As second or third generations take over the reins of family businesses, they may be more open to outside investment to grow their companies. East Africa in particular has a rich seam of such businesses, which canny private-equity investors should be exploring.
Three reasons why African mobile connectivity is misleading
As smartphones become cheaper, a rising number of Africans are getting online. While Africans have typically feature phones, smartphone ownership is more popular among younger mobile users.
At the end of 2017, the number of smartphone connections reached 250 million, which is expected to increase to 440 million by 2025. This rapid growth in smartphone adoption across the continent has led a number of observers to declare that Africa’s connectivity has finally taken off. The reality is far more nuanced.
While Africans are more accessible than ever before, the vast majority are still difficult to reach. In the US and Europe, mobile phone users have access to unlimited data plans, putting them within easy reach.
But, this is not the case in sub-Saharan Africa. Phone ownership does not reflect unlimited connectivity due to consumer behavior around mobile phone usage.
Here are three ways to look at African connectivity differently.
1. Africans prepay for mobile & use data sparingly
Data in Africa is expensive. After obtaining a free or nominally-priced SIM card, subscribers prefer to pay upfront for services. With prepaid plans, users avoid contracts and have more flexibility.
Despite a 44% mobile penetration rate, Africa still has the world’s most expensive prepaid mobile data plans in relation to median incomes; on average, mobile data prices represent a staggering 8.76% of income.
- In Zimbabwe, a gigabyte costs $75.20, 289 times as much as in India, making it the most expensive country for data.
- MTN Nigeria’s lowest and cheapest data plan costs 100 Naira or $0.28 for 50 megabytes of data and is valid for only 24 hours.
Given median incomes, this corresponds to a high market share as subscribers spend at least 7% of their monthly income on data, considerably above the UN Broadband Commission’s target of 2% of monthly income for developing countries. These high data costs prevent many Africans from being consistently online. Often times, data connections are completely turned off or data plans are reloaded as needed to use specific products, such as Whatsapp.
- This behavior has thus cultivated a distinct pay-as-you-go mobile culture among Africans.
2. Africans have multiple SIM cards
In 2018, 4 of the top 10 countries globally using dual or multi-SIM phones are in Africa. The highest percentage usage by country was Kenya at 87%, with Nigeria in a close second.
Juggling multiple SIM cards is a result of variable infrastructure quality as much as price point sensitive customers. In more remote areas, network reception can be spotty, or nonexistent. Given the variability of telecoms tower infrastructure across providers, users have access to better coverage with multiple SIM cards.
- Additionally, because African consumers are price point sensitive, they have multiple phone subscriptions and seek out deals from operators.
Carriers try to attract subscribers with special plans offering cheaper-on network calls, airtime specials, bonus monthly data plans, unlimited SMS per month, roaming deals, etc. Africans move seamlessly from one SIM card to another throughout the day; consumer loyalty to a particular mobile phone operator is nonexistent.
- For example, in Nigeria, users flock to MTN for reliable network coverage and to Globacom for its cheap data offerings
3. USSD & SMS technology still reign supreme
Over two decades of Africa’s mobile phone revolution, USSD and SMS (two technologies that are the backbone of feature phone communications) have become deeply ingrained in consumer behavior. As sub-Saharan Africa is still predominantly a feature phone market, companies heavily depend on using USSD/SMS to reach end-users.
- USSD and SMS are easy to use; Africa’s relatively high rate of illiteracy makes these channels, which do not require high literacy levels, even more well-tailored to meet consumer needs. Since they do not require an internet connection, USSD and SMS are also inexpensive.
Given their easy to use interface and accessibility, USSD and SMS have also changed interactions between users and service providers. Customers can contact mobile phone operators directly to inquire about balances, promotions, and data bundles via USSD/SMS.
A prominent use of USSD & SMS across Africa is digital financial services, and the region leads the world in mobile money transactions. In Nigeria, USSD transactions grew by 35% in 2018, generating transfer payments of NGN 261 million.
- In Kenya, more than 16 million transactions occur daily on M-Pesa, the country’s leading mobile money platform. The simplicity of dialing a code on one’s mobile device has allowed feature phone technology to reign supreme in Africa’s digital financial services sector and created consumer behavior that is wedded to USSD/SMS.
The digital revolution in Africa has come to stay — but not without its challenges. Despite the increasing number of smartphones and internet users across the continent, a significant portion of its fast-growing consumer market is still far from reach.
To truly leverage the business opportunities Africa presents, rethinking connectivity across the continent is a must.