If West Africa was a country, would it beat India? 🥊
11 indicators to assess the size of the digital opportunity in Africa's most dynamic economies
Good morning friends!
I hope you had a light breakfast because we’re about to bite and chew a big spoon of data 🥞
West Africa’s flex 💪🏼
We all agree with one thing: Africa is already a super-power when it comes to demography. This is because:
it is the main contributor of population growth in the world;
it is home to the youngest population in the world;
1 in 4 people will be African by 2050.
We know all that, fine.
But having a large, young population is not per se sufficient for a thriving, developed economy.
You need some kind of enabling infrastructure to transform all this human potential into an engine of economic prosperity, starting from reliable electricity, safe water & sanitation, high-quality education, health facilities, and a dynamic private sector.
We know all that too.
There is one type of infrastructure that is particularly interesting to me (and for good reasons): digital infrastructure, the combination of access to the internet, mobile phone users, and digital products/services.
Because of its intrinsic advantage in aggregating supply and demand, improving distribution, and increasing transparency, digital infrastructure drives up efficiencies in the economy, creates new markets and unlocks wealth.
If all these youngsters are going to be connected to the internet, accessing credit and savings via a digital wallet and performing regular health check-ups with their smartphones, then we not only solve critical problems while leapfrogging incumbent technologies, but we de facto transfer large swaths of economic value into the digital economy.
This is exactly why technology investors (mainly VCs) are so thrilled when talking about “frontier markets” (here is a wonderful article by The Generalist).
Large and growing populations + high levels of digital adoption + low capital availability = opportunity to tap into a gigantic digital economy in the next years.
A natural question follows then (as business school students would put it): what is the size of the digital Total Addressable Market today?
🧐🧐🧐🧐🧐🧐
In 2022, the total GDP of sub-Saharan Africa was $2 billion.
If we look at sub-regions, the biggest chunk of the pie is taken by West Africa, with a GDP of $767 billion, accounting for 37% of the total.
And if we look closer, we notice that 85% of that is made by 4 countries: Nigeria, Ghana, Cote d’Ivoire, and Senegal.
I will call them the “Big 4” from now on, hoping you don’t get confused with the other ones.
Today, we want to answer the following question:
If these 4 West African countries were a single state, what would be the size of their digital market opportunity, compared to India?
Indicators and data sources 🕵🏽♀️
To answer the question of the day, we need to find good indicators. We need to look at internet access, but also internet affordability; mobile phone users, but also their usage.
After some research, and based on the data I found, I came up with 11 indicators along 5 dimensions.
Population basics and growth potential
Literacy rate
Median age
Urbanization rate
Mobile phone penetration
Mobile phone users
Internet affordability & speed
Cost of 1GB of data
Download speed
Internet access
Internet users
Social media users
Mobile payments
Bank accounts
Mobile money users
Mobile phone transactions
These will be the indicators for the match against India. Why India? Well, as it is regarded as the n.1 emerging economy, I thought it would be a good pick to benchmark against.
Most of the data from this article comes from the report “Digital 2023”. Every year, it collects and reports data on global internet usage, along with adjacent statistics. It is extensive and well-detailed. In addition to data extrapolated from usual sources such as the World Bank and the United Nations, it relies on a combination of sources from GWI, Statista, GSMA Intelligence, Similarweb, data.ai, as well as market intelligence platforms like Meltwater, We Are Social, and Kepios Analysis.
For more information about the data collection, I suggest you consult the “data sources and methodologies” page.
Ready, steady, go 💨
Let’s get into it now and see how our imaginary new country in West Africa perform on the ring 🥊
1) Population basics and growth potential 👥
West Africa (“Big 4”) is younger, slightly less educated but significantly more urbanized than India.
This last point has its pros and cons. If we look at where the majority of the urban population resides in West Africa, we see cities like Lagos, Abidjan and Dakar on their way to becoming the next largest cities on Earth. And with it, an endless source of talent, interactions and network effects will spur important innovation upsides. But it will pose a heavy toll on infrastructure like transport, sanitation and electricity. How this is going to be solved will not depend on the private sector alone.
2) Mobile phone penetration 📱
West Africa (“Big 4”) is more mobile-phoned than India.
Driven by high penetration rates in Ghana (130%) and Cote d’Ivoire (145%), it is not surprising. However, it bears important implications in terms of distribution and access.
It means that ideally, almost every citizen could have access to mobile money, or some basic type of USSD application. It is not to be underestimated.
3) Internet penetration 🛰️
West Africa is slightly more connected to the internet, even if less qualitatively than India.
Even though it has a higher internet penetration rate, I interpret West Africa’s low percentage of social media users as a function of:
a lower number of smartphone owners (as smartphones, more than feature phones, are suited for social media consumption);
a higher cost of data;
a lower connection speed
This is to me a “lower quality” of internet usage.
4) Internet affordability and speed 🚅
In West Africa, internet is slower, and significantly more expensive than in India.
This is huge. The average West African can spend up to 8 times more than the average Indian on 1GB of mobile data. Differences in download speed are remarkable too. And I did not even include the costs of cloud storage, but I am sure net disadvantage compared to India.
5) Mobile transactions & financial inclusion 💰
West Africa is significantly less banked than India. However, the mobile phone is used significantly more when it comes to financial services.
Interestingly, we can see that the percentage of people with a bank account tends to be higher in anglophone countries (Nigeria at 45%, Ghana at 39%) and lower in francophone countries (Cote d’Ivoire at 28%, Senegal at 20%).
Mobile money statistics are slightly distorted by Nigeria, which hasn’t picked up on it at all (8.7% mobile money penetration, against 60% in Ghana). Hopefully not for long, as in 2021, the Central Bank of Nigeria released a new regulatory framework on mobile money that is set to help the sector achieve its long-awaited potential on the largest consumer market in the region.
West Africa vs India, who won? 🔥
Let’s ask our favorite spider 🕷️🕸️
If we look at the performance over the 5 dimensions, I must say West Africa defends itself very well against a strong opponent.
Because of its median age, population growth (didn’t add it but it’s obviously higher than India’s), and urban population, growth prospects are definitely on the side of West Africa.
The lack of access to financial institutions is partly compensated by mobile money, even though it hardly entails all the benefits and services that come from being formally banked.
Internet affordability and internet speed remain two major pain points.
But all in all, West Africa’s “Big 4” are putting a good show on the ring.
The massive gap in global investments between India and the countries of our study is due to in many factors that cannot be addressed here today. Even the simple advantage of participating in one integrated economy under one regulatory framework, can be enough to allow India to reach other heights. But there is obviously more to it.
And yet.
In 2022, VC investment per capita in India was $22. In West-Africa’s “Big 4”, only $5.75.
Given the strength of the fundamentals, I am wondering if investors are seizing the scope of the opportunity.
I will make here the bullish claim that West Africa is under-invested and that more investors should pursue the opportunity.
What if West Africans will soon be equipped with cheaper and faster connections? Who is building Africa’s internet infrastructure and where do we stand?
Enough bites for today, this is the meal for next week 🥗