A new report by McKinsey & Company shows that use of the Internet in Africa could add US$300bn to the continent’s cumulative gross domestic product (GDP) by 2025.
The report, “Lions go digital: The Internet’s transformative potential in Africa”, studies the progress of the Internet in 14 economies that make up 90% of Africa’s GDP: South Africa, Mozambique, Tanzania, Angola, Kenya, Ethiopia, Egypt, Algeria, Morocco, Senegal, Cote d’Ivoire, Ghana, Nigeria and Cameroon.
Johannesburg-based McKinsey director, and co-author of the report, Saf Yeboah-Amankwah says the Internet is a catalyst for economic growth in China, India and Brazil, and has contributed more than 10% of total GDP growth in those markets in the past five years. “Its impact in Africa to date has been much smaller, but is likely to accelerate in the coming decade — and could have a transformative effect the continent’s development.”
According to the report, out of Africa’s 1bn population, only 16% are online — 167m use the Internet and 52m are on Facebook — but that figure is rising rapidly thanks to the expansion of mobile networks and as the cost of Internet-capable devices continues to drop.
The Internet’s contribution to Africa’s GDP is currently at a low 1,1%, a figure that is half the amount of other emerging markets, and well below the average of 3,7% in developed economies.
The report says that the Internet is likely to take hold on a much larger scale in the coming decade, and previous research has found that its impact is magnified in emerging markets.
“Mobile telephony has already had an outsized effect in Africa as it connected people who previously had little or no access to telecommunications due to the scarcity of fixed-line infrastructure.”
If the Internet matches or exceeds that level of impact, the result could be a leap forward in Africa’s economic growth and development, and assuming a similar multiplier effect, the Internet could contribute about $300bn to Africa’s GDP by 2025, the report says.
A concept developed by McKinsey, called “iGDP”, measures the Internet’s contribution to the overall economy as a share of the total GDP. It takes into account the use of the Internet across four major categories: private consumption, public expenditure, private investment and trade balance.
Of the 14 countries assessed, Senegal and Kenya’s iGDP stood at 3,3% and 2,9% respectively, which is comparable to France and Germany. In contrast, the continent’s largest economies, South Africa and Nigeria, have iGDPs of 1,4% and 0,8% respectively.
“This suggests that there are major untapped opportunities to harness the power of the Internet to drive growth and development.”
McKinsey estimates that Africa’s iGDP is currently $18bn, and attributes two-thirds of this total to private consumption of Internet-related services and equipment, including smartphones. It estimates that public expenditure including the digitisation of education and health services contributes $2bn, while private investment in infrastructure and digitisation accounts for $1,5bn, with the remainder being a positive trade balance created by business process outsourcing.
According to the report, the largest economic and social impact of the Internet is likely to be determined by the financial services, education, health, retail, agriculture and government sectors, as these sectors face service delivery challenges and “information asymmetries”, which could be bridged through the use of Internet technologies. McKinsey estimates that technology-related productivity gains in these sectors could reach $148bn to $318bn by 2025. — (c) 2013 NewsCentral Media