This piece first appeared in Open Africa, a custom digital publication by Ornico that features interviews, insights and business lessons from some of Africa’s leading CEOs, innovators and decision makers.
Download your free digital copy of Open Africa here or go to http://bit.ly/open_africa and share your feedback on social media using the hashtag: #OpenAfricaMag
Unlike poverty-fighting measures such as welfare and artificial ways of redistributing the benefits of existing economic growth, inclusive growth is created by stimulating informal businesses and finding ways to create new businesses that will serve the community, in areas that were previously underserved by the formal economy. In this way, an inclusive economy enables citizens and businesses to create and retain value within their own communities.
Inclusive growth should be broad-based across sectors and create income-generation opportunities for the larger labour force or population. It creates new ways for lower- and middle-income segments to be economically active, and new ways to generate and spend their income.
Sustainable income generation
These new patterns of economic activity will ultimately become more sustainable, allowing us to address the major social, political and environmental challenges of the day.
Investors in inclusive growth projects aim to contribute to solving social and/or environmental problems while generating financial returns. This is done by investing in businesses that improve access to basic goods and services and income generating opportunities. Typically, these would include financial services, energy, housing, health, education, water and sanitation, transport and food. Improving access to these goods and services means making them more widely available at lower prices and better quality. These basic fundamentals are what distinguish those who are excluded from those who are included socially and economically.
The trend, as demonstrated by the IMF studies of historical data and the Gini Index, is for income inequality to rise. Examining the relationship between inequality and efficient production, IMF’s Andrew G. Berg and Jonathan D Ostry found that “equality appears to be an important ingredient in promoting and sustaining growth” — in contrast to the previous accepted wisdom of Yale’s Arthur Okun, that pursuing equality can reduce efficiency. [Okun, Equality and Efficiency: The Big Tradeoff (1975)]
New business models and technologies are creating opportunities to close the gap between the excluded and the included rapidly and at a scale that was hitherto unimaginable. These business models and innovations are often unnoticed in the communities that need them most; a niche of opportunity to converge these two parallel universes is available for those who can see and capture the immense opportunities.
Five global megatrends
With digital innovation powered by the rapid growth of mobile telephony in Africa, the continent has a leapfrog advantage. The power of technology and the mobile phone to create rapid inclusion and accessibility to the underserved is growing by the day.
The digital inclusive economy is prevalent and spreading rapidly in Africa. Prepaid-energy solutions and mobile-payment systems are examples of innovations that are scaling successfully in Africa to create inclusive economies. Enabled by the mobile revolution, technology-driven inclusive innovations are demonstrating their full potential across Africa, and from there to the rest of the world.
In fact, in certain aspects, Africa is leading the planetary wave. There are five global megatrends in technology that are shaping the patterns of inclusive growth in Africa. These megatrends are: blockchain, big data, on-demand services, cloud computing and ‘internet of things’ (IoT).
Examples span from across the continent:
- Bitsoko in Ghana is disrupting traditional public services by building a land registry with a digital interface that will grow the real-estate market, and this is being powered by blockchain technology. The world of technology is becoming more interconnected, with an ever-faster integration of information and communication through IoT technology, through connected devices.
- Nomanini was started in South Africa and is moving into several African countries — exhibiting the exact power of IoT technology. This company provides thousands of mobile, SIM-card-enabled point-of-sale devices that connect to a payment platform in the cloud, and enable informal merchants to sell airtime and other digital services, as well as handle micro-payments. Through this platform, merchants and agents can improve their income generation capacity and provide their customers with better access to digital services.
- On-demand services are typically associated with mobile food-delivery services and Uber-type transport apps, which are popular in developed economies and growing fast among higher-income segments in Africa. Inclusive innovations in on-demand services are less commonly known, but they are growing just as fast if not faster in Africa. An example is the pre-paid energy sector, as pioneered by Kenyan M-KOPA Solar, among others. The pre-paid energy sector already reaches millions of underserved families with off-grid energy solutions, made affordable and accessible through a pay-as-you-go business model. A highly scalable business model is attracting significant amounts of funding from African and international investors.
- Cloud computing, software-as-a-service (SaaS) solutions and big data are also typically associated with developed economies and large corporates in Africa. However, inclusive innovations in these sectors are also spreading fast in Africa. Musoni Services is an African-grown SaaS company serving microfinance organisations operating in remote areas with a full-service core banking system in the cloud. Musoni’s next-generation software platform requires minimal expenditure, enabling already more than 40 small community banks and microfinance organisations in Africa to grow faster at lower cost and to provide their low-income customers with better and more affordable financial services.
- Another example of big data technology is WhereIsMyTransport, which couples user-generated data with data gathered from public transport operators to make formal and informal public transport systems more efficient and accessible. It is already making the daily travel easier for public transport users in SA’s big city metros, and is starting to move into the rest of Africa.
Optimism about Africa
Our optimism about the inclusive growth opportunities in Africa is based upon the interaction between three developments that are mutually reinforcing. First, the rapid growth of digital infrastructure that enables innovative digital businesses to leapfrog and overcome physical infrastructure challenges. Secondly, the convergence of technology megatrends is fuelling an exponential growth of inclusive digital innovations. Thirdly, Africa’s young and fast-growing population is digital-savvy, creative and ‘street smart’, ready to grasp the new opportunities to learn, communicate, transact and become economically active in ways that are not available through traditional channels.
These three developments are fuelling an inclusive growth story that is still going unnoticed in most of the corporate board rooms, upon investor trading floors and in public sector conference halls. However, anyone who is involved in planning, managing, investing, analysing, formulating policies or engaging in any other way with Africa’s growth story ignores the inclusivity of that growth at their peril. Indeed, anyone who is economically active in Africa, and wants to remain so, will benefit from turning their attention to how the majority of Africans are becoming part of the growth story at an exponentially growing pace and in exciting new ways.