal significant scope to increase public expenditure on the Internet Public expenditure $ per capita


Average spending

Morocco

Japan France Germany

Canada Sweden 281.69 United States 330.55 United Kingdom 371.00

Senegal

Argentina Malaysia Brazil Hungary Taiwan Ethiopia Mozambique Côte d’Ivoire Cameroon Tanzania Ghana

Kenya Nigeria Angola Algeria Egypt South Africa

Turkey

Sample

Developed world

Emerging countries

3

32

190


Private investment in Internet-related infrastructure and digitisation is significantly higher in other emerging markets $ per capita

14.2522.58

0.030.030.24

0.370.530.72

1.831.99

2.552.77

3.28

5.257.12

8.29

Algeria

South Africa Egypt Morocco

Mexico Malaysia Taiwan 57.91

Argentina 76.94

Hungary 84.77 Ethiopia Mozambique Côte d’Ivoire Cameroon

Tanzania

Nigeria Ghana Kenya Senegal Angola

SOURCE: Gartner; IHS Global Insight; Organisation for Economic Co-operation and Development; International Telecommunication Union; International Data Corporation; World Health Organization; ICD; iConsumer US 2012; Euromonitor; H2 Gambling Capital; PhoCusWright; Pyramid Research; United Nations Educational, Scientific and Cultural Organization; McKinsey Global Institute analysis


iGDP composition varies by country



18

South Africa 65 6

Nigeria 75 25

Angola 79 -2

Algeria 82 11 0

Ghana 86 6 -2

Kenya 87 6 0

Tanzania 91 6

Senegal 91 3 -2

Cameroon 96 2 -1

Côte d’Ivoire 98 0

Ethiopia 98 0

Mozambique 99 -1

13

63 Egypt

34 14 Morocco

8 82 Average

Private consumption Public expenditure Private investment Trade balance

2 0 1 1

1 1


Global iGDP leaders tend to exhibit a lower reliance on private consumption


Taiwan 29 6

United Kingdom 59 25

Sweden 46

United States 60 24

Hungary 29 8

Japan 47 45

Malaysia 39 8

South Korea 69 31

24

Public expenditure Private consumption Private investment Trade balance %



McKinsey’s i5F Index gauges the capacity of countries on the five foundations of the Internet

SOURCE: World Economic Forum; United Nations; United Nations Educational, Scientific and Cultural Organization; Venture Expert; International Institute for Management Development; World Bank; McKinsey analysis

1 Infrastructure is viewed as being a “threshold” factor where increases above a certain level do not confer additional advantage. All ratings above 60 (our defined threshold) are set to 60.

Quality drivers

Quantity drivers

ICT skills base Infrastructure1 Business environment

National ICT strategy Financial capital

McKinsey i5F index

▪ University/industry research collaboration

▪ FDI and technology transfer ▪ Brain drain ▪ Quality of math and science

education ▪ Tertiary education enrolment

rate ▪ Availability of scientists and

engineers ▪ Researchers in R&D per

capita ▪ Personnel in R&D FTE per

capita

▪ Ease of access to loans ▪ Venture capital (VC)

availability ▪ Financing through local equity

market ▪ Value per capita of VC

investment (semiconductor/other electronics, Internet, software computer, hardware computer)

▪ Number of VC deals per capita

▪ Researchers in R&D ▪ Personnel in R&D FTE ▪ Graduate in science ▪ Doctorate in all science and

engineering fields

▪ Value of VC investment (semiconductor/other electronics, Internet, software computer, hardware computer)

▪ Number of VC deals

▪ Overall infrastructure quality

▪ Quality of electricity supply

▪ Secure Internet servers per capita

▪ State of cluster development

▪ Time required to start a new business

▪ Burden of government regulations

▪ Intellectual property protection

▪ Effectiveness of antitrust policy

▪ Ease of doing business index

▪ Capacity for innovation

▪ Irregular payments and bribes

▪ Government prioritization of ICT

▪ Importance of ICT to government vision of the future

▪ Government procurement of advanced tech products

50%

50%

50%

50%


i5F and iGDP are closely correlated


0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

Germany

United States Hungary Japan

United Kingdom

Sweden

Angola

Algeria

Mozambique Côte d’Ivoire

Ethiopia

Senegal

Tanzania

Cameroon

Nigeria

Ghana

Egypt

Kenya

Morocco

South Africa

iGDP %

i5F score %

80 75 70 65 60 55 50

Brazil

40 35 30 25 20 0

Turkey

45

Argentina China

India

Malaysia

Italy

Canada France

Mexico


Four clusters emerge based on each country’s current Internet economy and its foundations for future performance


44 43 41 40 39 42

iGDP %

i5F score %

51 50 49 48 47 46 45 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 0

Algeria Angola

Nigeria South Africa

Morocco

Egypt

Côte d’Ivoire

Senegal

Cameroon

Kenya

Mozambique

Algeria

Ghana

Tanzania

Angola

Nigeria Ethiopia

Adjusted for oil revenues

Standard iGDP

Punching below their weight

Emerging

Leaders

Followers

lions go digital: the internet’s transformative potential in...

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