Africa’s economic growth rides on wireless rails

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

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

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

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

Kenya-based Safaricom isn’t the biggest of the world’s telecommunications giants – its annual sales are about 3 per cent of the average of the world’s 60 largest carriers. But its products and services are changing Africa, boosting its bottom line and attracting global investors. Analysts say that Safaricom’s revenue will rise 10 per cent next year, more than triple the average of those 60 telecommunications giants.

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

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

The study, by Tavneet Suri, an associate professor at Massachusetts Institute of Technology’s Sloan School of Management, and William Jack, an economist at Georgetown University, shows mobile-money services relieve extreme poverty by enabling men and women to produce and sell goods and services in self-designed markets beyond the boundaries of their subsistence farms.

Sub-Saharan Africa had 420 million unique mobile subscribers by the end of 2016, equivalent to a 43-per-cent penetration rate in the world’s fastest-growing region, according to the London-based GSMA trade association of 800 mobile operators. Less than a fifth of individuals younger than 16 (who account for more than 40 per cent of the population across the continent) have a mobile subscription, GSMA says. That’s why investors anticipate escalating earnings.

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

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At a point when mobile-hone penetration is 65 per-cent for the world, sub-Saharan Africa’s 43-per-cent rate is why telecom investors are making the region their favourite.

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