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Ethiopia’s Half-Hearted Push to Telecom Privatization Finds Limited Success

Ethiopia’s telecom sector has been considered as the last frontier for telecom players, since the country is one of just a few to still have a state-run telecom industry. However, this is due to change, as the Ethiopian government has finally opened up the sector to private investment. Privatization of the telecom sector has been on the prime minister Abiy Ahmed’s agenda since he first took office in 2018, however, it was initially a slow process, mostly due to bureaucracy, ongoing military conflicts, and COVID-19 outburst. Apart from that, the privatization terms have not been very attractive for private players, making the whole process complicated.

With a population of about 116 million and only about 45 million telecom subscribers, Ethiopia has been one of the most eyed markets by telecom players globally. The telecom sector has immense potential as Ethiopia has one of the lowest mobile penetration rates in Africa.

To put this in perspective, Ethiopia has a mobile connection rate of only 38.5%, while Sub-Saharan Africa has a mobile connection rate of 77%. Moreover, 20% of Ethiopian users have access to the Internet and only about 6% currently use social media, which is much lower than that in other African countries. That being said, about 69% of the country’s population is below the age of 29, making it a strong potential market for the use of mobile Internet and social media in the future.

This makes the market extremely attractive for international players, who have for long been kept at bay by the Ethiopian government. Thus, when the government expressed plans to open up the sector, several leading telecom players such as MTN, Orange, Etisalat, Axian, Saudi Telecom Company, Telkom, Vodafone, and Safaricom showed interest in penetrating this untapped and underserved market.

Currently, state-owned Ethio Telecom, is the only player in the market. Lack of competition has resulted in subpar service levels, poor network infrastructure, and limited service offerings. For instance, mobile money services, which are extremely popular and common across Africa have only been introduced in Ethiopia in May 2021.

Moreover, as per UN International Telecommunication Union’s 2017 ICT Development Index (IDI), Ethiopia’s telecom service ranked 170 out of 176 countries. To correct this, in June 2019, the government introduced a legislation to allow privatization and infuse some competition and foreign investment into the sector. The privatization process is expected to rack up the country’s foreign exchange reserves, in addition to facilitating payment of state debt. It also aims to improve the overall telecom service levels and help create employment in the sector.

As a part of its privatization drive, the government has proposed offering two new telecom licenses to international players as well as partially privatizing Ethio Telecom by selling a 40% stake in the company. The sale of the two new licenses will be managed by the International Finance Corporation, which is the private sector arm of the World Bank.

Ethiopia’s Half-Hearted Push to Telecom Privatization Finds Limited Success by EOS Intelligence

While this garnered interest from several international telecom players, with 12 bidders offering ‘expression of interest’ in May 2020, the process has not been very smooth, owing to bureaucracy, ongoing military conflicts in the north of the country, and the proposal of an uneven playing field for international players versus Ethio Telecom. This last challenge appears to be a major obstacle to a smooth privatization process.

As per the government’s initial rulings, the new international players were not to be allowed to provide financial mobile services to their customers, while this service was only to be reserved for Ethio Telecom. Mobile money is a big part of the telecom industry, especially in Africa, where it is extremely popular and profitable as banking infrastructure is weak. This made the deal much less attractive for foreign bidders as mobile money constitutes a huge revenue stream for telecom players in African markets.

However, post the bidding process in May 2021, the government has tweaked the ruling to allow foreign players to offer mobile money services in Africa after completing a minimum of one year of operations in the country. However, since this ruling came in after the bidding process was completed, the government missed out on several bids as well as witnessed lower bids, since companies were under the impression that they will not be allowed to offer mobile money services. As per government estimates, they lost about US$500 million on telecom licenses because of initial ban on mobile money.

Another deterrent to the entire process has been the government’s refusal to allow foreign telecom tower companies to enter the Ethiopian market. The licensed telecom companies would either have to lease the towers from Ethio Telecom or build them themselves, but they would not be allowed to get third party telecom infrastructure players to build new infrastructure for them, as is the norm in other African countries. This greatly handicaps the telecom players who will have to completely depend on the state player to provide infrastructure, who in turn may charge high interconnection charges that may further create an uneven playing field.

These two regulations are expected to insulate Ethio Telecom from facing fierce competition from the potential new players, and in turn may result in incumbency and poor service levels to continue. Moreover, even with regards to Ethio Telecom, the government only plans to sell 40% stake to a private player (while 5% will be sold to public), thereby still maintaining the controlling stake. With minority stake, private players may not be able to work according to their will and make transformative changes to the company. It is considered a way to just get fresh capital infused into the company without the government losing real control of it.

In addition to these limitations, the overall process of privatization has faced delays and complications. The bidding process has been delayed several times over the past year owing to regulatory complexities, the COVID crisis, and ongoing military conflict in the northern region. The process, which was supposed to be completed in 2020 was completed in May 2021, with the final bidding process taking place in April 2021 and the government awarding the bids in May 2021.

During the bidding process, the government received only two technical bids out of the initial 12 companies that had shown interest. These were from MTN and a consortium called ‘Global Partnership for Ethiopia’ comprising Vodafone, Safaricom, and Vodacom. While the Vodafone consortium partnered with CDC Group, a UK-based sovereign wealth fund, and Japanese conglomerate, Sumitomo Corporation, for financing, MTN group teamed up with Silk Road Fund, China’s state-owned investment fund to finance their expansion plans into Ethiopia. The other companies that had initially shown interest backed out of the process. These include Etisalat, Axian, Orange, Saudi Telecom Company, Telkom SA, Liquid Telecom, Snail Mobile, Kandu Global Communications, and Electromecha International Projects.

In late May 2021, the government awarded one of the licenses to the ‘Global Partnership for Ethiopia’ (Vodafone, Safaricom, and Vodacom) consortium for a bid of US$850 million. While it had two licenses to give out, it chose not to award the other license to MTN, who had made a bid of US$600 million. As per government officials, the latter bid was much lower than the expected price, which was anticipated to be close to a billion by the government.

Moreover, the government seems to have withheld one of the licenses as currently the interest in the deal has been low, considering that it only received two bids for two licenses. Given that they have somewhat altered and relaxed the guidelines on mobile money (from not being allowed to be allowed after minimum one year of operations), there may be some renewed interest from other players in the market. That being said, the restriction on construction of telecom infrastructure is expected to stay as is.

In the meanwhile, Orange, instead of bidding for the new licenses, has shown interest in purchasing the 40% stake in Ethio Telecom, which will give the company access to mobile money services right away. However, no formal statement or bid has been made by either of the parties yet. If the deal goes through, it will give Orange a definite advantage over its international competitors, who would have to wait for minimum one year to launch mobile money services in the market. In May 2021, Ethio Telecom launched its first mobile money service, called Telebirr, and managed to get 1 million subscribers for the service within a two-week span. This brings forth the potential mobile money holds in a market such as Ethiopia.

EOS Perspective

While several international telecom companies had initially shown interest in entering the coveted Ethiopian market, most of them have fizzled out over the course of the previous year, with the government only receiving two bids. Moreover, the bid amounts have been much lower than what the government initially anticipated and the government chose to accept only one bid and reject the other. Thus the privatization process can be deemed as only being partially successful. Furthermore, the opportunity cost of restricting mobile money services has been about US$500 million for the government, which is more than 50% of the amount they have received from the one successful auction.

This has occurred because the government has been focusing on sheltering Ethio Telecom from stiff competition by adding the restrictions on mobile money and telecom infrastructure. While this may help Ethio Telecom in the short run, it is detrimental for the overall sector and the privatization efforts.

Restrictions on using third-party infrastructure partners, may also result in a slowdown in rolling out of additional infrastructure, which is much needed especially in rural regions of Ethiopia. Other issues such as ongoing political instability in the northern region have further cast doubt in the minds of investors and foreign players regarding the government’s stability and in turn has impacted the number of bids and bid value.

It is expected that the government will restart the bidding process for the remaining one license soon. However, the success of it depends on the government’s flexibility towards mobile money services. While it has already eased its stance a little, there is still a lot of ambiguity regarding the exact timelines and conditions for the approval. The government must shed clarity on this before re-initiating the bidding process. MTN has also mentioned that it may bid again if mobile money services are included in the bid.

However, with Vodafone-Safaricom-Vodacom consortium already winning one bid and expecting to start services in Ethiopia as early as next year, the company definitely has an edge over its other competitors. Considering that the first bid took more than a year and faced several bureaucratic delays, it is safe to say that the second bid will not happen any time soon, especially since this time it is expected that the government will give a serious thought to the inclusions/exclusions of the deal and the value that mobile money brings to the table for both the government and the bidding company.

by EOS Intelligence EOS Intelligence No Comments

Agritech in Africa: How Blockchain Can Help Revolutionize Agriculture

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In the first part of our series on agritech in Africa, we took a look into how IT and other technology investments are helping small farmers in Africa. In the second part, we are exploring the impact that potential application of advanced technologies such as blockchain can have on the African agriculture sector.

Blockchain, or distributed ledger technology, is already finding utility across several business sectors including financial, banking, retail, automotive, and aviation industries (click here to read our previous Perspectives on blockchain technology). The technology is finding its way in agriculture too, and has the potential to revolutionize the way farming is done.


This article is the second part of a two-piece coverage focusing on technological advancements in agriculture across the African continent.

Read part one here: Agritech in Africa: Cultivating Opportunities for ICT in Agriculture


State of blockchain implementation in agriculture in Africa

Agricultural sector in Africa has already witnessed the onset of blockchain based solutions being introduced in the market. Existing tech players and emerging start-ups have developed blockchain solutions, such as eMarketplaces, agricultural credit/financing platforms, and crop insurance services. Companies, globally as well as within Africa, are harnessing applications of blockchain to develop innovative solutions targeted at key stakeholders across the food value chain.

Blockchain to promote transparency across agriculture sector

The most common application of blockchain in any industry sector (and not only agriculture) is creating an immutable record of transactions or events, which is particularly helpful in creating a trusted record of land ownership for farmers, who are traditionally dependent on senior village officials to prove their ownership of land.

Since 2017, a Kenyan start-up, Land LayBy has been using an Ethereum-based shared ledger to keep records of land transactions. This offers farmers a trusted and transparent medium to establish land ownership, which can then further be used to obtain credit from banks or alternative financing companies. BanQu and BitLand are other examples of blockchain being used as a proof of land ownership.

This feature of blockchain also enables creation of a transparent environment where companies can trace the production and journey of agricultural products across their supply chain. Transparency across the supply chain helps create trust between farmers and buyers, and the improved visibility of prices further down the value chain also enables farmers to get better value for their produce.

In 2017, US-based Bext360 started a pilot project with US-based Coda Coffee and its Uganda-based coffee export partner, ​​Great​ ​Lakes​ ​Coffee. The company developed a machine to grade and weigh coffee beans deposited to Great Lakes by individual farmers in East Uganda. The device uploads the data on a blockchain-based SaaS solution, which enables users to trace the coffee from its origin to end consumer. The blockchain solution is also used to make payments to the farmers based on the grade of their produce in form of tokens.

In 2017, Amsterdam-based Moyee Coffee also partnered with KrypC, a global blockchain, to create a fully blockchain-traceable coffee. The coffee beans are sourced from individual farmers in Ethiopia, and then roasted within the country, before being exported to the Netherlands.

This transparency can help food companies to isolate the cause of any disease outbreak impacting the food value chain. This also allows consumers can be aware of the source of the ingredients used in their food products.

Agritech in Africa: How Blockchain Can Help Revolutionize Agriculture by EOS Intelligence

Blockchain-based platforms to improve farmer and buyer collaboration

Blockchain can also act as a platform to connect farmers with vendors, food processing, and packaging companies, providing a secure and trusted environment to both buyers and suppliers to transact without the need of a middleman. This also results in elimination of margins that need to be paid to these intermediaries, and helps improve the margins for buyers.

Farmshine, a Kenyan start-up, created a blockchain-based platform to auger trade collaboration among farmers, buyers, and service providers in Kenya. In January 2020, the company also raised USD$250,000 from Gray Matters Capital, to finance its planned future expansion to Malawi.

These blockchain platforms can also be used to connect farmers to other farmers, for activities such as asset or land sharing, resulting in more efficiency in economical farming operations. Blockchain platform can also enable small farmers to lease idle farms from their peers, thereby providing them with access to additional revenue sources, which they would not be able to do traditionally.

AgUnity, an Australian-start-up established in 2016, developed a mobile application which enables farmers to record their produce and transactions over a distributed ledger, offering a trusted and transparent platform to work with co-operatives and third-party buyers. The platform also enables farmers to share farming equipment as per a set schedule to improve overall operational and cost efficiency. In Africa, AgUnity has launched pilot projects in Kenya and Ethiopia, targeted at helping farmers achieve better income for their produce.

A Nigerian start-up, Hello Tractor uses IBM’s blockchain technology to help small farmers in Nigeria, which cannot afford tractors on their own, to lease idle tractors from owners and contractors at affordable prices through a mobile application.

Smart contracts to transform agriculture finance and insurance

Less than 3% of small farmers in sub-Saharan Africa have adequate access to agricultural insurance coverage, which leaves them vulnerable to adverse climatic situations such as droughts.

Smart contracts based on blockchain can also be used to provide crop-insurance, which can be triggered given certain set conditions are met, enabling farmers to secure their farms and family livelihood in case of extreme climatic events such as floods or droughts.

SmartCrop, an Android-based mobile platform, provides affordable crop insurance to more than 20,000 small farms in Ghana, Kenya, and Uganda through blockchain-based smart contracts, which are triggered based on intelligent weather predictions.

Netherlands-based ICS, parent company of Agrics East Africa (which provides farm inputs on credit to small farmers in Kenya and Tanzania) is also exploring a blockchain-wallet based saving product, “drought coins”, which can be encashed by farmers depending on the weather conditions and forecasts.

Tracking of assets (such as land registries) and transactions on the blockchain can also be used to verify the farmers’ history, which can be used by alternative financing companies to offer loans or credits to farmers – e.g. in cases when farmers are not able to get such financing from traditional banks – transforming the banking and financial services available to farmers.

Several African start-ups such as Twiga Foods and Cellulant have tried to explore the use of blockchain technology to offer agriculture financing solutions to small farmers in Africa.

In late 2018, Africa’s leading mobile wallet company, Cellulant, launched Agrikore, a blockchain-based digital-payment, contracting, and marketplace system that connects small farmers with large commercial customers. The company started its operations in Nigeria and is exploring expansion of its business to Kenya.

In 2018, Kenya-based Twiga Foods (that connects farmers to urban retailers in an informal market) partnered with IBM to launch a blockchain-based lending platform which offered loans to small retailers in Kenya to purchase food products from suppliers listed on Twiga platform.


Read our previous Perspective Africa’s Fintech Market Striding into New Product Segments to find out more about innovative fintech products for agriculture and other sectors financing in Africa


And last, but not the least, blockchain or cryptocurrencies can simply be used as a mode of payment with a much lower transaction fee offered by traditional banking institutions.

Improving mobile internet access to boost blockchain implementation

While blockchain has shown potential to transform agriculture in Africa, its implementation is limited by the lack of mobile/internet access and technical know-how among small farmers. As of 2018, mobile internet had penetrated only 23% of the total population in Sub-Saharan Africa.

However, the GSM Association predicts mobile internet penetration to improve significantly over the next five years, to ~39% by 2025. Improved access to internet services is expected to boost the farmers’ ability to interact with the blockchain solutions, thereby increasing development and deployment of more blockchain-based solutions for farmers.

EOS Perspective

Agritech offers an immense opportunity in Africa, and blockchain is likely to be an integral part of this opportunity. Blockchain has already started witnessing implementation in systems providing proof of ownership, platforms for farmer cooperation, and agricultural financing tools.

Unlike Asian and Latin American countries, African markets have shown a relatively positive attitude towards adoption of blockchain, a fact that promises positive environment for development of such solutions.

At the moment, most development in blockchain agritech space is concentrated in Kenya, Nigeria, Uganda, and Ghana. However, there is potential to scale up operations in other countries across Africa as well, and some start-ups have already proved this (e.g. Farmshine was able to secure the necessary financing to expand its presence in Malawi). Other companies can follow suit, however, that would only be possible with the help of further private sector investments.

Still in the nascent stages of development, blockchain solutions face an uncertain future, at least in the short term, and are dependent on external influences to pick up growth they need to impact the agriculture sector significantly. However, once such solutions achieve certain scalability, and become increasingly integrated with other technologies, such as Internet of Things and artificial intelligence, blockchain has the capability of completely transform the way farming is done in Africa.

by EOS Intelligence EOS Intelligence No Comments

Agritech in Africa: Cultivating Opportunities for ICT in Agriculture

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Agriculture technologies in Africa have been undergoing significant development over the years, with many tech start-ups innovating information and communications technologies to support agriculture at all levels. While some technologies have been successfully launched, some are in initial stages of becoming a success. Private sector investments have been the key driving factor supporting the development of agriculture technologies in Africa. In the first part of our series on agritech in Africa, we are examine what impact and opportunities arise from the use of these technologies in Africa.

Agriculture plays a significant role in Africa’s economy, contributing 32% to the continent’s GDP and employing 65% of the total work force (as per the World Bank estimates). Nearly 70% of the continent’s population directly depends on agribusiness. Vast majority of farmers work on small scale farms that produce nearly 90% of all agricultural output.


This article is the first part of a two-piece coverage focusing on technological advancements in agriculture across the African continent.

Read part two here: Agritech in Africa: How Blockchain Can Help Revolutionize Agriculture


Agriculture in Africa has been under the pressure of many challenges such as low productivity, lack of knowledge and exposure to new farming techniques, and lack of access to financial support, especially for the small-scale farmers. These challenges are prompting investments in newer technologies to enhance the productivity through smart agriculture techniques.

Lately, there have been an increased use of various technologies in agriculture in Africa, such as Internet of Things (IoT), Open Source Software, Cloud Computing, Artificial Intelligence, Drones/Unmanned Aerial Vehicles (UAVs), and Big Data Analytics. Many tech start-ups have developed solutions targeting various aspects of agriculture, including finance, supply chain, retailing, and even delivering information related to crops and weeds. These solutions are accessible to farmers through front-end devices such as smart phones and tablets, or even SMS.

Agritech in Africa - Cultivating Opportunities for ICT in Agriculture by EOS Intelligence

Start-ups lead agritech development in Africa

Many agritech start-ups in Africa have come up with solutions that have led to a rise in productivity of the farms. Drones have been a breakthrough technology, helping farmers oversee their crops, and manage their farms effectively. Drones use highly focused cameras to capture picture of crops, soil or weeds. This, coupled with big data analytics and Artificial Intelligence (AI), provides insights to farmers, saving their time and effort, while also helping them find potential issues which could impact the productivity of their farms.

There are various agritech start-ups that are developing such drones, and providing them to farmers for rent or lease to analyse their crops and farms. A South African agritech start-up, Aerobotics, offers an end-to-end solution to help farmers manage their farms using drones, through early detection of any crop-related problems, and offering curative measures for the problems using an AI-based analytics platform. The company partners with drone manufacturing companies such as DJI and Micasense to deliver these solutions.

Acquahmeyer, another start-up based in Ghana, also provides drones to its farming customers to help them use a comprehensive approach to apply crop pest control and plant nutrition management for their farms.

Advent of advanced technologies such as IoT is also helping farmers to adopt smart farm management through the use of smart sensors connected in a network. This helps every farmer to get granular details of the crops, soil, farming equipment, or livestock, enabling the farmers to devise appropriate farming approaches.

Kenya-based UjuziKilimo provides solution for analyzing soil characteristics using electronic sensor placed in the ground. This helps farmers with useful real-time insights into soil conditions. The solution further utilizes big data analytics to guide the farmers, by offering insights through SMS on their connected mobile phones or tablets.

Hello Tractor, a Kenyan start-up, provides an IoT solution, through which farmers can have access to affordable tractors which are monitored virtually through a remote asset tracking device on the tractor, sharing data over the Hello Tractor Cloud. Farmers, booking agents, dealers, and tractor owners are connected via IoT. The company is also collaborating with IBM to incorporate artificial intelligence and blockchain to their solutions.

AI has also witnessed a rapid growth in adoption across agriculture sector in Africa. Agrix Tech, based in Cameroon, has developed a mobile application that requires the farmers to capture the picture of diseased crop, which is then analyzed via AI to detect crop diseases, and helps the farmers with treatment solution to save their crops.

AI is also helping Kenyan farmers with the knowledge on planting the right crops at the right time. Tech giant, Capgemini, has teamed up with a Kenyan social enterprise in Kakamega region in Western Kenya to use artificial intelligence to analyze farming data, and then send insights about right time and technique of planting crops to the farmers’ cell phones.

There are other agritech solutions that include mobile applications which use digital platforms such as cloud computing to reach out to farmers, and provide them with apt agriculture solutions. Ghana-based CowTribe offers a mobile USSD-based subscription service which enables livestock farmers to connect with veterinarians for animal vaccines and other livestock healthcare services using cloud-based logistics management system. The company focuses on managing the schedules, and delivering the right service to the livestock farmers, to help them safeguard their animals from any health-related problems.

Several agritech investments are also impacting the financial side of agriculture. Kenya-based Apollo Agriculture provides solutions related to financing, farm inputs, advice insurance and market access through the use of agronomic machine learning, remote sensing, and mobile technology using satellite data and cloud computing.

Another Nigerian start-up Farmcrowdy has developed Nigeria’s first digital agriculture platform that provides financial support to the farmers by allowing those outside the agriculture industry to sponsor individual farms.

Several other agritech start-ups across the continent, such as Ghana-based Farmerline and AgroCenta, and Nigeria-based Kitovu have also launched data-driven mobile application for farmers. These technology solutions are proving to be a boon for agriculture sector in Africa, helping improve the overall efficiency and productivity.

Agritech in Africa - Cultivating Opportunities for ICT in Agriculture by EOS Intelligence

Agritech development is concentrated in Kenya and Nigeria

But, when it comes to first adopting the newest technologies and starting an agritech business in agriculture, Kenya and Nigeria have been leading in the adoption of new agritech solutions, accounting for a significant share of agritech start-up across Africa. Kenya has played a pioneering role in bringing agritech in Africa since 2010-2011, when the first wave of agritech start-ups began to bring new niche innovations. Currently, Kenya accounts for 25% of all the agritech start-ups in Africa, and the development is progressing rapidly, thanks to the country’s advancement in technology, high smartphone penetration, and relatively widespread internet access.

Similarly, Nigeria too has sailed the boat of success in agritech start-ups since 2015, and now it accounts for 23.2% of total agritech start-ups in Africa, with include major players such as Twiga Foods, Apollo Agriculture, Agrikore, and Tulaa. The growing inclination amongst Nigerian farmers towards using digital tools in agriculture sector has further pushed the rapid development in agritech sector in the country.

Other countries have also shown potential for agritech development, though it is still in the initial stages of becoming mainstream in their agriculture sectors. Ghana has encouraged several start-ups to launch different technology innovations for making agriculture more sustainable, while South Africa, Uganda, and Zimbabwe have also witnessed the rise in agritech start-ups over the years with newer technologies for agriculture sector.

Recent investments highlight the agritech potential

The agriculture technologies in Africa got the boost from the increased private funding. According to a report by Disrupt-Africa released in 2018, there has been a total investment of US$19 million in agritech sector since 2016. These investments have largely focused on funding agritech start-ups working on bringing innovative agriculture technologies. Also, according to the same report, the number of agritech start-ups rose by 110% from 2016 to 2018.

Some of the recent investments in the agritech sector include Kenya’s Twiga Foods, a B2B food distribution company, which raised US$30 million from investors led by Goldman Sachs in October 2019. The company aims to set-up a distribution centre in Nairobi to offer better supply chain services, while also expanding to more cities in Kenya, including Mombasa.

In December 2019, Kenya-based agritech start-up Farmshine, also raised US$25 million in funding from US-based Gray Matter’s Capital coLabs (GMC coLabs), to expand its operations in Malawi. GMC coLabs also invested US$1 million in another Kenyan B2B agritech start-up Taimba in July 2019. Taimba provides a mobile-based cashless platform connecting smallholder farmers to urban retailers. The investment was focused on strengthening Taimba’s infrastructure and increase the delivery logistics to cater to new markets.

Cellulant, a leading pan-African digital payments service provider that offers a real-time payment platform to farmers, also raised US$47.5 million from a consortium of investors in May 2018, which is the largest investment in the African tech industry till date. Cellulant also plans to channel a significant portion of funds into its Agrikore subsidiary, an agritech start-up dealing with blockchain based smart-contracting, payments, and marketplace system.

EOS Perspective

African agritech is expected to witness high growth in future. According to a CTA report on Digitalization for Agriculture (D4Ag) published in 2018, digital agriculture solutions are likely to reach 60-100 million smallholder famers, while generating annual revenues of nearly US$320- US$470 million by the end of 2020.

Adoption and use of innovative technologies such as remote sensing, diagnostics, IoT sensors for digitalization of agriculture is steadily moving from experimental stage to full-scale deployment, contributing to the data revolution in agriculture, while also unlocking new business models and opportunities.

Apart from these, blockchain is gaining prominence, and finding applications in the agriculture sector in Africa. This technology has the potential to significantly impact the agriculture sector, which we will discuss in the second part of our series on Agritech in Africa.

However, lack of affordability and knowledge to access such technologies, especially by small-scale farmers, has restricted the growth and reachability of these solutions. With the need to educate farmers and make such technology affordable and viable, it is likely that it may take at least 5-7 years before these technologies become truly mainstream in the continent.

A disparity of investments has been observed among the countries in the region. Over the years, countries such as Kenya, Nigeria, and Ghana have experienced a strong growth in terms of private investments, while other countries are left wanting. Investors have prioritized easy-to-reach markets in Africa, leaving behind the lower-income markets, resulting in agritech becoming less sustainable and scalable in these markets. However, several other African countries have shown the appetite to adopt agritech solutions, and offer significant potential.

This requires an intervention and participation from both governments and private investors, which can help improve scalability of agriculture technologies in the region. Implementation of farming digital literacy, public-private partnerships, and increased private sector investments in agritech enterprises can help the agritech industry experience a consistent and higher success rate, thus bringing the agriculture technology to a mainstream at faster pace.

by EOS Intelligence EOS Intelligence No Comments

Nigerian Power Woes Cripple Businesses

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Achieving efficient generation and distribution of electricity in Nigeria has over the years remained a sore point and a major threat to growth of the economy. Poor electricity supply has serious consequences for the businesses in the country, with several existing companies struggling to maintain profitability and new players shying away from entering the market. The government has undertaken several measures, including transferring majority of the power infrastructure from government to private hands, however, it has not managed to improve the situation. Ambitious policies and agreements with multinational energy companies might just be the key to solve Nigeria’s energy problems.

Nigeria is considered most abundant in natural reserves and is the largest economy in Sub-Saharan Africa. The country has the potential to generate about 11,000-12,000 MW of electric power from existing plants. Despite this, Nigeria is only able to generate about 4,000 MW on most days, which is less than one-third of what is required to provide for its more than 190 million citizens.

According to a 2014 World Bank survey, about 27% of Nigerian businesses identified electricity as the main hurdle in doing business. Also, IMF estimated per capita electricity production in Nigeria to be less than 25% of that of the Sub-Saharan Africa average. The gap between the electricity generation capacity and demand in the country is a result of poorly maintained electricity generation facilities and very little investment in new power plants as well as an outdated transmission and distribution infrastructure.

Government action or lack thereof

Nigeria’s power sector has suffered from mismanagement and corruption for many years. Since Nigeria’s independence from the British rule in 1960, the government set up a heavily subsidized grid, which was subject to high level of corruption and was never able to generate enough profits to finance new power plants or upgrade the transmission and distribution network to meet the needs of the growing population. In addition to its inability to upgrade, the electricity sector suffers from a huge range of issues, ranging from leakages in power transmission and distribution, to lack of maintenance, to theft and vandalism.

In an effort to combat the country’s energy poverty, the government liberalized the power sector in the early 2001 in hope to attract foreign investments. However, the plan didn’t work as expected. Instead, privatization increased corruption as the political members tried to appoint political allies and family members to head the new distribution companies.

According to a 2018 publication by the Istituto Affari Internazionali, an Italian non-profit think tank, Nigeria has been steadily generating 4,000 MW/h since 2005, with no increase in output over the past decade. This is costing the Nigerian economy a great deal as businesses and industries suffer due to regular power outages. Moreover, as per a 2018 estimate by A2EI (a Berlin-based collaborative R&D platform in the solar off-grid industry), Nigerians spend NGN4.3 billion (US$12 million) annually on small gasoline generators, of which NGN2.9 billion (US$ 8 million) is spent on fuel.

Nigerian Power Woes Cripple Businesses by EOS Intelligence

Nigeria’s energy poverty affecting businesses across industries and sizes

Manufacturing and trading industry

Poor electricity supply is affecting the manufacturing industry in an immense way. A typical Nigerian factory experiences power outage or voltage fluctuations approximately eight to ten times a week, with each power outage lasting about two hours. This adds to the cost of production through lost material, damaged products, and restarting the factory equipment. This makes the manufacturing business unattractive to investors since the overhead costs are high, return is low, and the business environment is largely uncertain.

To combat the power issue, companies depend on diesel generators for power backup, however, this significantly adds to the cost of the product, which in turn affects the competitiveness of the business since whatever is produced in the country is more expensive when compared with production costs in other regions.

In addition to electricity shortage, prices and availability of fuel for operating the generators also impact businesses. While small business generators are powered by price-capped gasoline, the larger generators that power big businesses, apartment complexes, and big homes can only be run on diesel, which in turn is volatile with regards to pricing and supply.

According to a market intelligence firm based in Lagos, SBM Intelligence, diesel is among the top three cost heads for many Nigerian firms. Moreover, with the price of diesel also being volatile, many businesses operate with a constant risk of increasing overhead cost, which may result in reduction in output, downsizing, or even business closure. This was seen in May 2015 when Nigeria was hit by fuel scarcity, which caused many traders and businesses to shut shop as they could not afford diesel for their generators.

One business sector most impacted by Nigeria’s energy poverty is the perishable food sector. Nigeria’s fuel scarcity in 2015, caused the loss of approximately NGN10 million (US$27,000) worth of food items. Similarly, as per members of the Ajeromi Frozen Foods Market Association in Lagos, a severe bout of power outage in March 2016 resulted in the decay (and thereby loss) of frozen food worth NGN20 million (US$55,000) in just five days.

Apart from this, small businesses are also severely impacted by Nigeria’s power shortage. Most small shops cannot afford complete generator back up and therefore suffer with limited working hours and sub-par working conditions. For the ones that can afford a generator, the cost of it is very high, squeezing out profits from their already limited setup. For instance, a small tailor shop with a daily income of about NGN4,000 (US$11) spends close to NGN3,000 (US$8.2) daily on fueling their generator to keep the business going, highlighting the disproportionately high cost of electricity to run a small business in the country.

According to a market intelligence firm based in Lagos, SBM Intelligence, diesel is among the top three cost heads for many Nigerian firms. Moreover, with the price of diesel also being volatile, many businesses operate with a constant risk of increasing overhead cost, which may result in reduction in output, downsizing, or even business closure.

Technology sector

Nigeria’s tech industry accords for approximately 14% of the Nigeria’s GDP in 2019 and is poised to be the next frontier for growth. However, constant power outages have become a serious problem for the booming sector. Most tech companies operate around the clock to provide a 24*7 service to their customers, however, in Nigeria, most app companies operate for only 8-9 hours a day as they cannot sustain generator costs for the entire 24 hours. This impacts the quality of service provided.

As per Chris Oyeniyi, owner of a smartphone app called KariGo, electricity cost (including generator cost) on a monthly basis is about US$800 for the bare minimum number of operating hours. The same electricity bill would be around US$100 if the public power grid was dependable. This hampers growth for tech start-ups, which have to allocate significant amount of their funds towards power supply instead of using them for expanding, both in terms of scale and staff.

In an attempt to overcome this challenge, several technology start-ups prefer to work in co-working spaces that allow them to pool their electricity bills. This concept is becoming very popular in the country, however, despite this, generator costs remain very high to provide around the clock services.

In addition to the high costs, technology firms also operate with a constant risk of losing all their digital work (that is not backed up) or hampering important software updates in case of a sudden blackout.

According to a survey of 93 Nigerian tech start-ups by the Center for Global Development conducted in 2019, 57% of start-ups found power outages to be one of the biggest challenges for their business. Moreover, one-third of the firms surveyed reported losing more than 20% of their sales due to power outages.

Other sectors

Just like the manufacturing and technology sector, most of the other industries are also impacted by irregular power supply and thereby rely on large generators to run their operations. This puts additional cost pressures on the business.

In 2019, Temi Popoola, the West Africa chief executive of investment bank Renaissance Capital, stated that diesel accounts for approximately 20-30% of banks’ operating expenses in Nigeria, which is significantly higher compared with other developing countries.

The telecom sector is also vulnerable to the power outages faced by the country. In 2015, MTN, a telecom giant, stated that it spends approximately NGN8 billion (US$22 million) annually on diesel to keep its network online. This is a huge cost and accounts for about 60% of its operating costs. Due to such heavy operating costs, the company is forced to focus more on sustaining its day-to-day activities rather than investing in any other area such as expanding its network.

The road ahead

Currently there does not seem to be any light at the end of the tunnel for Nigeria’s power woes. With high level of corruption paralyzing the sector and limited amount of new private investment, the sector is in a state of limbo.

Moreover, there are constant disagreements between the Nigerian Bulk Electricity Trading Company (NBET) and the private power generating companies, which further impact electricity supply. Recently, in September 2019, another issue came into the light, when NBET directed all thermal electricity generation companies (GenCos) to pay an administrative charge. To oppose this, the GenCos have threatened to shut down power production and supply and argued that there is no policy directive to that effect by the Nigerian Electricity Regulatory Commission (NERC). The two sides have not managed to reach any consensus as of now. However, such additional charges will further put financial pressure on already struggling GenCos, who have largely failed to improve their generation levels due to lack of capital for maintenance and operation. This will further negatively impact the already dismal grid supply levels.

Nigeria is dealing with another legal dispute over a hydro power project with a proposed capacity of 3,050 MW. In 2003, the Nigerian government awarded the build-operate-transfer (BOT) contract to a local company, Sunrise Power and Transmission Company Limited (SPTCL) and followed it up with signing a general project execution agreement with the company in November 2012. However, simultaneously, the government also awarded the bid to execute the hydro project to a JV between China Gezhouba Group Corporation of China (CGGCC) and China Geo-Engineering Group Corporation (CGGC) in 2006.

Moreover, in 2017, it signed another engineering, procurement and construction (EPC) contract with Sinohhydro Corporation of China, CGGCC and CGGC to form a joint venture but excluded SPTCL from the agreement. Following this SPTCL filed a legal suit against the federal government and its Chinese partners at the International Chamber of Commerce (ICC) in Paris for breaching the contract. The government risks approximately US$2.3 million in fines in this legal tussle. Moreover, the Chinese government refused to provide the required funding for the project (US$5.8 billion) until the legal dispute is settled. Thus, the project is on hold until any legal solution is reached.

However, that being said, the Nigerian government is ambitiously trying to revive the country’s electricity sector. In 2017, the government developed a National Renewable Energy and Energy Efficiency Plan, under which it aims to achieve 30,000 MW electricity by 2030, with renewable energy accounting for 30% of the overall energy mix (9,000 MW). The government plans to adopt ‘The Sustainable Energy for All Action Agenda’ (SE4ALL), which is a UN initiative to support sustainable energy in Africa, with targets of 90% Nigerians having access to electricity by 2030.

To this effect, in May 2019, Central Bank of Nigeria announced the disbursement of NGN120.2 billion (US$330 million) to different distribution companies, power generating companies, service providers, and gas companies in order to improve their liquidity situation. Furthermore, in 2018, the government secured a loan of US$485 million from the World Bank to upgrade the country’s electricity transmission network and infrastructure and is currently in talks about a US$2.5 billion additional loan to uplift the power sector.

The government has also signed a six year power deal with the German energy giant Siemens, with an aim to generate a minimum of 25,000 MW of electricity by 2025. As a part of this deal, Siemens will work alongside the Transmission Company of Nigeria to achieve 7,000 MW and 11,000 MW of reliable power supply by 2021 and 2023, respectively. Thus in addition to building new generation capacity, the government is also focusing on improving supply from the existing grids, which has been stagnant at around 4,000 MW over more than a decade.

Moreover, the country’s energy sector is receiving significant support from international bodies such as PowerAfrica, which is a wing of the United States Agency for International Development (USAID). Over the past few years, PowerAfrica has been assisting the government in agreements on solar projects that help Nigeria in diversifying its energy mix. In 2015, PowerAfrica supported Nigeria’s first private IPP Project (the Azura Edo Project) to reach financial close in 2015. It also assisted it in securing a US$50 million investment by the Overseas Private Investment Corporation (OPIC). The Azura plant (the first project initiated by Azura power) became operational in 2018 with 461 MW capacity. It is the first phase of the 1,500 MW IPP (Independent Power Project) facility that is being developed in Nigeria. In December 2019, Africa50 (a pan-Africa infrastructure investment platform) expressed its plans to invest in the Azura power plant.

Growing private investments, international support, and supportive government policies as well as investment may just lift up the Nigerian electricity sector, which has been in dire need for reform over several decades.

In 2017, the Nigerian government developed a National Renewable Energy and Energy Efficiency Plan, under which it aims to achieve 30,000 MW electricity by 2030, with renewable energy accounting for 30% of the overall energy mix (9,000 MW).

EOS Perspective

As per the International Centre for Investigative Reporting (ICIR), the Nigerian government has spent approximately NGN1.164 trillion (US$3.2 billion) on the power sector during 2011-2018 without any significant improvement in energy supply. Poor power supply has been crippling the country for many decades now.

Large businesses, especially in the technology sector, could help boost the economy but like any other business, they require electricity to run successfully. Nigeria lacks the basic business environment at the moment. Moreover, ongoing issues with the private generation players further hamper the sectors growth and performance.

Recently, the government has made several moves in the right direction (especially with regards to investment in renewable energy sources), but it is too early to comment if they could solve Nigeria’s decades-long energy problem. Moreover, the real issue is not about investment levels or government policies, but about the implementation of these initiatives. As seen previously at the time of privatization of the sector, the government failed to uplift the sector as it was plagued by corruption, favoritism, and bureaucracy.

Similarly, the government adopted a policy in 2010 called Vision 20:20, wherein it aimed to be featured in the top 20 economies globally by 2020. Within the power sector, Vision 20:20 aimed to increase generation capacity to 20,000 MW by 2015 and 35,000 MW by 2020. However, it failed to make significant investments or incentivize private players to invest in the sector and failed miserably in its goals. If the same is repeated now, the result will not be very different.

The government’s plans can only be implemented if there is substantial transformation of the entire sector, with the private sector participating equally in the upliftment. The government needs to provide significant financial incentives for new power projects and must also restructure the distribution companies to improve liquidity. Lastly it must counter the corruption and bureaucracy seeped into the sector and ensure that generating companies receive complete and timely cost-reflective tariff from the government. While these measures are difficult to achieve, they are the only way the sector can see any respite in the coming years.

by EOS Intelligence EOS Intelligence No Comments

Africa’s Fintech Market Striding into New Product Segments

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Fintech is certainly not a new concept in the African region. More than that: Africa has been a global leader in mobile money transfer services for some time. The market continues to evolve and the regional fintech players are now moving beyond just basic payment services to offer extended services, such as credit scoring, agricultural finance, etc. With Africa being significantly unbanked and still lacking financial infrastructure, fintech industry is at a unique position to bridge the gap between consumer needs and available financial solutions.

The African subcontinent is much behind many economies when it comes to financial inclusion and banking infrastructure owing to low levels of investment, under-developed infrastructure, and low financial literacy ratio. As per World Bank estimates, only about 20% of the population in the sub-Saharan African region have a bank account as compared with 92% of the population in advanced economies and 38% in low-middle income economies.


Related reading: Fintech Paving the Way for Financial Inclusion in Indonesia


This gap in the formal banking footprint has been largely plugged by the fintech sector in Africa, especially with regards to mobile payments. While in the developed economies, the fintech sector focuses on disrupting the incumbent banking system by offering better services and lower costs, in Africa it has the advantage of building and developing financial infrastructure. This is clear in the uptake of mobile fintech by the African population, making Africa a global leader in mobile payments and money transfers.

While in the developed economies, the fintech sector focuses on disrupting the incumbent banking system by offering better services and lower costs, in Africa it has the advantage of building and developing financial infrastructure.

However, mobile payments have simply been the first phase in the development of digital finance in Africa. The penetration and mass acceptance of mobile wallets have opened doors for the next phase of digital financial services in Africa. These include lending and insurance, agricultural finance, and wealth management.

Moreover, owing to the success achieved by mobile wallets, global investors are keenly investing in fintech start-ups that are innovating in the sector. For instance, Venture capital firm, Village Capital, partnered with Paypal to set up a program named Fintech Africa 2018. The program aims to support start-ups across Kenya, Nigeria, South Africa, Ghana, Uganda, Rwanda, and Tanzania, which provide financial services beyond mobile payments (especially in the field of insurtech, alternative credit scoring, and fintech solutions for agriculture, energy, education, and health).

Africa’s Fintech Market Striding into New Product Segments

Agricultural finance

Agriculture is the livelihood of more than half of Africa’s workforce, however, due to limited access to finance and technologies, most farmers operate much below their potential capabilities. Due to this, Africa homes about 60% of the world’s non-cultivated tillable land.

However, in recent years, several established fintech players as well as start-ups have built solutions to provide financial support to the region’s agricultural sector.

In late 2018, Africa’s leading mobile wallet company, Cellulant, launched Agrikore, a blockchain-based digital-payment, contracting, and marketplace system that connects small farmers with large commercial customers. The company started its operations from Nigeria and is expected to commence business in Kenya in the second half of 2019.

Under their business model, when a large commercial order is placed on the platform, it is automatically broken into smaller quantities and shared with farmers on the platform (based on their capacity and proximity). Once the farmer accepts the order for the set quantity offered to him, the platform connects the farmer with registered transporters, quality inspectors, etc., who all log their activities on the blockchain and are paid through Cellulant’s digital wallets. All this is done on a blockchain to ensure transparency.


Related reading: Connecting Africa – Global Tech Players Gaining a Foothold in the Market


Another Nigeria-based company, Farmcrowdy, has been revolutionizing financing in Nigeria’s local agriculture sector by connecting small-scale farmers with farm sponsors (from Nigeria as well as other regions), who invest in farm cycles. Farmers benefit by receiving advice and training on best agriculture practices in addition to the financial support. Sponsors and farmers receive a pre-set percentage of the profits on the harvest in that cycle. In December 2017, the company received US$1 million seed investment from a group of venture capitalists including Cox Enterprises, Techstars Ventures, Social Capital, Hallett Capital, and Right-Side Capital, as well as five angel investors.

In addition to these, there are several other players, such as Kenya-based Twiga Foods (that connects rural farmers to urban retailers in an informal market), Kenya-based Tulaa (that provides famers with access to inputs such as seeds and fertilizers, as well as to finance, and markets through an m-commerce marketplace), Kenya-based, FarmDrive (that helps small farmers access credit from local banks through the use of data analytics), etc.

While most ventures in this space are currently based in Nigeria and Kenya, the sector is expected to grow significantly in the near future and is likely to expand into other parts of Africa as well.

In terms of expected trends in services development, with growing number of solutions and in turn apps, it is likely that consumers will tilt towards all-inclusive offerings, i.e. apps that provide solutions across the entire agricultural value chain.

Alternative credit scoring and lending

Large number of Africans have limited access to finance and formal lending options. Since there is a limited number of bank accounts in use, most people do not have a formal credit history and the cost of credit risk assessment remains high. Due to this, large portion of the population resorts to peer-to-peer lending or loans from Savings and Credit Cooperative Organizations (SACCOs), usually at rates higher than the market rate.

Fintech sector has been working towards reducing the cost of credit risk assessment through the use of big data and machine learning. It uses information about a person’s mobile phone usage, payment data, and several other such parameters, which are available in abundance, to calculate credit score for the individual.

Several companies, such as Branch International, have been following a similar model, wherein, through their app, they analyze the information on customer’s phone to assess their credit worthiness. On similar lines, Tala (which currently operates in Kenya), collates about 10,000 data points on a customer’s mobile phone to determine the user’s credit score.

Fintech sector has been working towards reducing the cost of credit risk assessment through the use of big data and machine learning. It uses information about a person’s mobile phone usage, payment data, and several other such parameters, which are available in abundance, to calculate credit score for the individual.

Other business models include a crowdfunding platform, on which individuals from across the world can offer small loans to local African entrepreneurs. Kiva, a global crowd lending platform, has been partnering with several companies across Africa over the past decade (such as Zoona for Zambia and Malawi in 2012) for providing financial support to entrepreneurs. Kiva vets the entrepreneurs eligible for the loan and the loan is repaid over a period of time. Post that lenders can either withdraw the amount or retain it with the company to support another entrepreneur.

Currently, about 20% of all fintech start-ups in Africa are focusing on lending solutions, with investors backing them with significant amount of funding. This is primarily due to a growing demand for financing in Africa. Moreover, limited barriers with regards to regulations for digital lending start-ups also make it easy for companies to enter this space and test the market before investing large sums of money or entering into a partnership with a bank.

This may change in the long run, however, with regulators increasingly monitoring this growing sector. For instance, in March 2018, the Kenyan government published a draft bill under which digital lenders will be licensed by a new Financial Markets Conduct Authority and lenders will be bound by interest rate caps that are set by the authority.

Insurance and wealth management

Apart from agriculture financing and credit scoring and lending, there are several digital start-ups in the space of insurance and wealth management. There are limited traditional solutions for insurance and wealth management in Africa, a fact that presents significant potential for growth in these categories.

South Africa’s Pineapple Insurance is a leading player in the insurtech space. The company operates as a decentralized peer-to-peer insurance company wherein members take a picture of the product they want to insure and the company uses artificial intelligence to calculate an appropriate premium. The premium is stored in the member’s Pineapple wallet and when a claim is paid out, a proportionate amount is withdrawn from the wallets of all the members in that category. Moreover, members can withdraw unused premium deposits at the end of every year making the process completely transparent.

In addition to Pineapple Insurance, there are several other companies that are making waves in the insurtech sector. These include, South-Africa based Naked Insurance (which uses artificial intelligence to offer low cost car insurance), Kenya-based GrassRoots Bim (which leverages mobile technology to develop insurance solutions for the mass market), and Tanzania-based Jamii Africa (which offers mobile micro-health insurance for the informal sector). Companies such as Piggybank.ng in Nigeria and Uplus in Rwanda, also provide digital solutions for savings and wealth management.

Apart from these fintech solutions, a lot of innovations are also taking place in the payments space. Several companies are working towards extending the reach of Africa’s mobile payment solutions. For example, a leading Kenyan mobile payment company, DPO Group, partnered with MasterCard to launch a virtual card that can be topped with mobile money by the end of 2019. The card has a 16-digit number, an expiry date, and a security code similar to a debit card, thereby facilitating transactions beyond Kenya, with rest of the word as well.

EOS Perspective

There is an immense opportunity in the fintech space in Africa at the moment. Most start-ups are currently operating in Kenya, South Africa, and Nigeria, and are expected to move to other parts of the continent once they have achieved certain scalability and outside investment. Having said that, foreign investors are also keenly observing movement in this space and are on the lookout for fresh concepts that have the capability to build new offerings as well disrupt existing financial solutions.

At the same time, with the industry being relatively new, many of its aspects remain unknown, a fact that increases risk of investing in the sector. Currently, a lot of these solutions depend heavily on data (especially through mobile usage). However, there are increasing regulations regarding data privacy across the globe and over the course of time, this trend is also expected to reach Africa.

Moreover, direct regulations regarding the fintech sector may also impact the business of several new players. Currently the companies are evolving fast and the regulators are playing catch-up, however, once the industry becomes seasoned, clear regulations are expected to ensure safety of the money involved. Fintech companies are also vulnerable to risks arising from online fraud, hacking, data breaches, etc., and regulations are extremely important to keep these in check as well.

While the sector enjoys limited scrutiny at the moment, entry and operations may not be as simplistic in the long run as they seem now. Despite this, the sector is expected to prosper and witness further innovation that will drive it into new territories to satisfy the currently unmet financial needs of the African population.

by EOS Intelligence EOS Intelligence No Comments

Connecting Africa – Global Tech Players Gaining Foothold in the Market

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While in the past, most global tech companies have focused their attention on emerging Asian markets, such as India, Indonesia, Vietnam, etc., they have now understood the potential also offered by African markets. Africa currently stands at the brink of technical renaissance, with tech giants from the USA and China competing to establish here a strong foothold. That being said, Africa’s technological landscape is extremely complex owing to major connectivity and logistical issues, along with a limited Internet user base. Companies that wish to enter the African markets by replicating their entry and operating models from other regions cannot be assured of success. In addition to global tech firms building their ground in Africa, a host of African start-ups are increasingly finding funding from local as well as global VC and tech players.

Great potential challenged by insufficient connectivity

Boasting of a population exceeding 1.2 billion (spread across 50 countries) and being home to six of the world’s ten fastest-growing economies, Africa is increasingly seen as the final frontier by large global technology firms.

However, the African landscape presents its own set of challenges, which makes increasing tech penetration extremely complex in the market. To begin with, only about 35% of the continent’s population has access to the Internet, as compared with the global rate of 54%. Thus, Africa’s future in the technology space greatly depends on its ability to improve digital connectivity. This also stands in the way of large tech-based players that wish to gain foothold in the market.

Large players try to lay the necessary foundations

Due to this fundamental challenge, companies such as Google, Facebook, and IBM have initiated long-pronged strategies focusing on connectivity and building infrastructure across Africa. Facebook’s Free Basics program (which provides access to a few websites, including Facebook and Whatsapp, without the need to pay for mobile data) has been greatly focused on Africa, and is available in 27 African countries. With Facebook’s partnership with Airtel Africa, the company has started to strengthen its position in the continent.

Similarly, Google has launched Project Link, under which it rolled out a metro fiber network in Kampala, Uganda, with Ghana being in the pipeline. Through such efforts and investments, Google is aimed at bringing about faster and more reliable internet to the Africans.

Microsoft, which has been one of the first players to enter the African turf, is also undertaking projects to improve connectivity in Africa. The company has invested in white spaces technology, which uses unused radio spectrum to provide Wi-Fi connectivity at comparatively lower costs.

However, managing to get people online is only the first step in the long journey to develop a growing market. Companies need to understand the specific dynamics of the local markets and develop new business models that will fit well in the African market.

For instance, globally, the revenue model for several leading tech companies, such as Google and Facebook, largely depend on online advertising. However, the same model may not thrive in most African markets due to a limited digital footprint of the consumers as well as the fact that the business community in the continent continues to draw most transactions offline, using cash.

Connecting Africa – Global Technology Firms Gaining a Foothold in the Market

Players employ a range of strategies to penetrate the market

These tech giants must work closely with local businesses and achieve an in-depth understanding of the unique challenges and opportunities that the African continent presents. Therefore, these companies are increasingly focusing on looking for collaborations that will help in the development of successful and sustainable businesses in the continent.

Leading players, such as Google and Microsoft have been investing heavily in training local enterprises in digital skills to encourage businesses to go online, so that they will become potential customers for them in the future.

While this strategy has been used somewhat extensively by US-based and European companies, a few Chinese players have recently joined the bandwagon. For instance, Alibaba’s founder, Jack Ma announced a US$10 million African Young Entrepreneurs Fund on his first visit to Africa in July 2017. The scheme will help 200 budding entrepreneurs learn and develop their tech business with support from Alibaba.

The company has also been focusing on partnerships and collaborations to strengthen its position in the African market. Understanding the logistical challenges in the African continent, Alibaba has signed a wide-ranging agreement with French conglomerate, Bollore Group, which covers cloud services, digital transformation, clean energy, mobility, and logistics. The logistics part of the agreement will help Alibaba leverage on Bollore’s strong logistics network in Africa’s French-speaking nations.

Considering the importance of mobile wallets and m-payments in Africa, Alibaba has expanded its payment system, Alipay, to South Africa (through a partnership with Zapper, a South Africa-based mobile payment system) as well as Kenya (through a partnership with Equitel, a Kenya-based mobile virtual network operator). In many ways, it is applying its lessons learnt in the Chinese market with regards to payments and logistics, to better serve the African continent.

While Chinese players (such as Alibaba and Baidu) have been comparatively late in entering the African turf, they are expected to pose a tough competition to their Western counterparts as they have the advantage of coming from an emerging market themselves, with a somewhat better understanding of the challenges and complexities of a digitally backward market.

For instance, messaging app WeChat brought in by Tencent, China-based telecom player, has provided stiff competition to Whatsapp, which is owned by Facebook and is a leading player in this space. WeChat has used its experience in the Chinese market (where mobile banking is also popular just as it is across Africa) and has collaborated with Standard Chartered Bank to launch WeChat wallet. In addition, WeChat has collaborated with South Africa’s largest media company, Naspers, which has provided several value added services to its consumers (such as voting services to viewers of reality shows, which are very popular in Africa). Thus, by aligning the app to the needs and preferences of the African consumers, it has made the app into something more than just a messaging service.

While collaboration has been the go-to strategy for a majority of tech companies, a few players have preferred to enter the market by themselves. Uber, a leading peer-to-peer ridesharing company entered Africa without collaborations and is currently present in 16 countries.

While entering without forging partnerships with local entities helps a company maintain full control over its operations in the market, in some cases it may result in slower adoption of its services by the local population (as they may not be completely aligned with their preferences and needs). This can be seen in the case of Netflix, a leading player in the video streaming service, which extended its services to all 54 countries in Africa in January 2016 (the company has, however, largely focused on South Africa). Despite being a global leader, Netflix has witnessed conservative growth in the continent and expects only 500,000 subscribers across the continent by 2020.

On the other hand, Africa’s local players ShowMax and iROKO TV have gained more traction, due to better pricing, being more mobile friendly (downloading option) and having more relatable and local content, which made their offer more attractive to local populations.

Netflix, slowly understanding the complexities of the market, has now started developing local content for the South African market and working on offering Netflix in local currency. The company has also decided to collaborate with a few local and Middle-Eastern players to find a stronger foothold in the market. In November 2018, the company signed a partnership with Telkom, a South African telecommunication company, wherein Netflix will be available on Telkom’s LIT TV Box. Similarly, it partnered with Dubai-based pay-TV player, OSN, wherein OSN subscribers in North Africa and Middle East will gain access to Netflix’s content available across the region. However, while Netflix may manage to develop a broader subscriber base in South Africa and a few other more developed countries, there is a long road ahead for the company to capture the African continent as a whole, especially since its focus has been on TV-based partnerships rather than mobile (which is a more popular medium for the Internet in Africa).

On the other hand, Chinese pay-TV player, StarTimes has had a decade-long run in Africa and has more than 20 million subscribers across 30 African countries. While operating by itself, the company has strongly focused on local content and sports. It also deploys a significant marketing budget in the African market. For instance, it signed a 10-year broadcast and sponsorship deal with Uganda’s Football Association for US$7 million. To further its reach, the company also announced a project to provide 10,000 African villages with access to television.

US-based e-commerce leader, Amazon, is following a different strategy to penetrate the African markets. Following an inorganic approach, in 2017, Amazon acquired a Dubai-based e-retailer, Souq.com, which has presence in North Africa. However, the e-commerce giant is moving very slowly on the African front and is expected to invest heavily in building subsidiaries for providing logistics and warehousing as it has done in other markets, such as India. This approach to enter and operate in the African market is not widely popular, as it will require huge investment and a long gestation period.

Local tech start-ups are on the rise

While leading tech giants across the globe are spearheading the technology boom in Africa, developments are also fueled by local start-ups. As per the Disrupt Africa Tech Startups Funding Report 2017, 159 African tech start-ups received investments of about US$195 million in 2017, marking a more than 50% increase when compared to the investments received in 2016.

While South Africa, Nigeria, and Kenya remained the top three investment destinations, there is an increasing investor interest in less developed markets, such as Ghana, Egypt, and Uganda. Start-ups in the fintech space received maximum interest and investments. Moreover, international VC such as Amadeus and EchoVC as well as local African funds appear keen to invest in African start-ups. The African governments are also supporting start-up players in the tech space – a prime example being the Egyptian government launching its own fund dedicated to this objective.

African fintech start-ups, Branch and Cellulant, have been two of the most successful players in the field, raising US$70 million and US$47.5 million, respectively, in 2018. While Branch is an online micro-lending start-up, Cellulant is a digital payments solution provider. Both companies have significant presence across Africa.

EOS Perspective

Although US-based players were largely the first to enter and develop Africa’s technology market, Chinese players have also increasingly taken a deeper interest in the continent and have the advantage of coming from an emerging market themselves, therefore putting themselves in a better position to understand the challenges faced by tech players in the continent.

Most leading tech players are looking to build their presence in the African markets. Their success depends on how well they can mold their business models to tackle the local market complexities in addition to aligning their product/service offerings with the diverse needs of the local population. While partnering with a local player may enable companies to gain a better understanding of the market potential and limitations, it is equally imperative to identify and partner with the right player, who is in line with the company’s vision and has the required expertise in the field – a task challenging at times in the African markets.

While global tech companies are stirring up the African markets with the technologies and solutions they bring along, a lot is also happening in the local African tech-based start-ups scene, which is receiving an increasing amount of investment from VCs across the world. In the future, these start-ups may become potential acquisition targets for large global players or pose stiff competition to them, either across the continent or in smaller, regional markets.

It is clear that the technological wave has hit Africa, changing the continent’s face. Most African countries, being emerging economies in their formative period, offer a great potential of embracing the new technologies without the struggle of resisting to adopt the new solutions or the problem of fit with legacy systems. It is too early to announce Africa the upcoming leader in emerging technologies, considering the groundwork and investments the continent requires for that to happen, however, Africa has emerged as the next frontier for tech companies, which are causing a digital revolution in the continent as we speak.

by EOS Intelligence EOS Intelligence No Comments

Tunisia’s Bruised Tourism Industry Starts to Recover

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The tourism sector of Tunisia has been in turmoil over the past few years. The terrorist attacks on Sousse beach and Bardo National Museum in Tunis in 2015 crippled the industry, which had been witnessing a healthy growth before these events. As the Tunisian government and tourism industry players have been implementing strategies to revive the industry, some progress has been witnessed. However, the damage to the country’s image was grave and it is yet to be seen if the measures being taken will put the industry back on the growth trajectory.

Grave repercussions to the sector

Post Tunisia’s political revolution in 2011, the government started promoting tourism both domestically and internationally, and by 2014, the tourism sector contributed 15.4% to the country’s GDP. However, the terrorist attacks in 2015 in Sousse and Tunis killed nearly 60 foreign tourists (including 30 UK nationals) and significantly tarnished the image of Tunisia as a safe tourist destination.

The concerns over safety, reinforced by travel bans and no-travel recommendations issued by some EU countries, resulted in a drastic fall in the number of overseas tourists arriving in Tunisia. A travel ban issued by the UK authorities was particularly damaging to the local tourism sector, as UK had been the key demand-generating market for Tunisia. Between 2014 and 2017, the number of incoming travelers from the UK declined by 93% to 28,000 and many renowned UK travel companies, including Thomas Cook and TUI, discontinued their services in Tunisia.

The tourism sector had always been crucial for Tunisia’s economy and was one of the country’s key employment sectors, employing over 200,000 people before the attacks. The sudden decline in country’s tourism industry impacted cash inflow, business operations of several tourism industry players, and further destabilized the already faltering economy of the country.

The Recuperating Tourism Sector of Tunisia

Government reaction and first results

After two years of struggle, the Tunisian tourism market started showing first modest signs of recovery in 2017, following measures undertaken by the government to boost tourist footfall in the country. The Ministry of Tourism’s initial steps to help the industry survive included covering of social security contributions for tourism entities such as hotels, resorts, restaurants, etc., by the government, with the intention to help the providers maintain their employees and stay afloat. While this helped reduce the impact, the country still saw a massive loss of jobs in travel and tourism in 2015.

Simultaneously, the government tried to address the most pressing issue directly responsible for the decreased demand for Tunisian tourism services – traveler safety. To make tourists feel safe, the government tightened security around touristic sites, particularly in Sousse and Tunis. Additional surveillance equipment was placed at airports, hotels, and resorts to enhance security, while sector staff and various security forces received training on detecting suspicious behaviors and on counter-terrorism. Over the following years, Tunisia also received help from western countries in raising its security standards and procedures.

While these initiatives were needed and welcome, preventing attacks of this sort in a country located in close proximity to conflict zones, requires massive funding and complete, deep overhaul of its security and counter-terrorism system at all levels. Regardless of whether the steps already taken are sufficient or not to truly ensure safety, they certainly offered greater sense of protection to tourists, a fact promptly and extensively communicated to target customers across British and other European media.

The government of Tunisia has also taken measures to balance out the losses by trying to diversify its demand markets. To attract tourist from outside Europe, visa requirements for countries including China, India, Iran, and Jordan were eased with the introduction of visa on arrival. This strategy helped Tunisia attract Chinese tourists, whose footfall increased 56% y-o-y in January-May 2018 period.

To fuel business travel arrivals, the MoT started granting one-year multi-entry visa to businessmen and investors of these countries as well. Further, the MoT also removed entry visa requirements for countries including Angola, Burkina Faso, Botswana, Belarus, Kazakhstan, and Cyprus.

In parallel, the industry realized the need to broaden the sector’s offering. One such initiative was to expand the premium and luxury tourism segment targeting (quite interestingly) particularly British affluent travelers (indicating a continuous bet placed on British customers). In 2017, Four Seasons Hotel Tunis was opened, a major step in putting the country on the luxury tourism map, followed by a few more luxury resorts openings. In several locations premium activities have been developed, including marine spas and golf courses.

Europe’s cautious return to holidays in Tunisia

The measures appeared to have worked, and in 2017, the industry witnessed growth of the number tourists by 23.2% y-o-y to reach 7 million. While the government actions were to some extent successful, it was the lifting of travel ban to Tunisia by EU countries including Belgium, the Netherlands, Poland, and the UK that was the main factor leading to growth.

Recovery was further supported by the return of travel companies such as Thomas Cook and TUI, which resumed operations in Tunisia. Moreover, an air service agreement was signed in late 2017 between the EU and Tunisia to increase the number of direct flights between European countries and Tunisia, which soon led to the return of European airlines including Air Malta and Brussels Airlines on these routes.

All these developments have helped to revive tourism sector and regain European visitors to a certain extent. The number of tourists, particularly, from France and Germany, increased by 45% and 42%, respectively, y-o-y for the period of January-May 2018. This growth in tourist footfall was a great sigh of relief for local industry players, whose businesses have suffered tremendously post attacks.

UK tourist, the most valuable visitor, reluctant to come back

Despite Tunisia’s attempts to diversify its demand markets, the country sees UK as the most important source of tourists for its tourism sector. According to the Tunisian Hotel Association, the market will not fully recover until the British visitors are back in numbers from before the attacks, which will also send a strong message to the world that Tunisia is safe for travel again.

Before the attacks, tourists from the UK formed the bulk of most valuable visitors to Tunisia with high spending capacity, the strongest inclination to spend on high-end accommodation and local cuisines, staying for longer duration in the country, and shopping extensively for locally-made products.

Rebuilding Tunisia’s image in the eyes of British tourists is therefore seen as of great importance. While some British tourists started to return to Tunisia (following tightened safety measures and an extensive publicity thereof) many UK travelers continue to remain wary, and in spite the lift of the travel ban, British arrivals have not reached pre-2015 levels. This reluctance is difficult to break, as UK tourists still do not fully trust that their safety will be ensured, a fear further underpinned by tensions in Tunisia’s neighboring Muslim countries (e.g. Libya).

Some issues remain unresolved

The inability to bring back the UK tourists at levels from before 2015 is still a major problem to the local industry. Although the government undertook several initiatives to improve tourist safety, these steps are likely to be insufficient to prevent such events in the future.

Amidst Tunisia’s frail economic conditions, the availability of sufficient funds to truly and permanently ramp-up security is limited. Moreover, Tunisia must be able to ensure ongoing counter-terrorism abilities as a preventive measure, a task requiring a systematic approach and continuous financing, without dependence on western governments. Considering Tunisia is surrounded by areas prone to continuously produce this sort of danger, ensuring the right intelligence and financing is likely to be a challenge.

Tunisian tourism sector is fighting several battles at the same time, and the blow it received in an aftermath of the attacks had broad repercussions. Various structural issues, which had been present before 2015, still persist. This includes a relatively large share of poor quality accommodation and hotel services, which are not up to par with international standards and expectations of a western tourist, therefore are detrimental to market growth. The 2015 events put several hotel operators under heavy debt and in fight for survival, which pushed upgradation of hotel facilities much lower on their priority list.

There is also a shortage of well-trained hotel and other tourist services staff, which makes it difficult for the Tunisian tourism industry to compete with countries such as Turkey, especially if the substandard service level is paired with outdated and poorer hotel amenities and services. Tunisia does have training centers, however the aftermath of 2015 attacks put the entire sector along with ancillary industries in a standstill, therefore several training center have not been functioning at full capacity. Recovery will take time and it will be a while till a sufficient number of well-trained hotel staff will become available.

EOS Perspective

With tourism playing a pivotal role in Tunisia’s economy, the country found itself in a very difficult position as a result of the attacks. The revival of tourist footfall since the summer of 2017 is definitely encouraging, however the industry is still not out of the woods and needs to continue to work along with the government to ensure the return of the tourists, by addressing the key issues – safety and quality of services.

This should also be a good moment for Tunisia to realize the risks of reviving the industry with the same over-dependence on limited variety of demand markets as before (i.e. UK), and intensify its efforts to diversify target markets across Europe and beyond.

Apart from introducing and maintaining fundamental changes to the safety of the traveler and to what the industry offers, the country needs to revamp the way it markets itself so that it can improve its image and boost tourism. In the past, public authorities and industry players have not paid much attention to promoting the country’s tourism market on social media, relying largely on tour operators and agencies. However, promoting a positive image of the country along with advertising tourist facilities through online channels might help Tunisia reach broader customer segments across markets, e.g. by influencer endorsements (quite a successful approach for Abu Dhabi and Turkey, to name just a few, in the past).

It is also important for Tunisia to look beyond traditional mass-market, organized tourism and explore other avenues of revenue. More focus could be put on promoting cultural tourism as well as access to Sahara Desert – key attraction for people visiting south of Tunisia. Local investors have already started working to develop offers with local cuisines and immersive desert experiences, along with authentic-themed hotels and restaurants.

Tunisia has also made the right (although modest) steps to address the issue of substandard hotel amenities and unclear standard of accommodation that can be expected by tourists. Changes are being made to classification of hotels, as the current star rating system is outdated and based on size and capacity rather than quality of services. Efforts are being made to re-classify hotels in line with international standards. Such reforms are crucial for the industry to ensure higher level of customer satisfaction.

Rebuilding damaged image is always a long and difficult process and Tunisian authorities must do whatever possible to prevent similar attacks in the future. If the public authorities along with the industry players continue to make efforts to pull the country’s tourism market out of the pit, the optimistic expectations about tourist arrivals reaching 12 million by 2028, with a CAGR of 4.6% over 2018-2028, are likely to become reality, bringing back much needed employment and revenue to the economy.

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Zambia Government’s Pro-tourism Steps to Take the Sector to New Heights

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Zambia, like many other African countries, has struggled with the image of being underdeveloped, poor, and unsafe, a perception which has kept foreign travelers at bay. While these aspects do remain true to some extent, the Zambian government has initiated efforts to rebrand Zambia’s image as an attractive tourist destination. To this effect, the government is working on improving the country’s infrastructure as well as increasing marketing efforts to position Zambia as a premiere tourist destination to the world. With the right investments and policies, Zambia has the potential to become a popular tourist place within Africa, giving stiff competition to its neighbors, such as Zimbabwe, and to Africa’s key tourist destinations, such as Kenya. This goal might be achievable, considering that in addition to having a wide range of national parks and game reserves, Zambia is home to Victoria Falls (shared with Zimbabwe), one of the seven natural wonders of the world and a UNESCO Heritage Site.

Previously neglected tourism industry to receive a new push

While Victoria Falls remains Zambia’s most unique attraction, Zambia seems to have more on its tourist offer. The country boasts of around 23 million hectares of land being dedicated to diverse wildlife, in the form of 20 national parks and 34 game management areas (GMAs).

In addition, it is rich in other natural resources and tourist attractions such as waterfalls, lakes, woodlands, several museums, and rich and diverse culture, which gives tourists a taste of the land through many traditional ceremonies and festivals.

Despite all of this, tourism has never flourished in the country, although this might change now, as the government launched a National Tourism Policy 2015, aiming at positioning Zambia among the top five African tourist destinations of choice by 2030. The initiative is hoped to bring increased revenues from tourism needed by Zambia to improve its economic diversification, as the country has largely been dependent on revenues from copper mining and agriculture, a model only moderately sustainable at best.

The government has undertaken multi-pronged approach to put Zambia’s tourism on the map

Regions prioritization

In order to achieve this, the government is prioritizing two major regions, namely Livingstone (which provides access to Victoria Falls) and the Northern Circuit, situated in the Southern and Northern Provinces of Zambia, respectively. It is for this purpose that the government has opened up investments in the Northern Circuit region that encompasses the David Livingstone memorial in Chitambo, Kasanka National Park, beaches at Banguelu, Kasaba Bay, Lumangwe, and Kabweluma Falls, among other key tourism sites.

Appointment of investments facilitator

Industrial Development Corporation (IDC), a state-owned investment company undertaking the government’s commercial investments has assumed the job of facilitating long-term financing of several projects that will help boost tourism, in addition to acting as a co-investor alongside private investors in the sector.

Establishing of tourism development fund

The government has taken several other measures under the Tourism and Hospitality Act 2015 to provide the needed push to its tourism sector. It has established a tourism development fund, a special fund for the sole purpose of developing and funding the various spheres of the sector. To support this fund, in March 2017, the government introduced Tourism Levy, a tourist tax charged at 1.5% of a tourist’s (both domestic and international) total bill in respect to accommodation and tourist events. As per Zambia’s Ministry of Tourism and Arts (MoTA), the tourism fund collection through this tax equaled US$338,885 (K3.4 million) as of 31 August 2017.

An increased tourism marketing budget to the Zambia Tourism Agency (ZTA) for 2018 has been allocated to promote Zambia as a prime tourist destination. In April 2018, the ZTA hosted the Zambia Travel Expo (ZATEX), a tourism fair, which is one of the most important marketing platforms for Zambia’s tourism products. The fair hosted close to 60 international buyers (including both trade and media) from Southern and East Africa, the UK, Germany, the USA, China, France, India, and several other countries.

Hotels grading and licensing

In addition, the ZTA, which acts as the tourism industry regulator in Zambia, has taken up the task of licensing and grading hotels and other accommodation facilities in order to promote efficient service delivery and maintain a certain minimum standard in the tourism sector.

Under its 2018 National Budget, the government is also working on reducing bureaucracy and the cost of doing business in the tourism sector. To achieve this, the government, along with the Business Regulatory Review Agency, is expected to establish a Single Licensing System, which will act as a one-stop shop for obtaining a tourism license.

Quest to re-launch national airlines

Apart from investments and efforts to enhance efficiency and quality of ground infrastructure (such as accommodation facilities), the government has also announced the launch of national airlines, which were expected to commence operations in 2018 (later pushed to unspecified date in early 2019, hurdled by Zambia’s difficult fiscal position). The airline, a strategic partnership between the Zambian government and Ethiopian Airlines, was to have an estimated first year budget of about US$30 million.

Infrastructure investments

In similar lines to the Tourism and Hospitality Act 2015, Zambia’s 7th National Development Plan (NDP) (2017-2021) also outlines several key strategies and measures to boost tourism sector growth. Under the NDP, the MoTA (along with other sectors and ministries) aims at developing and upgrading several roads, bridges, and air-strips that interlink and ease access to the main wildlife reserves and other tourist destinations across the Northern and Southern Circuits. The NDP allocated US$870 million (K8.7 billion) towards road infrastructure development that is pertinent to growth in the tourism sector, such as the Link Zambia 8000, the C400, and the L400 projects.

In addition to this, the NDP allocated about US$94.7 million (K950.5 million) towards the construction of the Kenneth Kaunda and Copperbelt International airports. These airports, once established, are expected to position Zambia as a regional transport hub and in turn uplift tourism.

Furthermore, the government intends to develop requisite infrastructure with the aim to facilitate an increased length of stay, rehabilitate heritage sites, and strengthen wildlife protection.

Ensuring viability of wildlife tourism

The authorities have also realized the importance of rehabilitation and restocking of the country’s wildlife parks, where wildlife population has declined to levels that make it non-viable for safaris and photographic tourism. To achieve this, the government is looking into establishing strict anti-poaching rules and is exploring various public-private partnership models to aid conservation and develop national parks.

Development of non-traditional modes of tourism

To boost further awareness about Zambia’s tourism, the government aims to develop and promote ethno-tourism through events such as the Pamodzi Carnival, which showcase Zambia’s rich art and culture. Developing non-traditional modes of tourism, such as green tourism (covering eco- and agro-tourism), sports tourism, etc., is also on the agenda.

Boosting domestic private and business tourism

The government is also undertaking efforts to boost domestic tourism, by engaging and marketing to the Zambian middle class population. This will help open another revenue avenue for tourism, as local populations are likely to be easier to encourage and fuel the sector growth while Zambia’s international brand is still being developed.

Similarly, the government is also encouraging business tourism by turning several large cities, such as Livingstone and Lusaka, into premiere conference destinations. There is a huge untapped potential in the conference category that will help attract a host of domestic as well as bit of international business-based tourism to the region. In April 2017, the Zambia Institute of Chartered Accountancy (ZICA) bought 102 hectares of land in Livingstone to set up a 5,000-seat convention center, 10 presidential VIP villas, and an international-standard golf course at a cost of US$350 million. This will be the first international convention center of this scale in Zambia.

Zambia is also the host country of the African Union Heads of State and Government Summit 2022. The Ministry of Housing and Infrastructure Development is undertaking the construction of a 2,500-capacity international conference center in Lusaka, which will be the venue for the summit. The government has garnered support from the Chinese government to help construct the center.

 

Zambia Government’s Pro-Tourism Steps to Take the Sector to New Heights

The initiatives start to show modest results

In-bound international tourism on the rise

All these efforts have yielded visible results in the last couple of years and are expected to boost tourism in the future as well. This can be seen in the number of international tourists entering Zambia. While the number of international tourists visiting Zambia remained largely stagnant between 2011 and 2015 (registering a CAGR of only about 0.3%), the government’s initiatives brought an increased influx of tourists, estimated to have reached 1,057,000 by the end of 2018, in comparison with 931,782 in 2015 (registering a CAGR of about 4.3% during the period). International tourist figures are further expected to reach 1,585,000 by 2028, maintaining a CAGR of about 4.1%.

A nudge to the industry job creation

A similar trend is also visible in job creation in the tourism sector (both direct and indirect). In 2016, about 306,000 people worked in the tourism sector (including indirect jobs supported by the industry). Employment in the sector increased by about 2.5% in 2017 and was expected to further rise by 3.4% in 2018 to reach 324,500 jobs. The number of jobs created by the tourism sector is expected to increase to 448,000 by 2028, registering a CAGR of 3.3% during 2018-2028.

Early signs of increased contribution to the GDP

The total contribution of the travel and tourism sector (encompassing both direct and indirect contribution) to Zambia’s GDP was about US$1.79 billion in 2017, rising from US$1.4 billion in 2016. The sector’s contribution to the GDP is further estimated to rise to reach about US$1.87 in 2018 and is expected to reach US$2.9 billion by 2028 (accounting for 7.1% of total GDP).

Sprouting opportunities for investors

The government’s efforts and increasing tourist numbers also result in significant opportunity for investors to enter this sector. A large number of global hotel brands, such as Carlson Rezidor Hotel Group (Radisson), Marriott, Accor Hotels, South Africa’s Southern Sun, Protea Hotels and Sun International, as well as Taj Hotels, have already established presence in the country.

However, further scope for growth in the accommodation sector remains, especially in the 3-5 star category hotels that have 50-500 beds. As per African Hotel Report 2015, Zambia ranked as the 2nd best destination for Hotel Developers in Africa in 2015. During the same year, Zambia had a supply of 122 branded bedrooms per million population. This was well below the average in the Southern African region of about 350 branded bedrooms per million population.

Further scope exists in the development of conference facilities, tourist transport services, global cuisine restaurants, communication facilities, and other supporting infrastructure.

Investment opportunities are also present in the development of gaming venues, considering that gambling is legal in Zambia. This could help build a unique tourism offer that would combine city life and wildlife activities.

Investors are likely to find several reasons to consider investment in the country. Zambia offers easy access to a pool of English-speaking work force at competitive costs. The country has one of the lowest power tariff rates in Africa. Even after a 75% increase in power rates in 2017 (now ranging between US$0.05 and US$0.07), they are still much lower than rates in other countries in the region (where they range between US$0.06 and US$0.11 per kWh). Zambia is also well endowed with abundant water resources, which is essential to the tourism industry (as per World Bank, Zambia’s internal freshwater resource per capita was estimated at about 5,134m3, much higher than in its neighboring countries – Kenya (450m3), Zimbabwe (796m3), Botswana (1,107m3), Namibia (2,598m3), and Mozambique (3,686m3)).

Tourist safety and complex legislation hamper growth of the industry

While Zambia seems to have all the right ingredients to become a popular travel destination, there are several challenges that exist.

The key challenge is tourist safety. Zambia’s reputation has for long been affected by cases of tourists being targeted in financial scams or other types of crimes such as theft, murder, rape, etc. Continuous and consistent efforts to minimize such risks are essential to change the situation, which, apart from greater police involvement and law enforcement, should also include marketing campaigns voicing the benefits of tourism in the country to the local population.

Another challenge that the government must deal with is the level of bureaucracy and excessive number of laws governing various aspects of the tourism operations. Currently, some 10 pieces of legislation that affect tourism business are in force, most of which need to be simplified and harmonized, and in doing this, the government should use input from the local industry players.

The excessiveness in regulations is also paired with magnitude of charges and levies added on many activities, resulting in higher retail pricing. These include 16% VAT, 10% service charge on accommodation, food and beverage, and conferencing, 1.5% tourism levy, and 0.5% skills levy in addition to other levies, such as business levy, fire, health permit, food handling, etc. This leads to Zambian hotels being more expensive than hotels in neighboring countries. A prime example of this is found in Victoria Falls – Zambian tourism offer in Victoria Falls remains largely uncompetitive with regards to price in comparison to the offer on the Zimbabwe side of this major attraction.

EOS Perspective

With the ongoing government support along with growing interest in African wildlife holidays, Zambia has all the ingredients to emerge as a popular tourist destination in the future. China could be one of the key target markets for Zambia, as a large number of financially-capable Chinese tourists have shown keen interest in travelling deep into Africa. Zambia should also bet on business travel and conferences (both domestic and international) to form another lucrative revenue streams.

While efforts to boost tourism are being made in the right direction, with somewhat visible results, revamping such a long-neglected industry will take more than that. Ensuring the safety of the travelers is an objective that should remain on top of the government’s priorities list.

Further, it appears that some forms of tourism have been marginalized in the government’s focus areas, but should probably receive more attention in the long-term plans. Despite the fact that Zambia has about 35% of South African Development Community’s (SADC) water resources, little emphasis has been put on marine tourism development in the form of boat cruises (on lakes), fishing, etc. Similarly, considering the country’s rich wildlife and natural reserves, education tourism seems like an obvious segment to offer a great potential.

It appears that the required will and leadership from the government are in place to change the industry. However, Zambia’s current fiscal struggles (as it is coping with rapidly increasing debt and implementing austerity measures) might limit the resources needed to realize the plans and ambitions. This might lead to lost opportunities (much needed in this agriculture and copper mining reliant economy), as Zambia has the potential of becoming a popular travel destination, giving stiff competition to its neighboring popular travel destinations, Zimbabwe and Kenya.

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