Leapfrogging 2.0: How Africa leads the way

07 Feb 2018

By Samer Salty, Chief Investment Officer at DiGAME Investment Company

The subject of Africa ‘leapfrogging’ developments through technology is not a new one, and it has been written about extensively. There is no doubt amongst most commentators that it is the mobile revolution that has catalysed this phenomenon, particularly the now ubiquitous smartphone that has enabled Africa to bypass elements of traditional development.

Since I began investing in Africa, I have realised that leapfrogging needs to be examined from two different perspectives. Firstly, we need to differentiate between leapfrogging the ‘old’ world – that is, bypassing how the West did things in the past, such as how Africa generally avoided building a comprehensive fixed line network and instead moved straight to mobile; and leapfrogging the ‘new’ world. Leapfrogging the new world is sidestepping the current industry status quo by using technology, which provides a much better, more efficient, and more sustainable way of doing things. For example, many of the traditional industries across the world are deconstructing with no likelihood of returning to antiquated models. We are seeing huge changes in the global financial services, energy, and communications industries among others. Clearly, Africa does not stand alone in leapfrogging. In some cases, Africa is in fact leading the world in developing new business models with technology at their core.

If you take a look at the energy industry for example – the growth of renewables is rapidly reducing the requirement for resource-heavy power generation.  At the same time, there has been an increase in distributed power networks - through wind, solar and battery technology - meaning that the old centralised energy model is seeing its role diminish gradually. In Africa, great effort has been made to establish large coal and gas-fired power plants. It is time-intensive, hugely costly, and has been difficult to implement; and with 600 million Africans still not connected mains electricity, the off grid model has been filling that gap. Off-Grid Electric is an example of a company that provides vital, affordable solar to homes across Tanzania, Côte d’Ivoire, Ghana, Kenya, and Rwanda. The combination of localised renewable energy and storage managed through IT and mobile payments is what makes the business so disruptive, massively scalable, and capable of changing the status quo. This distributed energy model is essentially what is now happening in the West, albeit on a different scale, and there is no doubt we are learning from the African model.

Education is another important sector in the development and advancement of Africa, which is successfully leveraging online tools to leapfrog the traditional route and fulfilling huge potential. Indeed, leapfrogging in the world of education is occurring globally - not only in Africa - as technology offers online access to a far wider cohort of students than physical institutions could ever provide. GetSmarter is a South African online education provider, acquired by 2U (the biggest online education company in the US) in 2017, which is leading the way not only in Africa but also on an international basis through its pioneering interactive learning experience. This interactivity came about because GetSmarter recognised it needed a differentiated approach, and this approach eventually led to institutions such as Harvard and MIT choosing to partner with it above others.

Financial services is another area where technology is disrupting the sector. 10X Investments, a tech-enabled asset manager, has shaken up the sector in South Africa by combining technology with proven investment strategies, and reducing fees by as much as 80% compared to the traditional model. Founded in 2008, 10X was way ahead of its time with the notion of leapfrogging the traditional money management models and opening up access into the mass market previously frozen out of an expensive and exclusive market managed by consultants and advisors. It was the first organisation to combine distribution, administration and index investment with low cost accessibility, demonstrating that a company founded in Africa could lead the way in using technology to bypass traditional business models.

Similarly, blockchain technology is revolutionising currency transactions and is proving a game changer in global markets. In Africa, the knock on effect of the disruption of this industry is also massive, where companies such as Kenyan digital foreign exchange and payment platform BitPesa are taking full advantage of the new norm, delivered by this innovative technology, to send and receive payments in multiple currencies.

Beyond technology as a catalyst in various sectors, what is also important to remember is the impact that technology has facilitated across Africa on very basic level. The digital economy has created a level of transparency in a continent hampered by corruption. It has opened up borders, allowed companies to scale without boundaries, and has ensured that fledgling companies are not beholden to the business establishment – all of which have created a platform for growth and development, as well as fostering a culture of entrepreneurship and success.

Finally, what is clear is that in many cases, Africa is not simply keeping up the pace with the rest of the world using technology — it is at the forefront of leapfrogging some of the world’s most established industries in taking advantage of a new paradigm.

About the author

Samer Salty is Chief Investment Officer at DiGAME Investment Company. He has 28 years’ experience across growth equity investment, investment banking and technology. DiGAME is a growth capital investor in high-growth, technology-enabled businesses in Africa. DiGAME believes in the transformative power of technology in Africa to positively change lives with a strong emphasis on investing in businesses that deliver scalable impact. http://www.digameinvestment.com

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