The scramble for Africa (again)

Last year, I sat through a historical lecture on the European Union’s (EU) formation in 1958 at the EU Parliament. During this lecture, I heard the facilitator say something that sounded like the formation of the EU was the first significant instance of European Cooperation. This statement did not stand out initially, but I later realised I disagreed. 

In 1884, about 74 years before the EU’s formation, European powers competed fiercely on what was previously known as “the dark continent" and gathered at a roundtable to mark their territory collaboratively. This action ensured their activities did not infringe on each other's interests and marked the high water of the ‘Scramble for Africa.’
 

And even though colonialism is now a distant memory, this scramble continues, taking on different shapes and dimensions. As Europe searched for physical resources nearly a century ago, we see a new struggle for Africa’s digital economy, albeit with new players and strategies involved.

During the just-concluded US-Africa Leaders Forum last December, President Biden launched the Digital Transformation with Africa (DTA) to invest over $350 million and facilitate over $450 million in financing to support Africa’s digital transformation. Before that, we had already seen President Xi of China announce ten digital economy projects alongside the ongoing activities of Chinese firms like Huawei in Africa. In addition, the EU’s Global Gateway Investment Package for Digital Transition is focused on mobilising billions of Euros to build digital infrastructure, such as the EurAfrica subsea cable and fibre optic backbone infrastructure across Africa.

As you quickly learn in undergraduate economics, there is no such thing as a free lunch. So in the remainder of this article, I will show you how this race to provide funding is actually a scramble for Africa’s digital economy.
 

Africa needs help

Sceptics might be inclined to dismiss the need to discuss this, afterall Africa’s situation requires that we take all the help we can get.

Africa ranks lowest amongst other regions in terms of internet penetration. As the chart below shows, 60% of the population is not yet connected to the internet. This means that more than half of the African population cannot access digital services like online education platforms, digital financial services, and cheaper instant communication that can expand their economic opportunities and improve their quality of life.

The implication is that a large market still exists to bring into the digital economy. And if we cannot mobilise the capital and technology to do this domestically, we need foreign support.

This support is even more vital for digital infrastructure, a necessary condition to create a functioning digital economy. Unlike the traditional economy, where you can carry out some economic activity without infrastructure like roads, bridges and dams, it is impossible to partake in the digital economy without digital infrastructure like cell towers, broadband cables, and data centres. So this ‘help’ from foreign countries to build digital infrastructure and create digital services is essential.

But we will see that this support is not entirely altruistic and has some other drivers.
 

Why should we care?

Typically, an analysis like this will start with what is happening and why you should care. But let us flip it and start with why we should care about this issue.

As we have emphasised time and again at Stears, whoever builds a thing determines its shape, and this is especially true for infrastructure. Additionally, since digital infrastructure determines access, the builder can determine how we use it and what we can do. The memory of Internet Service Providers and Telcos restricting access to Twitter for 222 days is still fresh in the minds of most Nigerians.

Another reason we should care about this is the national security implications of having critical infrastructure under the potential influence of foreign governments and companies. Africans increasingly use the internet, as internet penetration jumped by 21% between 2021 and 2022 per data from ITU, implying that more of our lives will move online or be supported by technology tools and platforms.

The United States has accused Chinese IT equipment manufacturers such as Huawei and Hikvision of serving as surveillance channels for the Chinese government. Even the much beloved TikTok has faced its share of controversies for the same reason. Last year, in December, the US federal government banned TikTok from all government-owned devices; about 25 states have followed suit.

The Chinese government, alongside technology companies and investors from China, have understandably gotten their fair share of flak from other countries for their activities in the global digital space. But make no mistake; there are no good guys. As the Realist School of International Relations tells us, each state party comes with their agenda, whether it is the extraction of economic value, access to data or spread of influence, norms and standards related to Africa’s digital economy.

So what is the first reason for the global scramble for Africa’s digital economy?
 

Chasing gains

Historically, pursuing economic opportunity has been a key driver.

In the 1990s, foreign firms vied for contracts as most African countries liberalised telecommunication services and upgraded infrastructure. This period also saw Chinese firms entering Africa, competing with European firms to win some strategic projects. Between 2010 and 2019, telecom infrastructure projects across African countries involving Chinese firms were worth about $2.8 billion.

As this report from the Africa-China Reporting Project shows, by 2012, Chinese firm Huawei had toppled Ericsson to become the largest telecommunication equipment supplier in North Africa, dominated 90% of the market share in Nigeria, and was the second largest in South Africa after Ericsson.

With fixed telephone lines just trending at around 1% in 1999 and mobile telecommunications opening up, foreign companies looking for economic gains fought to capture market share in the nascent mobile telecommunications market and cater to millions of unserved Africans.

Even US big tech companies have entered the ring to provide infrastructure for Africa’s digital economy. In 2022, Meta and Alphabet (Google’s parent company) doubled down on their subsea cables—2Africa and Equiano, even after they shut down their efforts at providing free internet through Express Wifi and Project Loon, respectively. These companies believe that if they can expand internet access to more people, they can capture them with their services and increase their user base. They can then sell digital ads to companies that want to reach their users.

The digital economy can be broken down into three layers where economic activity takes place, i.e. infrastructure (or network) layer, application (or services) layer and content layer. Each preceding layer is a prerequisite for the subsequent. We cannot access digital applications without digital and telecommunication infrastructure, and we cannot access content without applications and websites. Companies and individuals who build infrastructure and develop digital applications tend to accrue more economic value than content creators. For example, digital platforms like TikTok and YouTube keep 50% of the revenue generated by millions of creator profiles or channels on their platforms.

So providing the infrastructure and digital services for roughly 740 million people in Africa who have yet to access the internet means more money for whoever cracks this code.
 

Gathering data

Even more than the money is access to user data. The digital economy is unique because everything we do leaves a footprint or data. Access to this data gives platforms a better picture of their users and enables them to create products that keep these users hooked, ensuring they can keep monetising their services.

One way we can illustrate the value of data is with the entertainment sector. Thirty-odd years ago, studios like 20th Century Fox would shoot a movie and wait for box office sales to understand the extent of customer acceptance—they did not have a good sense of their consumers.

Currently, subscription video-on-demand platforms like Netflix and Nigeria’s IrokoTV can build a better picture of their users based on what they watch, time spent on the platform, what other people in the same geography are watching, and their search history. Through this, they can keep the user engaged for longer and extract more economic value. This analysis of IrokoTV supports this. The CEO was quoted as saying that access to data on their platforms helps them identify the most popular performers to cast in movies.

In the digital economy, data is power.

The power of user data is also seen in the debacle between Meta and Apple. In 2021, Apple turned off Meta’s data tap by allowing iPhone users to switch off the ‘tracking’ functionality. During its 2021 Q4 earnings call, Meta told its stakeholders that Apple's changes to iOS privacy settings could cost it $10 billion in revenue.

Even amongst countries, user data is a contentious issue. The European Union has been battling with US' big tech. One of the core issues is the breach of the EU’s General Data Protection Regulations (GDPR), which gives users more control over their data. On the 4th of January 2023, Meta was fined the Euro equivalent of $413 million for violations of GDPR on its Facebook and Instagram platforms. As the chart shows below, this is not the most significant fine slapped on a tech firm. We already noted at the beginning how the US is also battling China on this issue.

Early entry into a market with a product that solves customer needs can create a moat that gives technology companies or startups a competitive advantage and continuous access to user data. A case in point is Whatsapp, which has maintained its lead as the most-used messaging since its creation in 2009. Telegram, created in 2013, has tried to attract users away but has been largely unsuccessful—its Monthly Active Users (MAU) is still approximately 28% of WhatsApp’s MAU. Users typically find it hard to migrate across digital services, possibly because of the network effects on legacy platforms, i.e. they can stay connected to more people on older platforms.
 

Moving forward

As the African digital economy is still in its early days relative to other continents, it would be naive to suggest that we reject foreign capital to build infrastructure and fund startups. However, we must remain aware of the current global scramble's potential implications on everyday Africans' lives, and we should also consider ways to mitigate any adverse effects.

One way to do this is through digital laws, an area where Africa lags behind other continents. As data from UNCTAD shows, out of the 14 member states without any cyber laws covering: e-transactions, consumer protection, data protection/privacy and cybercrime, eight (8) are in Africa. This database only tracks availability and not adequacy, so it does not tell us the robustness of existing digital laws.

In addition to creating laws, general awareness of global digital geopolitics is essential as it will ensure that we can be involved in creating our digital futures instead of being passive consumers and spectators.