The Internet’s transformative potential in Africa

McKinsey has published research showing that following a decade of rapid urbanization and strong economic growth, Africa is going digital. While just 16 percent of the continent’s one billion people are online, that picture is changing rapidly.

The report examines the progress and potential of the internet in 14 economies that together make up 90% of Africa’s GDP. It projects that the continued growth of the internet could produce a leap forward in the continent’s economic and social development in the coming decade. Here is a link to the full report.

Evidence of what is to come can already be seen in Africa’s major cities, where consumers have greater disposable income, more than half have Internet-capable devices, and 3G networks are up and running.

Significant infrastructure investment, for example, increased access to mobile broadband, fibre-optic cable connections to households, and power-supply expansion, combined with the rapid spread of low-cost smartphones and tablets, has enabled millions of Africans to connect for the first time. There is a growing wave of innovation as entrepreneurs and large corporations alike launch new web-based ventures.

Transforming six key sectors

According to the report, the Internet’s greatest impact in Africa is likely to be concentrated in six sectors: financial services, education, health, retail, agriculture, and government. Technology-related productivity gains in these sectors could reach $148 billion to $318 billion by 2025, and large populations stand to benefit as a result.

1. Financial services. The Internet will reduce transaction costs and bring financial services to people who may live far from the nearest bank branch or ATM. With digital technology, more than 60 percent of Africans could have access to banking services by 2025, with more than 90 percent using mobile wallets for daily transactions and remittances.
2. Education. Many schools that currently lack sufficient textbooks could soon access the world’s best educational content on affordable tablets or e‑books; teachers, too, will benefit from more effective training. The technology-related productivity gains in education could reach $30 billion to almost $70 billion—enabling governments to achieve more with their education budgets and providing millions of students with the foundation for a better future.
3. Health. Today, Africa has only 1.1 doctors and 2.7 nurses per 1,000 people, and many people travel long distances for care. But the Internet is enabling greater use of remote diagnosis, treatment, and education. Technology-related benefits in health care could range from $84 billion to $188 billion by 2025—and the broader social and economic impact of improved health outcomes will be far greater.
4. Retail. E‑commerce will open up a new shopping experience for Africa’s growing middle class. By 2025, it could account for 10 percent of retail sales in the continent’s largest economies, which will translate into some $75 billion in annual revenue.
5. Agriculture. Farmers can access expertise and information on everything from weather, crop selection, and pest control to management and finance. It can also improve access to markets, generating better prices for produce.
6. Government. The Internet is a powerful tool to improve transparency, streamline service delivery, and automate revenue collection, delivering productivity gains of $10 billion to $25 billion.

Below are some other findings:

• The internet is a catalyst for economic growth: in China, India and Brazil it has contributed more than 10% of total GDP growth over the past five years. Africa is catching up quickly.
• Mobile voice has already had an outsized effect in Africa as it connected people who previously had little or no access to telecommunications. The internet could produce a similar, or greater, multiplier effect.
• Only 16% of Africa’s 1bn people are currently online, but that share is rising. More than 720m Africans have mobile phones, 167m already use the internet, and 52m are on Facebook.
• Governments have placed internet-driven growth firmly on the agenda, with several countries pursuing ambitious plans to expand high-speed internet access to most of their populations.
• There is a growing wave of innovation as entrepreneurs and large corporations alike launch web-based ventures, from e-commerce sites to mobile health technologies.
• Africa could generate e-commerce sales of $75bn a year by 2025 – sparking an e-tailing revolution that gives African consumers much wider choice at lower prices.
• The internet could unlock significant productivity gains in African business, government and social services.
• To realise the internet’s full potential, governments and the private sector will need to invest in increasing access, developing a workforce with ICT skills and improving digital literacy.