the future of digital business models in sub-saharan africa, team finland future watch, september...

The Future of Digital Business Models in sub-Saharan Africa

September 2016

Contact informationAmatka (Pty) [email protected]+27 (0)79 618 6570Unit 608, 6th Floor76 Regent Road (The Point Tower)Sea Point 8060Cape Town, South Africa

Amatka (Pty) Ltd is a South African company founded and owned by Finnish entrepreneurs based in Cape Town. Amatka provides insight into business opportunities in Africa with focus on Southern and Eastern Africa. Insight Africa also supports networking in these countries.

Tekes – the Finnish Funding Agency for Innovation

Tekes is the main public funding organisation for research, development and innovation in Finland. Tekes funds wide-ranging innovation activities in research communities, industry and service sectors and especially promotes cooperative and risk-intensive projects. Tekes’ current strategy puts strong emphasis on growth seeking SMEs.





ContentsExecutive summary..................................................................................................3

1 Introduction...........................................................................................................4

1.1 Background....................................................................................................4

1.2 Defintions........................................................................................................4

1.3 Recommended Use and Liability Disclaimer..................................................5

2 Different African Digital Markets in Focus.............................................................7

2.1 Overview: Digital Context in Africa.................................................................7

2.2 Southern Africa: Promising Future or Digital Business as Usual....................8

2.3 Eastern Africa: Booming Economies and Mobile Money Bonanza.................9

2.4 Western Africa: Rise of the New Global E-commerce Unicorns...................10

3 Cases.................................................................................................................. 11

3.1 Southern Africa.............................................................................................11

3.2 Eastern Africa...............................................................................................14

3.3 Western Africa..............................................................................................17

4 Scenarios for the Future of digitalization markets in Africa.................................20

5 Conclusions and Recommendations...................................................................23

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This report is all about digital business models and the future of digital business in Africa. In the report it is presented one of the most exciting digital business models currently found in Africa and more specifically in three geographical markets in Africa: Southern, Eastern and Western Africa. The report is based on relevant statistics, recent articles, publications and publicly available information. For the purpose of analysis, also company and expert interviews were conducted in the respective markets during the year 2016. The report is part of Team Finland’s Future Watch Service in Africa. Future Watch service is part of TF Market Opportunities services and coordinated by Tekes, the Finnish Funding Agency for Innovation

One thing is for sure: the main driver for the digital business models in Africa is the on-going mobile revolution. There are currently around 900 million mobile phone subscriptions and around 400 million smart phones in Africa - and people really are using those phones. The growth numbers in tech space are staggering but can also be misleading as there are also major challenges that need to be overcome. Bandwidth problems, unavailability of skilled workforce and poor infrastructure create challenges for digital business models to materialise at its full.

Another thing is also sure already now: African digital business models are emerging and the context of Africa is dominant in those models. Models are home born and focusing on solving specific African problems and often also arising from African culture. Whether it is solving agriculture related logistics problems in Kenya or creating “African Netflix” in Nigeria, it is important to understand the African context. And this is the key message of this analysis, if you want to succeed in digital business in Africa, you need to understand how culturally changeable and different Africa is. That requires that you need to be able to adjust your offering to the local environment. This all has its own implications for success in digital business in Africa. This analysis wants also to give predictions about the future of digital business in Africa by understanding current digital business models and making bold conclusions about the development paths for the future.

Executive summary

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1 Introduction

1.1 Background

Africa is a vast continent containing 54 countries, of which 48 exist in sub-Saharan Africa. Africa is the most heterogeneous continent in the world – linguistically, culturally, and ethnically. It has more than one billion people, and over 3,000 ethnic groups speaking more than 1,000 languages.

Most economic activity in Sub-Saharan Africa still happens in the informal sector, which accounts for more than 50% of GDP and employs more than 80% of the population. In all African countries GDP is considerably lower than in more developed world, as well as unequally distributed between and within economies.

There are also big challenges facing African economies that are related to water, food, electricity, healthcare and education related shortages. Other side of the story is that many areas are rapidly developing; internet and mobile phone usage are growing, some urban areas look the same as in Europe, and foreign direct investments are diversifying.

From trade perspective the biggest implication of the development is in the first place growing demand for consumer goods, financial services and infrastructure from energy grids to housing. At the same time b-to-b markets are immature and apart from small and micro businesses controlled by large foreign companies. Only finance and telecommunications sector are to a large degree in hands of Africans. Government monopolies are more of a rule than an exception in energy, parts of transportation, and even parts of telecommunications.

From the perspective of digitalization it is important to remember that there is no one Digital Africa. The common denominator is increasing mobile internet penetration but apart from that each and every country faces unique opportunities and challenges. Life in a wealthy suburb in Johannesburg is very different from life in a village in rural Kenya, yet both are realities happening in today’s Africa.

Reflections of Digital Africa are also different across Africa. In Nigeria local ecommerce and entertainment are big. In Kenya, fintech has been booming for some years and NGOs have been active in healthcare, agriculture and education. In South Africa, the only African country with Western type legacy systems, innovative digital companies are looking for markets outside Africa. South Africa also so far is the only African country with significant, and highly competed, b-to-b digital market.

1.2 Defintions

Digital business models can vary from many different services and products in digital marketplace. In this analysis digital business models have been defined in a very broad sense, including e-commerce, collaborative economy in digital channels or business delivered in various digital touchpoints. When it comes to African digital business models it is important to remember the African context. Digital business models have always an African flavour arising from cultural and economic realities.

Amatka has used well known business model analysing and describing tool Business Model Canvas in analysing and understanding the characteristics of African digital business models through cases. Alexander Osterwalder and Yves Pigneur are the main authors of the book called Business Model Generation and there it is introduced what is called Business Model Canvas. Canvas can be described as “shared

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language to describe, visualise and assess changing business models”. Canvas is made up of nine building blocks that describe the key elements of every business model – regardless of whether model is digital or physical. The key elements are:

1. Key partners 2. Key activities3. Key resources4. Value propositions5. Customer relationship6. Channels7. Customer segments8. Cost structure9. Revenue streams

This analysis highlights especially African characteristics of digital business models and showcase business models that possibly could not have born outside Africa. Digital business models chosen represent existing and already well-functioning models. This choice has been made in order to showcase what kind of models have made breakthroughs in Africa illustrating what it takes to build sustainable digital business in Africa.

On the other hand, it is important to bear in mind that digital business models are global and same characteristics of digital business models relate to wherever business is originating from. The list below shows the main business models that have flourished during the digital business model age starting from late 1990’s. All these digital business models can also be found in Africa – with an African flavour.

Traditional retailer business model is model where retailer is selling products and services directly to buyers at a mark-up from the actual cost. Usually there are three types of cost model in relation traditional retail business model in e-commerce: low cost, cost plus and premium models.

Non-Traditional retailer business model at first looks like traditional retailer but goes beyond by maximizing customer lifetime value. Three common variations to the non-traditional retail model are commonly described as: freemium, long tail and razors & blades.

All you can eat business model is about offering unlimited use of assets over a fixed period of time. Good examples for this business model are Netflix (video streaming) and Spotify (music streaming).

Subscription business model is about offering a product or service on a continual basis for a fixed charge, usually weekly, monthly or yearly. Subscriptions are common business model especially in non-material assets like media content and other services.

Landlord business model has a key player who owns the asset and makes it profit by charging others for the use of asset. Assets can vary from physical to virtual assets.

Broker business model is about transactions between sellers and buyers, usually broker not even owning what is being sold and profiting from a charge on top of selling price.

1.3 Recommended Use and Liability Disclaimer

It is strongly recommended that the readers always check the latest information; situations in Africa can change overnight.

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Amatka has made every attempt to ensure the accuracy and reliability of the information provided in this report. However, the information is provided "as is" without warranty of any kind. Amatka does not accept any responsibility or liability for the accuracy, content, completeness, or reliability of the information contained in this report. No warranties, promises and/or representations of any kind, expressed or implied, are given as to the nature, standard, accuracy or otherwise of the information provided in this report nor to the suitability or otherwise of the information to any particular circumstances. Amatka shall not be liable for any loss or damage of whatever nature (direct, indirect, consequential, or other), which may arise as a result the use of this report, or from use of the information in this report.

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2 Different African Digital Markets in Focus

2.1 Overview: Digital Context in Africa

Africa is on the rise – this is what we hear from various sources. From economic growth rates perspective this is completely true and undeniable. Africa’s consumer market is expanding parallel with increasing size of middle class. At the same time, infrastructure related investments are booming and contributing to the growth of the one of the fastest growing areas in the world. There are high hopes that finally some African nations would be able to roll out their manufacturing capabilities, which would mark a major transformation from “Africa consuming” to “Africa producing”.

Despite problems of mismanagement and bad governance, corruption, crime, poverty and inequality, continent’s progress will continue. One of the main contributor and enabler to this progress is digital transformation. A transformation connecting Africa to rest of the world, and connecting rest of the world to Africa. These real-time connections enable Africa to change for good.

Various statistics tell about the rise of the internet economy through faster networks, increasing internet penetration, increasing internet contribution to GDP, amount of Facebook users, just few to mention. Positive outlooks for growth of digital capabilities and key elements of internet economy prevail. Based on estimations it is possible to draw only one conclusion – business potential is huge and most likely even underestimated in many areas. Many African governments have woken up and defined strategies to capture the potential for change. In many cases the big picture is in place and now it is time to execute.

On the other hand, journey has just started but already now we are able to see the possibilities for digital transformation in many sectors that define the future of Africa: healthcare, agriculture, retail, education, transportation and even the government sector. In the heart of this transformation are the new digital business models and bold entrepreneurs and companies that are able to capture the essence of the transformative power of African change.

One additional actor is important to brought up that has a vital role to play. That is the network of incubators and accelerators funded by donors, corporations, and governments. Various programmes and competitions are in place to identify transformational businesses and ideas. Currently there are more than 300 accelerators and/or incubators that operate in the field of “tech”.

With this as a background, in order to understand the future of digital markets in Africa, it is vitally important to understand the challenges the up and coming as well as established digital businesses intend to solve. Another objective of this analysis is to describe digital needs of three different African regions. At the same time it is important to understand the characteristics of specific digital business models in order to capture the African flavour of digital business in various distinctively different African geographical markets.

From the perspective of the African future, digital business models have a vital role in influencing the development of African societies. For the first time African economies are able to create equal economic links with Western economies and are able to attract interest from all over the world. There is also possibility that with the help digital solutions African societies are able to find tools to dismantle corruption by increasing transparency and getting rid of non-existent or inefficient management processes. It is also possible that Africa becomes a testing ground for up-and-coming

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digital businesses that are not able to move forward as regulative environment in their home countries is more prohibitive. It is yet to be seen what kind of a digital future Africa has in front of herself. However, possibilities are great as foundation for a digital revolution do exist.

In many cases markets in Africa are digital from birth as mobile technology has made completely new services available for almost all of the continent’s one billion individuals without any legacies. This offers new collaboration and business opportunities for a huge amount of people. Through digital channels, Africa will become for the first time equal player in global market place and redeem its role as major contributor to the global economy.

However, before starting co-operation with the last frontier market in the world, understanding what it takes to be fully operational in African digital market is crucial. Partly that requires understanding about digital business models.

The final objective of this analysis is to share the understanding and knowledge of digital economy in Africa in the future.

Figure 1. Digital Africa – Facts

2.2 Southern Africa: Promising Future or Digital Business as Usual

Southern African digital business is at the same time most advanced and most unequal in Africa. As a large market with 55 million people and the second largest GDP in sub-Saharan Africa, South Africa clearly is the power house of Southern Africa and drawing the biggest portion of the investments also in digital economy. Additionally, South Africa is the home of best African universities and network of accelerators and incubators.

The most important reason for South Africa being the powerhouse of also digital business in the region is that the largest corporations in African continent are South

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African. The largest banks, telcos, IT service providers, media houses, retailers, mining companies and manufacturing companies in Africa are all coming from the tip of Africa. This all has an effect how Southern African digital market looks like. Although there are many interesting technology start-ups in South Africa, the volumes in digital business are coming from start-ups that are spin-offs from traditional businesses coming from traditionally strong and established companies.

Financial institutions are innovating and accelerating their customer processes with digital solutions, media companies are creating new business models that are based on new channels to consume content and services are finding new ways to create value to customers. Digital business in South Africa is business as usual as many corporations are involved in accelerating business by focusing on digital businesses. Is this a blessing or curse for completely new and differentiated digital business models is yet to be seen. Whatever happens, one thing is certain: digital business and digitalization are transforming South Africa in all sectors as infrastructure develops and technology becomes more and more easy to use. On the other hand there are some bottlenecks that are related to relatively advanced usage of ICT and legacy systems that are in place in many companies. Although saying that, South Africa is currently the most obvious choice for digital business landing to Africa from abroad.

2.3 Eastern Africa: Booming Economies and Mobile Money Bonanza

Eastern Africa is in special focus as many of the fastest growing economies in the world are coming from that area. Although the starting point for the growth is low and partly infrastructure driven, numbers are staggering. Also the market size of 250 million people gives lot of promise for future growth in the region. Especially Ethiopia, Rwanda and Kenya have transformed themselves into regional powerbrokers and are attracting interest of investors in various sectors, including digital ecosystem.

If Africa is a mobile continent, Eastern Africa is its brightest star. One of the areas Eastern Africa is championing the world is mobile money usage. Altogether, at least six different major mobile money platforms exists, M-Pesa being the biggest and most beautiful of them all. These platforms make Eastern Africa the most advanced mobile money region in the world. In Kenya only there are almost 40 million mobile money subscribers and estimated 80 % of all transactions are done by using mobile money platforms.

Mobile money infrastructure has created also something bigger around itself. Ecosystems draw attention from all over the world and have created new innovations that could become the big success stories also internationally. Currently fintech is the single biggest area to draw investments in digital sector.

As elsewhere in Africa, also in Eastern Africa access to market is controlled by monopolies and to operate in the market one has to accept a lot of inefficiencies and bottlenecks. To solve that problem, digital solutions have a role to play. Digital solutions and technologies could help creating transparency in processes thus making it faster and cheaper for companies and consumers gain access to services previously controlled by a few actors.

Digital solutions might also help bypassing corruption, a problem that still exists in many Eastern African countries. Generally speaking, digital business models that cut down the role of middle men and ease the pain of mismanagement are one of the most exciting digital business models one can find in Africa.

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2.4 Western Africa: Rise of the New Global E-commerce Unicorns

The size of Western Africa and especially Nigeria as largest economy in Africa is huge. Around 450 million people living in Western Africa makes it a most populous region in the Africa. The population is growing placing a huge stress on infrastructure as well as ability of societies to deliver basic services to the citizens. These conditions have a large impact on how digital landscape in the region looks like and how these models are build.

Everyday problems people have with transportation and physical movement has created impressive e-commerce platforms. Not surprisingly these e-commerce platforms have become extremely popular and already now have grown into world class e-commerce innovations. One of the best examples is the all-in e-commerce platform Jumia that sells basically everything West Africa wants to consume and has grown into the unicorn class. E-commerce platforms have also created ecosystems around them that attract investors and innovators that make e-commerce one of the brightest stars of digital business in Western Africa. Especially well represented in these ecosystems are home-grown innovations that make electronic payments possible and secure.

As practical challenges people are facing in their everyday life are getting worse, people want to stay home and consume entertainment from home. Parallel with e-commerce platforms, entertainment and film industries are gaining momentum. Already now, huge growth and funding has been seen in film industry and especially through online streaming which has already seen its own mega successes like iRoko which has become the biggest online platform for African entertainment. In entertainment business, growth rates are staggering. In Nigeria alone entertainment industry revenue grows 25% annually. This means that a lot is expected from new innovations around entertainment industry. What is even more important, West African entertainment industry tells African stories by Africans. Increasingly these stories are produced and consumed in digital format.

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3 Cases

3.1 Southern Africa

Discovery health and Vitality program

Every individual has its own perception what a healthy lifestyle is. Diet, sleep, exercise and mind-set are normally considered as the building blocks of healthy lifestyle. In South Africa, a company called Discovery Health has conceptualized this healthy lifestyle with great international success. Although the concept includes many non-digital elements, it is a great example how digitalization nowadays is an integral part of great business successes also in Africa. Figure 2 presents main elements of the business.

Figure 2. Main elements of Vitality business

Discovery Health is South Africa’s largest health insurer and has launched Vitality program already in 1997. Vitality program is a fully integrated wellness program to engage people to maintain and improve their wellbeing. Foundation of Vitality programme is Discovery Health Medical Scheme (i.e. health insurance) which gives people an opportunity to join Vitality. Vitality is currently one of world’s leading science-based wellness programs, where healthy life choices are encouraged and incentivized. Currently the programme has over 6 million customers.

Programme is built on three steps: 1) understanding your own health situation, 2) improving and tracking it and 3) enjoying rewards about healthy choices. Vitality points are the corner stone of the rewarding scheme and the motivator to do healthy choices when buying nutrition, preventive health care products and exercising. Choices are motivated by cash as well as leisure and travel benefits. Digitalization is supporting the whole business all along the path to gain healthy lifestyle.

Vitality has partnered with the main gym chains and created device called Gym Tracker that collect the data of gym visits by the members. Also partnerships are created with the main supermarket chains and members get cash backs from healthy food they buy. Same applies to the main sport gear shops that are incentivizing members by sport gear purchases. The heart of the vitality is the data that tracks the path to wellbeing and is able to motivate further improvement of the health of the members. Everything delivered and shared in MyData context digitally.

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The following Figure shows the Vitality digital business model that can be described as a hybrid of All you can eat and Non-traditional retailer business model.

Figure 3. Vitality business model

Hepstar

Hepstar is South African travel insurance broker distributing travel insurance services digitally with footprint across the globe. Service is targeted to insurance companies, travel suppliers and cost conscious travellers alike. Customer value is related to proving new revenue streams to suppliers and insurance companies as well as cost savings to travellers. Figure 4 shows main elements of Hepstar business.

Figure 4. Main elements of Hepstar business

For that purpose, company has developed online platform that connects insurance providers, travel organisers and customers. Hepstar technology is built around processing engine that integrates various online systems and delivers value to stakeholder by analysing relevant data and giving recommendations on best travel insurance options available. Hepstar API is a practical technology tool providing the

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connections needed for the platform. Through integration it is possible to automate the process of receiving and delivering travel insurance services.

Different travel related insurances are digitally available from expanding network of suppliers ranging from traditional travel baggage and health insurances to sport and gadget insurances combined with car rental insurances.

Value proposition of Hepstar is simple and easy to understand. For customers platform search and find the best possible insurance with best possible price, bring travel insurance companies more customers and for travel organisers additional revenue – all done with the help digital platform that connects the main players in the marketplace.

Figure 5 presents the Hepstar digital business model that can be described as a pure broker platform business model.

Figure 5. Hepstar business model

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3.2 Eastern Africa

M-Pesa and Other Mobile Money Platforms

When talking about digital business in Eastern Africa, it is not possible to forget to mention the mobile money platforms. These platforms that have disrupted money transferring market have made East Africa as a frontrunner in mobile money market in the whole world. Altogether, there are currently six different mobile money platforms but the biggest of the all is M-Pesa owned by Vodafone. Kenya is the biggest market for the service and it is run by Kenya’s biggest telecom operator Safaricom. In the figure 6 it is presented main elements of M-Pesa business.

Figure 6. Main elements of M-Pesa business

M-Pesa has digitalized the wallet of the people in Kenya. Kenyans are able to send and receive money as well as pay for bills and transact easily and safely when buying and selling goods. Core service is mobile money transfer but it has grown payment platform as well personal bank account.

M-Pesa was launched in 2007 by Vodafone to Safaricom and Vodacom for Kenya and Tanzania. M-Pesa soon became a success in Kenya (but not that much in Tanzania) and spread quickly currently having over 20 million active accounts in Kenya alone. It has also expanded to other geographical locations: Afghanistan, South Africa (from where it withdrew in 2016), India, Romania and Albania. M-Pesa operates with PIN-secured SMS text messages. Users are charged small amount of fee for transferring the money. M-Pesa also acts as a branchless banking service as money could be deposited and withdrawn from the agents selling airtime or acting as micro retailers.

M-Pesa has had a significant impact on the whole fintech ecosystem that now includes various mobile money actors and software companies in addition other mobile money platforms. In addition to creating whole industry of mobile money, these platforms have given “bank account” to people who previously had no possibility to have one. Interestingly M-Pesa’s business model has not succeeded everywhere where it is launched.

The following Figure presents M-Pesa’s digital business model that can be described as a landlord type of business model.

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Figure 7. M-Pesa business model

iProcure

iProcure is trying to solve a large scale economic and social problem by trying to re-invent agricultural supply chain in rural Africa. Starting with Kenyan agriculture, dominated by small farms and supply chain inefficiencies creating hardships for the farmers by low quality corps and high transaction costs. With this in mind, digital platform that iProcure has developed come to play a role. Figure 8 presents main elements of iProcure business.

Figure 8. Main elements of iProcure’s business

iProcure is one of the largest agricultural supply chain platforms for rural Africa. It provides complete procurement (fertilizers, chemicals, and other goods needed in agriculture) service combined with last mile distribution services of goods. Farmers can create clusters to in order to increase their negotiation power and iProcure helps them by providing service to facilitate price negotiations as well as handles deliveries. Additionally, the platform provides business intelligence and data-driven stock management across the supply chain. Data has become the key differentiator by delivering quantifiable value to both suppliers and farmers alike.

Value proposition is clear for the farmers: with the help of platform you will receive buying power for the vital goods needed in farming in addition to in-time deliveries for those goods.

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Figure 9 presents iProcure’s digital business model that can be described as a hybrid of broker and non-traditional retailer business model.

Figure 9. iProcure business model

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3.3 Western Africa

Jumia and e-commerce

Jumia is a great example of Western African business opportunities in e-commerce market. When things go right, things really go big in Western Africa, as the market for retail and e-commerce is so huge. Jumia is number one online retailer operating with very traditional e-commerce business model and working with mark-up prices. The business was founded as recently as 2012 by copying Amazon’s business model. Figure 10 shows main elements of Jumia’s business.

Figure 10. Main elements of Jumia’s business

The secret of the success is the speed of operations. Shortly after the start of the business in Nigeria, Jumia launched warehouses in other growing countries in Africa including Egypt, Morocco, Kenya, Cote d’Ivoire and Uganda; received $ 35 million series B funding from Millicom and showed how the race of becoming the African online retail champion had just started.

Competition in e-commerce market is fierce and the road has also been rocky for Jumia as new e-commerce giants like Konga in Nigeria have arrived. One of the key differentiator for Jumia has been its close relationship with telecom industry and mobile technology (especially mobile applications) as key leverage for its engagement with customers. Furthermore, Jumia has expanded its brand to various areas including online property and online car retail. Path to all in digital e-commerce market is set for Jumia.

Figure 11 shows Jumia’s digital business model that can be described as a traditional online retailer business model.

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Figure 11. Jumia business model

iRoko and Nollywood Made Online

iRoko is the fastest growing digital company currently in Nigeria. The company is estimated to have 10 million subscribers and is funded by hedge fund that once was an early investor in Facebook and game studio Zynga. Hopes are high for iRoko which is globally the largest licensor and streaming service for African movies and entertainment content. Figure 12 presents main elements of iRoko’s business.

Figure 12. Main elements of iRoko’s business

iRoko believes strongly in partnerships and has become Africa’s biggest partner for Youtube and has distribution deals with Dailymotion, iTunes, Amazon and Vimeo. The company was founded to fill in a simple gap in the market: the founder was not find Nigerian Nollywood films online himself and decided to develop a platform for those films by himself. As always with successful digital business models in Africa, the speed of development has been fast and steady.

iRoko’s main brand is iRokoTV which currently gives access to over 5000 Nollywood film titles. iRoko has also expanded its already well-known brand into new brands like IROKING which is music streaming service for Nigerian music. Mobile applications have been foundation for IRoko success. Currently film content can be consumed via an Android App in Africa and via app or online in Europe and US.

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iRoko has moved to offline distribution and supplies a number of airlines with Nigerian entertainment content. It is currently one of the best funded digital companies in Western Africa. The company has raised altogether $25 million investment up today. Customer value proposition is targeted to provide Nigerian and African entertainment content easily to everyone in everywhere in the world.

The following Figure presents iRoko’s digital business model that could be described as subscription based business model.

Figure 13. iRoko business model

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4 Scenarios for the Future of digitalization markets in Africa“Any useful statement about the future should seem to be ridiculous”

--Dator’s Axiom

Scenarios are the tool for strategic thinking and one of the key methodologies used in future studies in understanding potential futures. One of the key lessons future studies have expressed in relation to scenarios is that futures are created actively. If that is the case then there could be described at least three different futures: possible, probable and desirable futures. In this analysis it is used this future study methodology to extrapolate alternative scenarios for future of digitalization markets in Africa.

It is important to bear also in mind that reality is a non-linear and sometimes chaotic set of trends, innovations and even small scale revolutions from time to time. Especially true this is in Africa where societies are in the move and under a fierce political and cultural transformation. However, the value we are able to get out of different scenarios is that it is possible to give predictions about the specific futures that are justified based on clear justifications. These justifications will take into consideration technological, economic, political and social trends that are all relevant to digital business models and markets.

Finally it is important to bear in mind, scenarios are the tools to build different futures and one of the sign of effective scenarios is that it provokes ideas. Following scenarios for future of digitalization markets in Africa are built on this principle in mind. In the following it is presented three most probable or possible scenarios that are based on trends and emerging issues and which present both opportunities and threats for the main players in the market (also companies coming from outside Africa). Timeframe of possible scenarios is approximately 5 years. In the scenarios it is described what has happened during the next 5 year time in corresponding scenarios, what has been the outcome and what are the reasons behind the change.

Scenario 1: Africa as digital powerhouse

- Africa is on driver’s seat to decide its own destiny – also in terms of digital business.

- Africa has a clear digital business leader and its voice. - Current digital business models cover already almost all areas of businesses

and life of the people.- Africa is finally connected to the world and global economy in equal terms.- Digital innovation is a two-way lane. World class innovations have started to

flow from Africa to the world that creates wealth to African people.- Rapid expansion of smart phones and apps that African’s have always been

used to use have made Africa mobile powerhouse. New mobile related business models are born in Africa.

- Educational institutions are focusing on nurturing African born talent and top African universities are attracting talent to study all over the world. Links of the educational institutions are strong.

- High tech companies have started to establish development centres in the main growth areas in the Africa. This has further accelerated the growth of talent pool in High tech industry in Africa.

- Also mobile and internet infrastructure has seen big improvements during the last five years and the quality of internet is approaching developed countries quality.

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- Venture capitalists and business angels have found Africa big time. Funding has started to flow to African start-ups and this has given a huge boost to the start-up ecosystem in Africa.

- Governments have understood that with the help of digital solutions and services it is possible to tackle social and economic challenges and create economical value to citizens. First examples of real value exist.

- Africa is considered as testing ground for new digital innovations e.g. Maas, AI, My data etc.

Scenario 2: African digital business as business as usual

- Digital business models are the continuation of established businesses.- Many of the digital business models are borrowed from somewhere else and

not born out of African context.- Completely new digital business models that revolutionize businesses and

societies have not had breakthrough as established power structures have been able to maintain the grip.

- Often digital businesses are owned and managed from outside of Africa e.g. from Middle East and Europe

- Infrastructure needed in digital business is still not adequate to connect people to the digital ecosystems.

- Digital business is integral part of almost all businesses but in conventional way. Digital tools are in supportive role.

- Digital businesses have not been able to deliver big social and economic advantages to people of Africa.

- Proper funding channels for digital business are still missing.- Ambitious government initiatives to digitalize societies have failed and have

only worked in conference speech level.

Scenario 3: Bubble burst in African digital market

- Despite the good intentions infrastructure needed in digital business is still immature and quality of internet connection and access to mobile services has not improved. Infrastructure becomes real bottleneck.

- Accelerators and incubators are not able to produce success stories which further cut down the financial abilities of the start-ups to operate

- African governments have not been able to create sustainable operating environment for digital business models that challenge the existing power structures.

- Mismanagement and corruption still exist and makes it difficult for start-up companies to exist.

- High hopes of digital business to uplift Africa have faded and actually the gap between Africa and rest of the world is widening.

- Africa is still ruled by the global corporates and donors alike that consider Africa as a backyard of their activities. Africa is still missing its own voice and equal co-operation is non-existing.

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ScenarioRole of digitalization Characteristics of

digital business model champion

Role of governments

Digital Powerhouse

Core of the development of the business and societies- makes a difference

African born, solving African problems, creating wealth to the people of Africa

Early innovators find Africa

Strong facilitator and enabler of change – on driver’s seat creating opportunities for business

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Business as usual

Important but still only contributing role to existing business models, not revolutionary and not contributing to change

Champions are existing corporations that are cashing in with already existing business models

Inactive and passive role, works only in conference speech level, not creating the change

Bubble burst

Minor – development gap between Africa and rest of the world has widened

No champions as purely home born digital businesses do not have preconditions to operate

Weak and corrupted, not even interested to execute the change

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5 Conclusions and RecommendationsMental agility is essential to understanding Africa today and in the future. Africa is not one place at one time. It is third world and first world. Change in Africa is fast and deep but above all uneven.

Africa is on the rise and digital business and African born digital business models have role to play. There are already good examples available that Africa as a whole is ready for digital business and capable of producing purely digital business models that contribute to the development of societies and economies in Africa. Also global and international digital business are proven to be successful in Africa, even much more successful than in some parts of developed world because of existing legal frameworks (e.g. Uber).

Road to the success is not easy though in digital business. Poverty, infrastructure problems and inequality are still clear bottlenecks for digital business to fly high - big time. Opportunities are there and potential for growth is huge. There it is needed also co-operation between African and developing countries in order to materialize the possibilities of digital business for all parties and to get Africa linked to the world and opposite around. Important question arises: What are the preconditions for companies coming abroad to create sustainable digital business in Africa?

One distinctive feature of the African successful digital business models is that all are based on extensive use of partners and ecosystems. Quite often the core of the digital business is either platform or well defined concept. Around this companies in charge of digital business model have created partnerships that are vital to delivering the service. This teaches us an important lesson: in order to succeed in digital business you need to trust on partners and ecosystems and be able to work through them.

Another important conclusion that we are able to draw in terms of successful digital business models is that it needs to be adjusted to African context. What Discovery has done with Vitality concept is related to the fact that public healthcare is not working as efficiently as in the developed world and people need to take responsibility on their own health. Same is true with iProcure which has created total service concept to solve challenges Kenyan agriculture is facing. The service concept is revolutionary and extremely advanced business process outsourcing concept that probably would not have been able to be developed anywhere else in the world.

Based on business models presented in this analysis, preconditions for foreign companies to create successful and sustainable digital business in Africa include:

Extensive use of partners (not resellers) and being part of ecosystems that are based on clear business logic

Working with people who understand both cultures: Western and African. Being able to find an African challenge and address that challenge with

locals. Taking local partners as equals and appreciating their skills even if they

differ from your own. Variety in customer base, not relying on a single source of income stream. Solution must be a solution, not part of a solution. Nice-to-haves have extremely limited opportunities. “Get more money” is way more useful argument than “save more money”.

Digital business growth in Africa is almost with 100% certainty the fact. Middle class is growing and all the time more and more people will get access to digital networks. This will create in principal terms business opportunities. Question that will remain is to whom this growth will materialise and create business benefits? Scenarios for the

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future of digital business will teach us all yet another important lesson: as continent is developing rapidly also the risks to operate in the market are big and needs to be acknowledged. There is always a possibility that Africa is not able to get rid of long tradition of mismanagement and what in developed world is called corruption. Of course the optimistic development path is also possible that would lead Africa to co-operate in equal terms with rest of the world. This would lead certain African born digital business models to become global success stories.

Africa is a vast continent with 54 different countries with culturally diverse businesses. It is vitally important to “choose your battle” in Africa and know the market area you are addressing. It is not possible to address the whole continent at the same time. After you have chosen the market, one thing remains the same everywhere in Africa: business culture is built on relationships and companies also in digital business need to spend time (and money) to create relationships opening doors to success. More and more often that success has digital context.

Below is a list of recommendations for companies that are considering Africa as a market place for digital business:

Invest in value propositions - customer value proposition needs to be even more well defined in Africa than elsewhere

Understand the African context - digital business model requires good local understanding of the challenges it is solving

Focus on local partners - digital business in Africa takes place in ecosystems and with partners

Localise your services - use of locals is needed Be patient and prepare for delays Consider Africa as a place to test your business - in certain digital markets

Africa could be great testing ground for new ideas and innovations

Finally, in the below it is presented some success factors and remarks for Finnish SME’s planning to operate in the digital business in Africa

Success factors in the field of digital solutions include: Value, necessity, individual benefit matter Simplicity even when things are complex (simplexity) Clearly stated business outcomes is what will sell Recognition of local needs, values and hierarchies both at organisational and

individual level Solutions for a sector specific challenge, with a fintech link and a link to real

world (with physical products also a link to logistics needed) Solutions that help avoiding, or at least decrease number of, a) middle-men

b) dealing with government agencies face-to-face or by phone

Take advantage of: Privacy policies not as strict as in Western countries, experimenting and

piloting opportunities. Africans are used to high degree of insecurities, “it doesn’t need to be

perfect”. Learn from Africans: they are used to live with high degree of uncertainty

about the future. That is quite possible close to what future looks like.

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the future of digital business models in sub-saharan africa, team finland future watch, september...

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