By Bruno Di Leo, General Manager, IBM Growth Markets
FORTUNE — The urbanization of Africa offers great hope for hundreds of millions of people — if the infrastructure can keep up. And technology holds huge promise to make building that infrastructure faster and more efficient.
The 955 million people in Africa — the world’s second most populous continent after Asia — are urbanizing more rapidly than residents of any other region. While more than half Africa’s population lives below the poverty line, an estimated 35% have entered the middle class according to University of Texas Professor Vijay Mahajan, author of the book, Africa Rising.
Today there are 37 cities on the African continent with more than one million people. An estimated 41% of the people in Africa live in cities and, by 2020 more than half will, according to estimates done for the United Nations. Those people are moving to the continent’s cities because they expect more security and better opportunities than they have in rural villages and farms. But often they find that cities aren’t prepared to provide basic needs like clean water and fuel for cooking.
Establishing an infrastructure that will allow newly arrived settlers to thrive and become more productive is a key responsibility for the leaders of those cities and nations.
While infrastructure in most African cities is adversely inadequate, public and private sector leaders have an opportunity to build basic water systems, electricity grids and traffic control systems that will be much more efficient and less energy intensive than the aged infrastructure in developed parts of the world. Technology such as electronic sensors and controls would permit variable pricing for power and finely-tuned measures of water consumption. Smart transit systems could manage traffic far more efficiently than the massive road and parking-lot systems required by vehicles in the U.S., for example.
And Africa is already moving rapidly in one key infrastructure area: communications.
Groupe Speciale Mobile Association (GSMA) — which represents the interests of the global communication industry — says wireless companies will invest $50 billion in sub-Saharan Africa over the next five years. A GSMA and Deloitte study estimates that an increase of 10% in mobile penetration — the number of people who have mobile coverage and are directly connected to the mobile system — can increase the annual GDP growth rate up to 1.2% in a developing country.
The wireless communications revolution is coming at a turning point in Africa’s transition to urban life and a modern economic system. By bypassing the need to build extensive physical infrastructure, wireless telecommunications promise the fastest payback and quickest route to improved productivity of any technology. Cellular networks and eventually wireless broadband promise communications, information, education and finance connectivity that bypass costly physical connections.
Indeed mobile services, led by Kenya’s M-Pesa and South Africa’s eWallet, have helped overcome their region’s shortage of banking facilities. Vodaphone reported that in 2008, after just 18 months of offering M-pesa, four million people were using cell-phone based banking services, nearly equal to the number of people in the country with bank accounts.
World businesses are starting to flock to Africa to fulfill the telecommunications opportunity. A consortium of Nigerian financial institutions and South African investors recently completed a $250 million underseas fiber cable along Africa’s West coast. That is resulting in slashed prices by Internet service providers who now have competing sources of bandwidth, according to the UN’s ITU. The ITU expects far more bandwidth to become available in the next two years.
Another company that is showing its belief in the prospects for wireless in Africa is India’s Bharti Airtel. Earlier this year Bharti spent $9 billion to buy most of Kuwait’s Mobile Telecommunications Co.’s African assets. Bharti has grown explosively to handle more subscribers than any other company in India. Its success reflects a deep understanding of the opportunities presented by very poor customers whose economic fortunes are boosted by cellular connections. Bharti finds Africa attractive because the cellular penetration rate there is still only about 40%.
While broadband access is the long term goal everywhere, it’s important not to underestimate the business potential of cellular connections. Fishermen in Ghana use cell phones to find wholesalers who will give them the best prices for fish they have caught rather than returning to the same dock every day. Esoko Ghana, a market information system, has created a commodity index with prices for many different crops that it sends by daily text message to farmers to help them price their produce.
The experience of India shows that in places where voice calls are expensive and Internet connections rare, entrepreneurs gravitate to text-based messaging. United Villages Networks Ltd., a company founded by recent MIT graduates started out to provide Internet service in villages, but it recast its business model to accept text-message orders from village stores. Now it has established grocery depots in dozens of small cities in India that ship supplies daily to storekeepers who used to have to travel in order to stock their shelves.
The technological revolution that is sweeping Africa demonstrates the entrepreneurial spirit that can spur the continent’s economy. Leaders can leverage that spirit by committing to build a smart, public infrastructure that will promote further economic development and, ultimately, wealth creation for the people of this new and vibrant gateway to the future: Africa.
Bruno Di Leo is General Manager of IBM Growth Markets, a global organization based in Shanghai. He is responsible for driving IBM’s business success in high-growth economies across Asia Pacific, India, Latin America, Central and Eastern Europe, the Middle East and Africa.
