THE CONTINENT OF THE FUTURE

Looking at the resource industry, an investment in a commodity is usually an investment in an asset with a continuously dwindling rate of return.

An investment in innovation has the potential to yield a sustainable scalable rate of return. Investing in innovation is an absolute and fundamental shift in the Africa’s traditional business model.

Besides structural change, another major issue for African economies is non-inclusive growth. Resource-driven African states continue to fail to equally redistribute returns from resources across their societies even in times of high commodity prices. Given the poor historical trend of resource returns supporting structural change, innovation provides a far greater opportunity to drive more inclusive growth than the traditional resource-based business models. In this regard, a memorable quote from the Economist magazine states that, “Africa’s future is dependent on minds and not on mines”. This statement means that capital is

arguably more scalable through innovation than commodities. However, the question whether innovation is really suited to the

developmental environment and economic structure of African economies, remains. A major contribution to structural imbalances on the continent is not just over dependence on commodities but also the major imbalances between the formal and informal economy. For example, the informal economy in Nigeria is estimated to be as large as 75% of the formal economy. This is almost as big as South Africa’s GDP. If large informal sectors across the continent could be formalised through innovations such as electronic payments, the derived positive economic externalities from this could to some extent insulate the negative impact of volatile commodity prices on African countries. While the continent may not have large innovation hubs like Silicon Valley.

Innovation is critical for economic development, and African public institutions need to play a greater role. Compared to Singapore and Korea and other emerging economies heavily investing in R&D at state level, African states are still not doing enough. R&D investment at state level remains insufficient and besides direct investment into R&D most African states still have a long way to go in developing the core infrastructure needed to stimulate innovation at a globally competitive level. In the context of innovation driving inclusion, the private sector is playing a major role. For instance in the financial sector, innovation in the Information Technology (IT) sector in recent years has enabled a large proportion of previously financially excluded people

across the continent to join the formal  financial sector Although agreeing with the importance of

innovation for greater financial inclusion, companies such as those with a traditional  insurance distribution model have limited

their client base to employed and higher-income consumers. Consequently, to scale up distribution of their services and capture a wider client base, some companies are looking to partner with Telco’s and Fintech companies, that can develop innovative, and also pragmatic digital insurance service solutions in the African markets context.

Trends and business models are driven at a more fundamental level by enablers (technology, internet, big data, regulation). For example, it is quite obvious that the development of mobile money, which in turn enables disruptors such as mobile network operators to enter the financial services sector, is fundamentally made possible by the wide adoption of mobile phones and the internet. However, one should note that the relationship between the enablers, trends and business models is multidirectional. For example, while internet penetration in Africa is still low, it is to some extent the rapid development of mobile internet-based business models that brings tremendous value to customers, that creates demand for smartphones and internet access.

Analyzing the penetration rates of various services in Africa and other parts of the world, such as mobile phone, internet, banking, etc., is key to understanding the changes in the financial sector.

However, various sources use widely diverging definitions of penetration ratios, making it impossible to compare data. For example, banking penetration in one source would be calculated by adjusting for multiple accounts for one individual, while mobile phone penetration would adjust for multiple accounts. Or the ratio would be calculated over the adult population in one case, but over the total population in another one.