The African Leapfrog Index

Getting Lions to Leapfrog

How emerging technologies and digital transformations can accelerate economic and societal growth in 6 African countries.

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Africa is on the brink of opportunity

Africa’s vast untapped potential has been the subject of numerous studies, including McKinsey’s 2010 Lions on the Move report, which was among the more widely cited reports on this potential.¹

Young Populations

Africa will be home to some of the youngest populations in the world. The median age on the continent today stands at 19.4 years. By 2050, a third of the global youth is projected to be in Sub-Saharan Africa (SSA) with a median age of 23.9 years.

Expanding, Tech-Enabled Markets

Africa’s will be a major consumption market over the next three decades – and it is going to be digitally enabled. According to a recent Pew Research Center study of six major SSA countries, mobile phone penetration is between 75% and 91%.5 The youth are among the earliest adopters and most frequent users.

Growing Talent Pool and Workforce

With nearly 200 million young people added to the labor force in the next 12 years, most of whom will fall somewhere on a spectrum between digitally sentient and digitally sophisticated, the digital economy is poised to be not just the driver of consumption but also livelihoods. Fostering inclusive digital economies is therefore not a choice, but an imperative for Africa’s future.

However, the threshold of opportunity is a wide one

Decrease in Growth Projections

The IMF and the World Bank have cut their 2019 economic growth projections for sub-Saharan Africa (SSA) to 3.5%² and 2.8%³ respectively.

1 %

Total growth

The actual growth throughout Africa was as low as 2.3% in 2018.

Social & Economic Inequality

10 of the 19 most unequal countries in the world are in SSA⁴and it remains one of the world’s most unequal regions.

Extreme poverty

Of the world’s extreme poor, 437 million are in SSA.

Lack of internet accessbility

Over two-thirds of the continent lacks mobile internet subscriptions, according to GSMA Intelligence data from 2017-2018.

1 %

payments made in cash

Apart from Kenya and South Africa, the relatively more advanced payment markets, use of digital payments remains low.

The Question

There is plenty of evidence that despite the challenges, the region still has “robust long-term economic fundamentals. There is a wider belief that the true acceleration potential for the region lies in the rapid spread of mobile digital technology, which would help the region “leapfrog”: compress the process of economic development by harnessing technological innovation to overcome its many challenges.

Getting lions to leapfrog—or even to stir—may seem like a tall order. However, as The Economist notes in a special report, wondering whether Africa can leapfrog and beat the pace of change of developed regions may be the wrong question to ask. A more nuanced question may be: Can technology help overcome the primary barriers that have long held back Africa’s economies and people? And can they narrow their digital gaps vis-à-vis external benchmarks?

The African Leapfrog Index

The African Leapfrog Index (ALI) is a novel framework that draws upon the primary levers that facilitate the translation of digital technologies into development and inclusive growth.

These levers exist in three categories: jobs enabled by digital platforms; institutional drivers necessary for digital success; and the foundational digital potential of the country. The framework evaluates six African countries against a continent-wide “best-performance” benchmark to identify strengths to build upon and the opportunities to close gaps.

We examined the potential of digital transformations using six key countries drawn from different sub-regions of the continent representing distinct archetypes of size (of economy and population), economic growth, median age, quality of governance, and digital momentum – Egypt, Ethiopia, Kenya, Nigeria, Rwanda, and South Africa – to draw meaningful inferences on the region’s leapfrog potential and identify implications for action. Using this framework, we examined the primary levers for harnessing digital technologies to facilitate development and inclusive growth, from the ease of creating digital jobs, to the resilience of governance and infrastructure, to overall foundations of digital potential.

Patterns and Implications

The six African countries studied display distinctly different profiles in leapfrogging. Each has a different combination of leapfrog strengths and opportunities for growth.Their relative standing along each of the essential dimensions are summarized in Exhibit 2 below. The outer boundary represents the benchmark and each country’s footprint is shown within the figure. The closer the footprint is to the outer boundary, the higher the leapfrog potential in the country.

Paving the way

Punching above its weight

Opportunity for growth

Potential for greatest digital gain

The regional leaders represent different areas of strength and opportunities to grow. To get to the benchmark and develop a more balanced, well-rounded leapfrog profile, Kenya’s priority would be to improve its Ease of Creating Digital Jobs – i.e., nurturing jobs in the digital economy, such as online freelance, ridesharing, and in e-commerce – while South Africa’s priority needs to be to improve on Foundational Digital Potential – i.e., expanding the integration and use of digital technologies across society. While Kenya has the seen the greatest amount of digital change over the past decade of all African countries studied and has over 80% Internet penetration, it can, for example, improve its education and skill-building capacity to enhance its ability to grow higher-skilled digital services jobs. South Africa, on the other hand, can improve its payments capabilities; it made 65% of payments in cash, as compared to 40% in Rwanda – and this is despite the fact that Rwanda has only 30% of its population on the Internet compared to South Africa’s 54%. South Africa’s strength in creating high skilled digital jobs – through a balanced repertoire of strengths in available human capital, market sophistication and facilitating institutions – is impressive when compared to similar baskets of developing world nations from ASEAN and Latin America; it is competitive in a global marketplace for such high-skilled jobs, such as digital freelancing.

Rwanda has several core strengths in Governance (providing digital government services), Digital Evolution (its overall state of digital development) and Mobile Money (use of mobile money accounts, and other forms of digital money). These are solid foundations to build upon to facilitate digital leapfrogging. It needs to invest in the other capabilities – such as infrastructure, Internet penetration and online freedoms to fully leverage its core strengths.

Nigeria’s route to capturing more digital opportunities runs through improving the reliability of basic infrastructure. While Nigeria is strong in internet affordability, investments in reducing power outages and other unintentional disruptions to the internet will be key to enhancing its digital potential. Of the six countries studied, Nigeria has the biggest gap to close in this area.

When compared with the six other African countries, Egypt’s primary strengths are in the potential ease of creating medium and high skilled digital jobs, due in part to its high number of skilled graduates. Egypt’s tertiary unemployment rate is high: ILO estimates from 2014 place it at 34 percent. Tapping into its digital potential and continuing to drive efforts to digitize payments will enable the country to more fully capitalize on these strengths.

Ethiopia, with its high rate of GDP growth, has the most to gain from creating strong digital foundations and basic infrastructure, improving on its low momentum, and moving away from its near total reliance on cash payments towards digital payment rails.

ALI Countries – Key Observations

1. South Africa

Key Strengths:

South Africa is a regional leader in Ease of Creating Digital Jobs, buoyed by strong consumer demand and an institutional environment with friendly regulations. It compares favorably on this front against key emerging market nations in the LAC and ASEAN regions
It is a regional leader in deployment of several emerging tech: e.g. biometric data and payment cards to deliver social security, drones in mining
It has the lowest number of average monthly power outages among ALI countries, scores well on digital transparency measures, including Freedom on the Net and has the 2^nd highest digital payments among ALI countries
Cape Town is an entrepreneurial hub, with a wide talent pool and key domestic and international connections

Key Actions Recommended

With 54% internet penetration (2018; ITU), South Africa must increase internet access and availability. Broadband and mobile Internet speeds at 18.7 Mbps and 27.6 Mbps (below the global median) must be increase)
Digital payments capabilities must be more inclusive: while 60% of South Africans engaged in digital payments in 2017, this number falls to 30% for the poorest 40%
With 650-700K young people joining the workforce each year, 27.6% unemployment (55.2% for those 15-24 years old) and slowing GDP growth, digital economy jobs –in addition to the traditional industries such as construction, manufacturing and agro-processing – must be prioritized
Policies to follow through on President Ramaphosa’s commitment to a “skill revolution” and developing human capital ready for 4IR, while leveraging creative and multimedia skills, must be prioritized.

2. Kenya

Key Strengths

Over 70% of Kenyans have a mobile money account, and over 75% of Kenyans aged 15 plus made a mobile payment in the last year
During the past decade, Kenya has advanced quickly as a digital contender, with many innovative enterprises, e.g. M-Pesa, Ushahidi, M-KOPA, M-TIBA, etc. 200 digitized services are offered through Huduma Centres countrywide as well as an online self-service platform, E-Citizen
In the Ease of Creating Digital Jobs, Kenya’s institutions have enabled a favorable regulatory environment, and promoted a high use of digital payments. The government has preserved internet freedoms and even harnessed social media to fight disinformation
Home to a “Silicon Savanah” in Nairobi, Kenya has a growing, tech-savvy population

Key Actions Recommended

Education, digital skills and healthcare must be prioritized; a Kenyan born today is likely to achieve at most 52% of his/ her potential if they survive to adulthood given the shortfalls in the education and health systems
Investments in basic infrastructure, which would reduce power outages and other disruptions, are key to building overall reliability
Despite its leadership with M-Pesa, there is still enormous potential for the digitization of payments: cash accounts for 71% of Kenya’s total payments
Barriers in the value chain, such as lack of credit, user experience issues, and informal economy challenges should be addressed; agriculture and food & beverage sectors offer the best opportunities

3. Rwanda

Key Strengths

Strong commitment from government, emphasis on private sector in development, external collaborations, e.g. Alibaba, VW
Rwanda has been moving to transform itself into a digital hub, with, Irembo, a central government e-portal, high mobile account usage, expanded 4G coverage across the country and improved digital skills. Ease of digital job creation benefits from 4G coverage and favorable institutional measures. The central bank is considering its own digital currency
90% of Rwandans are within 5 km of a financial access point, due to the USACCOs
Rwanda is ahead of the curve in regulations surrounding drones, used to deliver critical supplies to inaccessible areas

Key Actions Recommended

Policies must prioritize bridging the urban-rural digital divide, and in reducing electricity, water, and transport infrastructure disruptions. They must also address the highly fragmented markets, poor document management and payment tracking methods, and the interoperability between USACCOs and mobile money operators.
Irembo needs to achieve its full potential through policies that improve digital education, connectivity and encouraging acceptance and authentication of e-certificates
Automating the operations of USACCOs is needed to reduce related leakages and theft, improve efficiencies, as well as the profitability of the cooperatives
Rwanda’s mobile money adoption can be improved; three mobile operators offer mobile money services, while banks are still figuring out their strategies, primarily involving partnerships, agent networks and beyond-payment products and services

4. Egypt

Key Strengths

The digital technology sector is the second-fastest growing sector in the country
Egypt is producing a large number of skilled graduates; it has the highest number of tertiary graduates of the ALI countries
Egypt is a regional leader in skilled digital jobs creation with online freelancer pools in creative and multimedia, software development and technology, and in writing and translation
With 50% of its population below the age of 30, growing tech adoption and a massive e-commerce market, Egypt is developing one of the world’s fastest growing entrepreneurial hubs. Egypt was the fastest growing in MENA in terms of VC activity, receiving 22% of the deals

Key Actions Recommended

Despite a push to increase access to digital payments, only 5.8% of Egyptians made a digital payment in the last year. However, the government is working towards increasing digital payments. In March 2019, the Egyptian government passed a law requiring most payments over 500 Egyptian pounds (USD 29) to government, and most of the salaries and fees paid out by public and private entities be made electronically
In addition, fostering online freedoms and the use of digital money could unleash further opportunities, particularly in high skilled digital jobs
The country’s growing technology sector could benefit from decreasing the frequency of internet disruptions and website blocking

5. Nigeria

Key Strengths

Nigeria has a powerful entrepreneurial climate that gives rise to innovative ventures: e.g. Jumia, Interswitch and Andela
Nigeria was Africa’s leading startup investment destination in 2018, recording nearly $95m in deals. Applications cut across the education, fintech, agriculture, healthcare, logistics and travels sectors. Extraordinary Nigerian ventures can make strong international connections; online payments platform, Paystack, was selected as an investment by organizations as disparate as Y Combinator, Tencent and Stripe. Lagos’ Yaba neighborhood — where many have their offices — has earned the nickname “Yabacon Valley.”
The relative affordability of Nigeria’s internet is key: The Economist ranks it first in affordability in the region
The National Identity Management Commission is set for a massive registration for the country’s mandatory National Identity Number (NIN)

Key Actions Recommended

87% of Nigeria’s economy is transacted in cash. 4/5ths of Nigerians had never heard of mobile money. Banks and telecoms providers don’t want tech start-ups on their turf. Policies to stimulate greater mobile money use is a must; e.g. in 2018, the central bank allowed telecoms and supermarkets to be “payment service banks,” and take deposits and make payments
Policies must address many issues that inhibit scaling: the high frequency of power outages; low level of public trust in technology; a large thriving informal economy (65% of GDP and 80% of workforce)
Nigeria’s sizable super-wealthy community can be encouraged to participate in early-stage and angel investments in digital startups

6. Ethiopia

Key Strengths

Ethiopia is seeing positive trends in poverty reduction and investments in infrastructure, including a $20 billion investment in the power sector.The reformist prime minister, Abiy Ahmed, has been drafting laws to privatize some state-owned entities. His understanding of the tech sector is seen as a watershed moment in Ethiopia’s transition
Ethiopia has a fast-emerging tech hub, also known as ‘Sheba Valley.’ Here, homegrown ride-hail ventures, Ride and ZayRide, have emerged along with startup marketplace Gebeya and BlueMoon, an agtech incubator and seed fund
Ethiopia can leverage its large number of STEM educated graduates. Overall enrolment in higher education facilities have grown fivefold since 2005. The government has also implemented a policy of training 70% of students in STEM
Ethiopia can leverage advances in adjacent areas: a manufacturing industry that’s now pulling some assembly from China; blockchain use in enhancing trade in coffee beans

Key Actions Recommended

Action is needed on closing Ethiopia’s digital divide, investments in basic infrastructure and improving competition. Internet access needs to be made more affordable for the average Ethiopian. With only 15% of its population online, low spread of 3G and 4G technologies, and low use of digital payments (6.9%), there is plenty of headroom for digital growth
The country is almost entirely reliant on cash, and would benefit from a regulatory environment that builds trust in digital money
Policies to ensure reliability of the key infrastructure should be prioritized. Challenges from an unreliable power supply and intentional internet shutdowns during anti-government protests, a state of emergency, or to limit exam cheating, must be addressed
Privatization of key sectors can help catalyze competition and an entrepreneurial climate. A key development that could lead the way is the privatization of the telecoms sector

Taken together, these analyses and findings will:

Help country decision-makers and stakeholders recognize where the potential for technology-led leapfrogging is high. This means identifying which gap areas are prime candidates for intervention – and prioritize resources appropriately
Inform action by identifying the leverage points for the key actors, what conditions need to be true and guiding the resources allocation problem
Uncover answers to questions such as what policy areas needs to change and by how much in order to get to the “best performance” leapfrog benchmark and to focus policy and business priorities to catalyze change involving multiple stakeholders

References

¹ Roxburgh, Charles; Norbert Dörr, Acha Leke, Amine Tazi-Riffi, Arend van Wamelen, Susan Lund, Mutsa Chironga, Tarik Alatovik, Charles Atkins, Nadia Terfous, and Till Zeino-Mahmalat. McKinsey Global Institute. Lions on the move : The progress and potential of African economies. 2010.

² African Population (live). Worldometers. Accessed 3 September 2019. <<https://www.worldometers.info/world-population/africa-population/>>

³ Dews, Fred. Charts of the Week: Africa’s changing demographics. 2019. Washington, DC: Brookings Institute.

⁴ Median age of the total population (years), Sub-Saharan Africa, 2015. UN Population Prospects 2019. Accessed 4 September 2019. << https://population.un.org/wpp/DataQuery/ >>

⁵ Silver, Laura and Courtney Johnson. Pew Research Center. Internet Connectivity Seen as Having Positive Impact on Life in Sub-Saharan Africa. 2018. Washington, DC: Pew Research Center.

⁶ International Labor Organization. 2018. Women and Men in the Informal Economy: A Statistical Picture. Geneva: International Labor Organization.

⁷ BFA. Digital Commerce and Youth Employment in Africa Research Report. 2019. Toronto: Mastercard Foundation.

⁸ International Labor Organization. 2018. Women and Men in the Informal Economy: A Statistical Picture. Geneva: International Labor Organization.

⁹ Mohammed, Omar. “IMF cuts Sub-Saharan Africa’s 2019 growth forecast to 3.5 percent”. April 20, 2019. Reuters.

¹⁰Mohammed, Omar. “ Sub-Saharan economic growth recovery to take longer – World Bank”. April 8, 2019. Reuters.

¹¹Inequality Trends in sub-Saharan Africa: Dovergence, Determinants, and Consequences. 2017. New York: United Nations.

¹² Wadhwa, Divyanshi. The number of extremely poor people continues to rise in Sub-Saharan Africa. 2018. Washington, DC: World Bank.

¹³ Calderon, Cesar, Gerard Kambou, Vijdan Korman, Megumi Kubota and Catalina Cantu Canales. Africa’s Pulse, No. 19, April 2019: An Analysis of Issues Shaping Africa’s Economic Future. 2019. World Bank. doi:10.1596/978-1-4648-1421-1

¹⁴ Elliott, Mark. The World Economic Forum. Three ways to get Africa’s informal economy on the books. 29 August 2019.

¹⁵ Roxburgh, Charles; Norbert Dörr, Acha Leke, Amine Tazi-Riffi, Arend van Wamelen, Susan Lund, Mutsa Chironga, Tarik Alatovik, Charles Atkins, Nadia Terfous, and Till Zeino-Mahmalat. McKinsey Global Institute. Lions on the move : The progress and potential of African economies. 2010.

¹⁶ “What technology can do for Africa”. November 10, 2017. The Economist.