Getting Lions to Leapfrog: Executive Summary
Africa, it is often said, is on the threshold of opportunity. There are many reasons behind this belief:
- Africa’s vast untapped potential has been the subject of numerous studies. McKinsey’s 2010 Lions on the Move study was among the more widely cited reports on this potential,1 and it prompted many others.
- The continent will be home to some of the youngest populations in the world. The median age on the continent today stands at 19.4 years.2 By 2050, a third of the global youth is projected to be in Sub-Saharan Africa (SSA)3 with a median age of 23.9 years.4
- Africa’s will be a major consumption market over the next three decades – and it is going to be digitally enabled. According to a recent Pew Research Center study of six major SSA countries, mobile phone penetration is between 75% and 91%.5 The youth are among the earliest adopters and most frequent users.
- The most recent projections from the International Labor Organization (ILO) show the total labor force in sub-Saharan Africa rising from 417 million in 2018 to over 460 million by 2022.6 BFA & the Mastercard Foundation’s projections to 2030 “using a labor force participation rate similar to the UN medium population estimate causes the total number to rise to 600 million.”7 With nearly 200 million young people added to the labor force in the next 12 years, most of whom will fall somewhere on a spectrum between digitally sentient and digitally sophisticated, the digital economy is poised to be not just the driver of consumption but also livelihoods. Fostering inclusive digital economies is therefore not a choice, but an imperative for Africa’s future.
- 86% of all employment across Africa is in the informal sector, contributing between a third to two-thirds of gross value added across the continent.8 Digital platforms have the ability to match young job-seekers with job opportunities and can help with both skill-building and networking, thereby facilitating both job creation and the transition of economic activity from low-skilled to higher-skilled employment.
- Digital platforms play another crucial role – they help advance financial inclusion and ease of payments, thereby laying the foundations for economies that are inclusive along multiple dimensions.
However, the threshold of opportunity has proven to be a wide one. There remains untapped potential:
- Almost ten years on from the Lions on the Move study, we are still waiting for the promise to be fulfilled. Growth has stalled on average across the continent. Both the IMF and the World Bank have cut their 2019 economic growth projections for sub-Saharan Africa (SSA) to 3.5%9 and 2.8%10 respectively; the actual growth in 2018 was as low as 2.3%. Poverty has increased, and 10 of the 19 most unequal countries in the world are in SSA11. Of the world’s extreme poor, 437 million are in SSA12 and it remains one of the world’s most unequal regions.
- While mobile communications have been spreading across the continent, there are large access gaps. Over two-thirds of the continent lacks mobile internet subscriptions, according to GSMA data from 2017-2018.13
- Key factors that enable digital economies, such as digital payments, are yet to accomplish widespread adoption. Apart from Kenya and South Africa, the relatively more advanced payment markets, use of digital payments remains low: 95% of all consumer payments in Africa are made in cash.14
There is plenty of evidence that despite the challenges, the region still has “robust long-term economic fundamentals.”15 There is a wider belief that the true acceleration potential for the region lies in the rapid spread of mobile digital technology, which would help the region “leapfrog”: compress the process of economic development by harnessing technological innovation to overcome its many challenges.
Getting lions to leapfrog – or even to stir — may seem like a tall order. However, as The Economist notes in a special report, wondering whether Africa can leapfrog and beat the pace of change of developed regions may be the wrong question to ask.16 A more nuanced question may be: Can technology help overcome the primary barriers that have long held back Africa’s economies and people? And can they narrow their digital gaps vis-à-vis external benchmarks?
We examined this proposition using six key countries drawn from different sub-regions of the continent representing distinct archetypes of size (of economy and population), economic growth, median age, quality of governance, and digital momentum – Egypt, Ethiopia, Kenya, Nigeria, Rwanda, and South Africa – to draw meaningful inferences on the region’s leapfrog potential and identify implications for action. Using this framework, we examined the primary levers for harnessing digital technologies to facilitate development and inclusive growth, from the ease of creating digital jobs, to the resilience of governance and infrastructure, to overall foundations of digital potential.
Introducing: the African Leapfrog Index
The African Leapfrog Index (ALI) is a novel framework, introduced in this research initiative. It draws upon the primary levers that facilitate the translation of digital technologies into development and inclusive growth. These levers are in three categories: jobs enabled by digital platforms; institutional drivers necessary for digital success; and the foundational digital potential of the country. The framework evaluates each country against a continent-wide “best-performance” benchmark to identify strengths to build upon and the opportunities to close gaps.
This framework is summarized in Exhibit 1 below.
Overall Patterns and Implications for Action
The six African countries studied display distinctly different profiles in leapfrogging. Each has a different combination of leapfrog strengths and opportunities for growth.Their relative standing along each of the essential dimensions are summarized in Exhibit 2 below. The outer boundary represents the benchmark and each country’s footprint is shown within the figure. The closer the footprint is to the outer boundary, the higher the leapfrog potential in the country.
There are several key patterns of note. The six African countries can be organized into four segments:
|Paving the way||Kenya and South Africa|
|Punching above its weight||Rwanda|
|Opportunity for growth||Egypt and Nigeria|
|Potential for the greatest digital gain||Ethiopia|
The regional leaders represent different areas of strength and opportunities to grow. To get to the benchmark and develop a more balanced, well-rounded leapfrog profile, Kenya’s priority would be to improve its Ease of Creating Digital Jobs – i.e., nurturing jobs in the digital economy, such as online freelance, ridesharing, and in e-commerce – while South Africa’s priority needs to be to improve on Foundational Digital Potential – i.e., expanding the integration and use of digital technologies across society. While Kenya has the seen the greatest amount of digital change over the past decade of all African countries studied and has over 80% Internet penetration, it can, for example, improve its education and skill-building capacity to enhance its ability to grow higher-skilled digital services jobs. South Africa, on the other hand, can improve its payments capabilities; it made 65% of payments in cash, as compared to 40% in Rwanda – and this is despite the fact that Rwanda has only 30% of its population on the Internet compared to South Africa’s 54%. South Africa’s strength in creating high skilled digital jobs – through a balanced repertoire of strengths in available human capital, market sophistication and facilitating institutions – is impressive when compared to similar baskets of developing world nations from ASEAN and Latin America; it is competitive in a global marketplace for such high-skilled jobs, such as digital freelancing.
Rwanda has several core strengths in Governance (providing digital government services), Digital Evolution (its overall state of digital development) and Mobile Money (use of mobile money accounts, and other forms of digital money). These are solid foundations to build upon to facilitate digital leapfrogging. It needs to invest in the other capabilities – such as infrastructure, Internet penetration and online freedoms to fully leverage its core strengths.
Nigeria’s route to capturing more digital opportunities runs through improving the reliability of basic infrastructure. While Nigeria is strong in internet affordability, investments in reducing power outages and other unintentional disruptions to the internet will be key to enhancing its digital potential. Of the six countries studied, Nigeria has the biggest gap to close in this area.
When compared with the six other African countries, Egypt’s primary strengths are in the potential ease of creating medium and high skilled digital jobs, due in part to its high number of skilled graduates. Egypt’s tertiary unemployment rate is high: ILO estimates from 2014 place it at 34 percent.17 Tapping into its digital potential and continuing to drive efforts to digitize payments will enable the country to more fully capitalize on these strengths.
Ethiopia, with its high rate of GDP growth, has the most to gain from creating strong digital
foundations and basic infrastructure, improving on its low momentum, and moving away from its near total reliance on cash payments towards digital payment rails.
Digitalization could be to Africa what coal and steel have been to the European Union.UNCTAD Deputy Secretary-General, Isabelle Durant
ALI Countries – Key Observations
1. South Africa
- South Africa is a regional leader in Ease of Creating Digital Jobs, buoyed by strong consumer demand and an institutional environment with friendly regulations. It compares favorably on this front against key emerging market nations in the LAC and ASEAN regions
- It is a regional leader in deployment of several emerging tech: e.g. biometric data and payment cards to deliver social security, drones in mining
- It has the lowest number of average monthly power outages among ALI countries, scores well on digital transparency measures, including Freedom on the Net and has the 2nd highest digital payments among ALI countries
- Cape Town is an entrepreneurial hub, with a wide talent pool and key domestic and international connections
Key Actions Recommended
- With 54% internet penetration (2018; ITU), South Africa must increase internet access and availability. Broadband and mobile Internet speeds at 18.7 Mbps and 27.6 Mbps (below the global median) must be increased
- Digital payments capabilities must be more inclusive: while 60% of South Africans engaged in digital payments in 2017, this number falls to 30% for the poorest 40%
- With 650-700K young people joining the workforce each year, 27.6% unemployment (55.2% for those 15-24 years old) and slowing GDP growth, digital economy jobs –in addition to the traditional industries such as construction, manufacturing and agro-processing – must be prioritized
- Policies to follow through on President Ramaphosa’s commitment to a “skill revolution” and developing human capital ready for 4IR, while leveraging creative and multimedia skills, must be prioritized
- Over 70% of Kenyans have a mobile money account, and over 75% of Kenyans aged 15 plus made a mobile payment in the last year
- During the past decade, Kenya has advanced quickly as a digital contender, with many innovative enterprises, e.g. M-Pesa, Ushahidi, M-KOPA, M-TIBA, etc. 200 digitized services are offered through Huduma Centres countrywide as well as an online self-service platform, E-Citizen
- In the Ease of Creating Digital Jobs, Kenya’s institutions have enabled a favorable regulatory environment, and promoted a high use of digital payments. The government has preserved internet freedoms and even harnessed social media to fight disinformation
- Home to a “Silicon Savanah” in Nairobi, Kenya has a growing, tech-savvy population
Key Actions Recommended
- Education, digital skills and healthcare must be prioritized; a Kenyan born today is likely to achieve at most 52% of his/ her potential if they survive to adulthood given the shortfalls in the education and health systems
- Investments in basic infrastructure, which would reduce power outages and other disruptions, are key to building overall reliability
- Despite its leadership with M-Pesa, there is still enormous potential for the digitization of payments: cash accounts for 71% of Kenya’s total payments
- Barriers in the value chain, such as lack of credit, user experience issues, and informal economy challenges should be addressed; agriculture and food & beverage sectors offer the best opportunities
- Strong commitment from government, emphasis on private sector in development, external collaborations, e.g. Alibaba, VW
- Rwanda has been moving to transform itself into a digital hub, with, Irembo, a central government e-portal, high mobile account usage, expanded 4G coverage across the country and improved digital skills. Ease of digital job creation benefits from 4G coverage and favorable institutional measures. The central bank is considering its own digital currency
- 90% of Rwandans are within 5 km of a financial access point, due to the USACCOs
- Rwanda is ahead of the curve in regulations surrounding drones, used to deliver critical supplies to inaccessible areas
Key Actions Recommended
- Policies must prioritize bridging the urban-rural digital divide, and in reducing electricity, water, and transport infrastructure disruptions. They must also address the highly fragmented markets, poor document management and payment tracking methods, and the interoperability between USACCOs and mobile money operators.
- Irembo needs to achieve its full potential through policies that improve digital education, connectivity and encouraging acceptance and authentication of e-certificates
- Automating the operations of USACCOs is needed to reduce related leakages and theft, improve efficiencies, as well as the profitability of the cooperatives
- Rwanda’s mobile money adoption can be improved; three mobile operators offer mobile money services, while banks are still figuring out their strategies, primarily involving partnerships, agent networks and beyond-payment products and services
- The digital technology sector is the second-fastest growing sector in the country
- Egypt is producing a large number of skilled graduates; it has the highest number of tertiary graduates of the ALI countries
- Egypt is a regional leader in skilled digital jobs creation with online freelancer pools in creative and multimedia, software development and technology, and in writing and translation
- With 50% of its population below the age of 30, growing tech adoption and a massive e-commerce market, Egypt is developing one of the world’s fastest growing entrepreneurial hubs. Egypt was the fastest growing in MENA in terms of VC activity, receiving 22% of the deals
Key Actions Recommended
- Despite a push to increase access to digital payments, only 5.8% of Egyptians made a digital payment in the last year. However, the government is working towards increasing digital payments. In March 2019, the Egyptian government passed a law requiring most payments over 500 Egyptian pounds (USD 29) to government, and most of the salaries and fees paid out by public and private entities be made electronically
- In addition, fostering online freedoms and the use of digital money could unleash further opportunities, particularly in high skilled digital jobs
- The country’s growing technology sector could benefit from decreasing the frequency of internet disruptions and website blocking
- Nigeria has a powerful entrepreneurial climate that gives rise to innovative ventures: e.g. Jumia, Interswitch and Andela
- Nigeria was Africa’s leading startup investment destination in 2018, recording nearly $95m in deals. Applications cut across the education, fintech, agriculture, healthcare, logistics and travels sectors. Extraordinary Nigerian ventures can make strong international connections; online payments platform, Paystack, was selected as an investment by organizations as disparate as Y Combinator, Tencent and Stripe. Lagos’ Yaba neighborhood — where many have their offices — has earned the nickname “Yabacon Valley.”
- The relative affordability of Nigeria’s internet is key: The Economist ranks it first in affordability in the region
- The National Identity Management Commission is set for a massive registration for the country’s mandatory National Identity Number (NIN)
Key Actions Recommended
- 87% of Nigeria’s economy is transacted in cash. 4/5ths of Nigerians had never heard of mobile money. Banks and telecoms providers don’t want tech start-ups on their turf. Policies to stimulate greater mobile money use is a must; e.g. in 2018, the central bank allowed telecoms and supermarkets to be “payment service banks,” and take deposits and make payments
- Policies must address many issues that inhibit scaling: the high frequency of power outages; low level of public trust in technology; a large thriving informal economy (65% of GDP and 80% of workforce)
- Nigeria’s sizable super-wealthy community can be encouraged to participate in early-stage and angel investments in digital startups
- Ethiopia is seeing positive trends in poverty reduction and investments in infrastructure, including a $20 billion investment in the power sector.The reformist prime minister, Abiy Ahmed, has been drafting laws to privatize some state-owned entities. His understanding of the tech sector is seen as a watershed moment in Ethiopia’s transition
- Ethiopia has a fast-emerging tech hub, also known as ‘Sheba Valley.’ Here, homegrown ride-hail ventures, Ride and ZayRide, have emerged along with startup marketplace Gebeya and BlueMoon, an agtech incubator and seed fund
- Ethiopia can leverage its large number of STEM educated graduates. Overall enrolment in higher education facilities have grown fivefold since 2005. The government has also implemented a policy of training 70% of students in STEM
- Ethiopia can leverage advances in adjacent areas: a manufacturing industry that’s now pulling some assembly from China; blockchain use in enhancing trade in coffee beans
Key Actions Recommended
- Action is needed on closing Ethiopia’s digital divide, investments in basic infrastructure and improving competition. Internet access needs to be made more affordable for the average Ethiopian. With only 15% of its population online, low spread of 3G and 4G technologies, and low use of digital payments (6.9%), there is plenty of headroom for digital growth
- The country is almost entirely reliant on cash, and would benefit from a regulatory environment that builds trust in digital money
- Policies to ensure reliability of the key infrastructure should be prioritized. Challenges from an unreliable power supply and intentional internet shutdowns during anti-government protests, a state of emergency, or to limit exam cheating, must be addressed
- Privatization of key sectors can help catalyze competition and an entrepreneurial climate. A key development that could lead the way is the privatization of the telecoms sector
Taken together, these analyses and findings will:
- Help country decision-makers and stakeholders recognize where the potential for technology-led leapfrogging is high. This means identifying which gap areas are prime candidates for intervention – and prioritize resources appropriately
- Inform action by identifying the leverage points for the key actors, what conditions need to be true and guiding the resources allocation problem
- Uncover answers to questions such as what policy areas needs to change and by how much in order to get to the “best performance” leapfrog benchmark and to focus policy and business priorities to catalyze change involving multiple stakeholders
This research was made possible with the financial support from the Mastercard Impact Fund, which is administered by the Mastercard Center for Inclusive Growth. The underlying analysis, the methodology, the interpretations, and insights belong solely to the Institute for Business in the Global Context at The Fletcher School at Tufts University and do not in any way represent the views or positions of Mastercard and its affiliates.
1 Roxburgh, Charles; Norbert Dörr, Acha Leke, Amine Tazi-Riffi, Arend van Wamelen, Susan Lund, Mutsa Chironga, Tarik Alatovik, Charles Atkins, Nadia Terfous, and Till Zeino-Mahmalat. McKinsey Global Institute. Lions on the move : The progress and potential of African economies. 2010.
2 African Population (live). Worldometers. Accessed 3 September 2019. <<https://www.worldometers.info/world-population/africa-population/>>
13Calderon, Cesar, Gerard Kambou, Vijdan Korman, Megumi Kubota and Catalina Cantu Canales. Africa’s Pulse, No. 19, April 2019: An Analysis of Issues Shaping Africa’s Economic Future. 2019. World Bank. doi:10.1596/978-1-4648-1421-1
15 Roxburgh, Charles; Norbert Dörr, Acha Leke, Amine Tazi-Riffi, Arend van Wamelen, Susan Lund, Mutsa Chironga, Tarik Alatovik, Charles Atkins, Nadia Terfous, and Till Zeino-Mahmalat. McKinsey Global Institute. Lions on the move : The progress and potential of African economies. 2010.
18ITU Database 2019
21Power outages in firms in a typical month (number), World Bank Enterprise Surveys, latest available year
22Freedom on the Net, Freedom House, 2018
26Tertiary graduates by level of education, UNESCO, 2016
27Unemployment, total (% of total labor force) (ILO Estimate): ILO 2018
36World Beyond Cash, The Fletcher School, 2018
39World Bank 2018