Why tech companies love Africa | Fin24

Why tech companies love Africa

Oct 26 2015 12:10
Jinine Botha

Already locals have started cashing in on selling accommodation options to a global tourist market on Airbnb.com. South Africans are also able to become transport service providers through the Uber-application and advertise products worldwide via Facebook.  

It is predicted that internet usage on cellphones will increase 20-fold in the next five years in Africa – double the rate of growth in the rest of the world. Jean-Pierre Matthews from Absa’s Alternative Asset Management told global investors during Absa’s Investment Conference in Sandton in June that the telecoms sector in Africa is ripe for development. “In South Africa 9% of people have a fixed telephone line, while 94% of the population has a cellphone – compared to the rest of Africa where only 3% have fixed telephone lines and about 50% use cellphones.”

The latest’s sign that Africa has become the next frontier for American tech companies was when the CEO of Airbnb, Brian Chesky, flew in for a visit to promote the accommodation platform.  “Africa has been our fastest-growing region. Our listings have doubled each year, more than in the US,” Chesky told reporters in July during his first visit to South Africa.

Based in San Francisco and founded in 2008, Airbnb is an online community marketplace for people to list, discover and book unique forms of accommodations around the world – online or from a cellular device. Although the platform has been used in SA for some time, the number of people staying in Airbnb listings on the continent has increased by 145% in the past year, while the number of African citizens using Airbnb to travel abroad has increased by 139%.

Acting as a host on Airbnb helps people make ends meet. An economic impact study conducted by this online accommodation platform, found that more than half the people who act as hosts by renting out a spare room in their home are able to keep their homes because of the additional income.

According to its Middle East and Africa manager, Nicola D’Elia, more than 50% of hosts are from low- to moderate-income households. The study also found that 48% of host income is used to pay for regular household expenses such as rent and groceries.

D’Elia adds that Airbnb’s economic benefits also extend beyond the hosts and travellers who use the platform. “Because many of the listings fall outside the main tourist areas or city centres, travellers get to neighbourhoods rarely covered by traditional hotels. So the financial benefits do not just reach the hosts, but also flow to local businesses which are traditionally less frequented by tourists.”

In Paris, the city with the most Airbnb listings, Airbnb generated economic activity of $240m, while New York – second on the list – saw Airbnb generate $632m in the city, which included $105m in direct spending in the outer boroughs – neighbourhoods that don’t typically benefit from tourism dollars. 

Another application, Facebook, is already an important part of how people and businesses connect in Africa. In June there were 120m active Facebook users in Africa – a 20% increase from 100m users in September 2014. More than 85% of these people access Facebook from their cellphones.  

Riding the African growth wave  

Africa’s main attraction for businesses is that it has been growing, while richer regions have stalled. Its demographic prospects are promising; as America, Europe and China age, Africa can expect a bulge of workers in their productive prime. Although skills are in short supply, they are increasing.

The McKinsey Global Institute found that in 2002 only 32% of Africans had secondary or tertiary education, but by 2020, almost 50% will have these levels of education.

According to Isaac Matshego, an economist at Nedbank, tech companies are mainly penetrating the middle class, enhancing communication and movement. “As for the low-income group, which constitutes the majority of Africa’s population, the penetration of social media also seems to be high, but I would not expect that to be the case for Uber, because this service is targeted at the higher income group.”

The middle class in sub-Saharan Africa is expanding rapidly. With the seemingly unstoppable growth of cellphones, greater access to the internet and an increase in access to education, change is happening, and people have more disposable income to spend.

This is an excerpt from an article that originally appeared in the 27 August 2015 edition of finweek. Buy and download the magazine here.

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