Worldwide: Africa's Burgeoning TMT Sector - Technological Change And Economic Growth

Last Updated: November 4 2015
Article by Raj Kulasingam and Darren Acres

Google, Facebook, Twitter, WhatsApp, Zynga, Airbnb, Uber etc etc. These are all companies that have come from nowhere and are now market leaders in an increasingly mobile and digital world. They have built their brands and revenues on populations that are increasingly sucked in (some would say addicted...) to this new world of digital apps. However, Africa is still playing catch up. If you exclude the telcos, no household African IT or social media company has emerged. Nevertheless the TMT sector in Africa is growing and thriving.

The National Intelligence Council identifies technological advancements as having a game-changing role within the global economy. This is especially visible in Africa where development and economic growth powered by technological change can be seen across the continent Africa (...just ask any farmer or trader in Kenya who uses M-Pesa to trade). The combination of rapid technology uptake, growing populations and an expanding middle class is creating exciting new opportunities for both local and international players.

Already by mid-2013, the Economist labelled the information technology sector in Sub-Saharan Africa as "the next frontier" whereas Bloomberg called Africa "the tech industry's next China". Particularly relevant in a TMT context, leapfrogging (i.e. applying innovation to fast-track the development of a system and avoid development costs incurred and mistakes made by others) in the African TMT sector looks set to move Africa towards those labels given by the Economist and Bloomberg.

However, despite such optimism, the sector outside of telecoms is still regarded as being at a nascent stage and faces many challenges. Many technology-based businesses in sub-Saharan Africa are still highly dependent on technology transfer from non-African partners.

Moreover, to develop competitive high-tech industries of their own, African states will have to upgrade their education systems and create the environment to combat the significant brain-drain out of Africa. None the less technological growth and investment in the broad TMT sector presents an array of opportunities for those looking to deploy capital into sectors and geographies with high-growth potential as well as for those African countries looking to exploit growing international investment interest and convert this into broader economic growth.

Telecoms has over the past few years been, and continues to be, the primary driver of TMT growth in Africa, particularly in the mobile space.  The use of data services is growing strongly in Africa, along with data revenues, fuelled by factors such as the continent's improved international connectivity, the rollout of mobile broadband networks and the increasing availability of low-cost smartphones. Generally a lack of infrastructure to support accelerated growth has been cited for the slow growth in other niches of the TMT world. However there is evidence of this changing in numerous tech hubs in cities such as Nairobi, Lagos and Accra. 

A new e-commerce sector is burgeoning in West Africa where online retail is now competing with the traditionally strong mobile payments sector for investment and talent. An example is Nigerian online retailer, Jumia which offers a selection of electronics, fashion, home appliances and children's items, and allows for a variety of payment options including cash on delivery—particularly important in the region given the traditionally low take-up of online banking. Other notable West African online commerce sites include Ghana's Kasoa.com, Nigerian classified ad site OLX and Konga, a Nigerian competitor to Jumia.

In the media space, growth has been slower than that seen in telecoms however a noticeable trend in this area has been a shift in consumer interest from international media content toward a focus on local and national programming. A process of digital migration in broadcasting which was targeted in a number of African jurisdictions for June 2015 has been slow and costly and it seems that a number of states will not meet this timeline. This has dampened international interest in the sector over the last few years however there are now signs of a growing interest (particularly in the hubs of Nigeria and Kenya) with South African and other international media players looking to take advantage of fast growing audiences and advertising revenue.

Deal wise, the vast majority have been in the form of acquisitions or direct investments. Exits are at this stage relatively few and far between given the sector's stage of development. IPO's are rare because of the lack of depth of capital markets and (relatively small) size of deals. It remains to be seen how successful exits from existing investments are and investors are sure to be keeping a keen eye on the market in this regard.

Transactions in the TMT space in Africa (particularly in media and tech) have a unique set of challenges which investors are coming up against. One of the key issues in a broadcast media context are state controls over privately owned media. This affects all aspects of an investment, including deal structuring, execution, post deal day to day operations and exits. Most African countries see broadcast media as a particularly sensitive sector given its ability to reach and influence large sections of the population. As such, broadcasters are often subject to strict local ownership restrictions, cross-media restrictions, local content obligations and editorial control/scrutiny.

The requirement for approval of the relevant media regulator is almost a certainty in most jurisdictions which can be a frustrating process if not managed correctly from the outset. In addition there are a plethora of other regulatory bodies which are relevant to the investment process, including competition authorities such as COMESA and state banks amongst others. The often uncertain regulatory approval process can lead to a lack of certainty for exit and therefore a trepidation to invest in the first place.

Another often overlooked transactional issue arising on deals in the sector is the enforcement of restraints of trade and intellectual property rights locally. Given the reliance of businesses in the media and tech space on key individuals (and in the African context key local individuals) and IP, a restraint of trade and enforceable IP rights are often vital to the protection of the value of the business. However these need to be enforced in local courts to be of any value which can be a costly, lengthy and sometimes unsuccessful process. Also share capital structures tend not to be as flexible as they are internationally and are generally more cumbersome. This combined with local ownership restrictions can lead to difficulties in deal structuring and exits and requires the development of innovative and effective mechanisms of incentivising and retaining key individuals.

Our experience of the key issues you have to focus on in TMT transactions in Africa are .....:

  • Ensuring quality of due diligence - nothing makes up for advance knowledge of issues and a thorough due diligence can add immense value to an investment. It also means that issues can be dealt with upfront rather than relying on contractual protections such as warranties / indemnities which may have enforcement and recovery issues down the line. 
  • Ensuring you have the right local partners and people on the ground with local knowledge - having bodies, ears and eyes on the ground is crucial to navigate the complex regulatory and commercial environment.
  • Structuring for tax and bilateral investment treaty protection - understanding structural issues early on and putting in place appropriate tax structure and investment protections can be the difference between a successful exit and a failed investment.  
  • Having the right local and international advisers - hiring advisers who both understand the local environment as well as having the international experience to be able to see ahead to, and provide for, a smooth exit.
  • Putting the appropriate level of corporate governance in place.

Successful tech products and media content in other jurisdictions will not automatically translate to Africa due to material differences in infrastructure, social and economic landscapes. As such some international players have struggled to import content and products developed in more global markets. However our view is that there is tremendous upside potential for investors looking at the African TMT sector. Technological leapfrogging, an expanding middle class and an entrepreneurial spirit are all combining to create a surge in the sector, importantly in areas outside of traditional telecoms. Our view is that the key growth area for TMT in Africa (outside of telecoms) will be local content / product producers developing products to cater for local demand and needs with international financial and experience to support the development. Its an exciting time!

Previously published by Private Equity Africa

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
18 Sep 2018, Other, Dubai, United Arab Emirates

In December 2017, FIDIC published new editions of the Red Book (Construction), the Yellow Book (Design and Build) and the Silver Book (Turn-key), the first re-write since 1999.

26 Sep 2018, Conference, New York, United States

Dentons is delighted to support a global IT services and consulting firm Miratech as an event host partner at their annual conference called M-Force18 New York on September 27th. The event will be held at Dentons New York office in the heart of Midtown Manhattan, opposite Rockefeller Center.

2 Oct 2018, Seminar, Dallas, United States

We are pleased to offer a program of five sessions designed specifically for in-house counsel. Topics will include:

  • In-house corporate ethical issues
  • What recent Supreme Court decisions mean for business
  • Keeping lawyers out of your benefit plans
  • Litigation tactics for in-house counsel
  • Employment issues in the age of #MeToo
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions