Africa: Economic Growth Rides on Wireless Rails

A telecommunications boom is lifting an industry and a continent.

In Kenya, hundreds of thousands of people are rising out of poverty as mobile-money services turn subsistence farmers into business people. A similar dynamic drives Ethiopia, the fastest-growing economy in Africa, where the gross domestic product is forecast to climb 8 percent in 2019. Borrowing costs in Ghana plummeted almost 2.5 percentage points during the past 12 months amid an unprecedented gain in GDP that’s been led by the growth of the telecom industry.

From the Atlantic to the Indian Ocean, hand-held phones are letting people become their own ATMs, increasing economic activity by enabling payments for food, travel, school and business. Wireless communication is driving economic growth in sub-Saharan Africa much as the railroad did in the 19th-century U.S., accounting for almost a tenth of global mobile subscribers and a growth rate that’s beating the world.

The transformation is reflected in the more than 1,300 publicly-traded companies that make up corporate Africa. The value of communications firms increased during the past five years to 25 percent of the total market capitalization of African companies, up from 16 percent, according to data compiled by Bloomberg. Materials and energy, the natural-resources benchmarks that defined the region since its colonial days, diminished to a combined 18 percent from 27 percent during the same period.

Nowhere is the trend more pronounced than in Ghana, where the value of products and services produced by the information and communication sector surged 239 percent since 2012, according to data compiled by Bloomberg, by far the fastest growth of any economic sector. Such explosive growth helped Ghana improve its creditworthiness and lower the average cost of public and private borrowing to 6.7 percent from 9.1 percent during the past 12 months. The economy continued to expand at a rate of 6 percent, and economists surveyed by Bloomberg say it will grow another 6.7 percent next year, almost double its 3.5 percent rate in 2016.

Both the region and the industry are benefiting. Kenya-based Safaricom isn’t the biggest of the world’s telecommunications giants — its annual sales are about 3 percent of the average of the world’s 60 largest carriers. But its products and services are changing Africa, boosting its bottom line and attracting global investors. Analysts say that Safaricom’s revenues will rise 10 percent next year, more than triple the average of those 60 telecommunications giants, after a sales increase of 13 percent in 2016.

The company is more profitable than most of its 60 global peers, turning $100 of revenue into $23 of net income in 2016, twice the average. While its shares have gained 104 percent since 2014 — more than 4 times the group average — Safaricom still trades at a 33 percent discount to its global rivals on a price-to-earnings basis, according to Bloomberg data.

Safaricom’s mobile-money transfer service, M-Pesa, launched in 2007, now has more than 25 million users in Kenya, a country where 80 percent of the population lives beyond the reach of the electric grid. A 2016 study credited M-Pesa with increasing daily per capita consumption levels of about 2 percent of Kenyan households that had been subsisting on less than $1.25 per day.

The study, by Tanveet Suri, an associate professor at Massachusetts Institute of Technology’s Sloan School of Management and William Jack, an economist at Georgetown University, shows that mobile-money services relieve extreme poverty by enabling men and women to produce and sell goods and services in self-designed markets beyond the boundaries of their subsistence farms. The development is especially useful for women seeking financial independence in male-headed households, according to Suri.

Sub-Saharan Africa by the end of 2016 had 420 million unique mobile subscribers, equivalent to a 43 percent penetration rate in the world’s fastest-growing region, according to the London-based GSMA trade association of 800 mobile operators. Less than a fifth of individuals younger than 16 (who account for more than 40 percent of the population across the continent) have a mobile subscription, GSMA says. That’s why investors anticipate escalating earnings. Mobile technologies and services generated $110 billion in sub-Saharan Africa, equivalent to 7.7 percent of GDP, and supported 3.5 million jobs last year.

Nowhere is the demography more favorable to mobile money. Ethiopia, Ghana, Kenya, Nigeria and South Africa include 420 million people, or 41 percent of sub-Saharan Africa and 6 percent of the world. The total GDP of these countries is $936 billion, or 66 percent of the region. The population younger than 15 in these five countries ranges from 28 percent to 44 percent, compared to 25 percent for the world, 19 percent for the U.S. and 17 percent for China.

Visa Inc., the world’s largest payments network, said this year that it is planning to expand its mobile-phone application, mVisa, with lenders in 10 sub-Saharan markets, Bloomberg reported. At the same time, Shenzhen-based Huawei Technologies Co., said it is working with London-based WorldRemit Ltd, the money-transfer operator, to enable African expatriates to send cash home to more than 100 million users of the Chinese company’s mobile-money service platform.

At a point when mobile phone penetration is 65 percent for the world, sub-Saharan Africa’s 43 percent rate is why telecom investors are making the region as their favorite.