As the world in early 2022 seeks to balance multiple, vital and competing priorities, our eighth edition of Africa Focus focuses on issues related to sustainable development, infrastructure and international investment on the continent.
Africa has endless opportunities to implement policies and attract foreign direct investment into low-carbon energy, digital infrastructure and other projects that could also create jobs and stimulate the local use of renewable technologies.
The first article of this edition of Africa Focus covers "Transitioning from coal to renewables in Africa." Looking at options for development across the continent, it considers the role of gas in Africa's energy transition.
In "Energy transition, funding African infrastructure and sustainable finance," Sibusiso Zungu, a partner in our Johannesburg office, discusses South Africa's energy transition, current trends in African finance and challenges to achieving South Africa's sustainable development goals. His views are relevant as Southern Africa debates how to balance short-term economic growth with long-term climate change needs while developing major infrastructure projects.
“Our eighth edition of Africa Focus focuses on issues related to sustainable development, infrastructure and international investment on the continent.”
Increased internet access and related infrastructure in Africa could also have a profound impact across the continent on individual and national growth. Africa's demand for internet access, data center processing capabilities and related infrastructure means that the digital infrastructure is growing at a rapid rate, creating many opportunities for the continent. "Africa's digital infrastructure transformation" discusses the challenges, drivers and investment trends in aiming for universal, affordable digital infrastructure in Africa.
The People's Republic of China’s relationship with Africa is well established, deep and thriving on many fronts. "China's pivotal role in supporting post-COVID growth in Africa" highlights how the historical context affects the current China-Africa relationship in Africa, as well as China's long-term plans for engagement with African nations
Now, more than ever, Africa is looking to digital solutions to increase productivity and drive development.
According to a report by the IFC and Google, Africa’s internet economy is one of the largest overlooked investment opportunities available, with a potential to add US$180 billion to Africa’s GDP by 2025.
Although increased internet access and related infrastructure could have a profound impact across the continent, Africa remains far behind much of the rest of the world in terms of fiber network and broadband connectivity, spectrum and data center processing capabilities. Yet digital infrastructure is growing at a rapid rate in sub-Saharan Africa, spurred by strong investment incentives.
The potential for digital growth opportunities in Africa is vast, but it will depend critically on ensuring that digital access is affordable and widespread. This, in turn, will require significant capital from equity investors and financiers.
Digital infrastructure drivers and challenges
The COVID-19 pandemic sharply accelerated African digital innovation and demand for more digital infrastructure across the continent.1
Many of the industry-relevant regulatory policy changes made by sub-Saharan governments during the pandemic emphasized digital accessibility.2 The African Union (AU) launched an online COVID-19 pass tool to simplify verification of public health documentation for travelers.3 Togo's Novisi, a digital cash transfer program launched in 2020 to support informal workers during the pandemic, signed up more than one million users during its first week.4 MTN Nigeria showed a 60 percent growth in data revenue at the height of the pandemic, far surpassing the growth in developed markets during that time.5
The AU's Digital Transformation Strategy 2020 – 2030 aspires to universal digital access and a single pan-African digital market by 2030.6 Achieving this would create a profound impact. For instance, the World Bank estimates that in Africa a 10 percent increase in mobile internet penetration could translate to a 2.5 percent increase in gross domestic product (GDP).7
Yet the digital divide across Africa remains stark. Fewer than one-third of Africans have access to broadband connectivity. Of the 25 least-connected countries in the world, 21 are located in Africa.8 Three hundred million Africans live more than 50 kilometers from a fiber or cable broadband connection. At just 36 percent, Africa's internet penetration compares poorly with the 62.5 percent global average.9
600+ million
mobile connections by Africans, with 65 percent via smart phones, are expected by 2025.
Source: infrastructureinvestor.com
Still, approximately 473 million Africans are online, and an additional 300 million will likely join them by 2025.10 Achieving and surpassing this level of penetration is crucial to Africa's future growth.
One of the main obstacles to bridging this divide remains inadequate investment.11 According to the World Bank, achieving universal, good-quality internet access across Africa will require investments of US$100 billion, 80 percent of which is needed for core infrastructure to establish and maintain broadband networks.12 This includes 250,000 new 4G base stations, at least 250,000 kilometers of fiber and migration to 5G, which, in turn, could dramatically increase the need for data centers.13
Investment trends in African digital infrastructure
Sub-Saharan Africa's internet access is growing at one of the fastest paces in the world due to strong investment incentives.14 Africa's youthful population and rapid urbanization are both strong drivers of demand for digitalization.15
Some of the most significant investment trends have been the following:
Mobile networks
US$3 billion
growth in Africa’s data center market, expected by 2025.
Source: africabusiness communities.com
Network coverage is rapidly expanding, mainly driven by upgrading 2G networks to 3G or 4G and network sharing.16 In 2020, 4G accounted for just 12 percent of the continent's mobile phone connections and is expected to grow to 28 percent by 2025—though it remains below the current global average of 57 percent. However, only seven commercial 5G networks had been established in five African markets as of 2021.17
Average download speeds in Africa doubled between 2015 and 2019, while data costs halved.18 Africa's mobile penetration may reach 50 percent (more than 600 million connections, 65 percent via smart phones) by 2025.19 Average African mobile traffic could more than quadruple to just over 7 gigabytes per month per subscriber, and 5G connections could approach 30 million African users by 2025.20
Mobile devices will likely remain the primary method of internet access for people in Africa. Better 4G and 5G networks serving these devices would provide greater bandwidth, lower latency, improve spectrum efficiency and bring innovative "Internet of Things" products and services to Africa.21
Fiber-optic cables
The global fiber-optic submarine telecommunication cable systems market, valued at US$23.4 billion in 2020, is forecast to grow by 7.1 percent per year and reach US$37.8 billion by 2027.22 Only three African countries—the Central African Republic, Eritrea and South Sudan—lack a fiber-optic connection to the submarine cables circling the continent.23
By some estimates, African countries have rolled out more than 1.389 million kilometers of terrestrial fiber links, approximately 936,000 kilometers of which were already operational in 2018.24 The 2Africa cable system—the largest subsea project, which will ring the entire African continent with a 23,000-mile-long, high-speed subsea cable—is expected to include 21 landings in 16 African nations and double the continent's total internet capacity, once completed in 2024.25 The Equiano subsea cable project will extend along the continent's Atlantic coastline with landing points in Nigeria, Namibia and South Africa. The first phase of the project connecting South Africa and Portugal is expected to finish in 2022.26
Yet fiber-optic networks have yet to fully penetrate Africa—particularly in the land-locked interior countries.27 Widespread availability of high-speed (broadband) internet through fiber-to-premises connections to homes and offices remains sparse and is largely concentrated in a few capital cities.28 For example, fiber-based broadband service household penetration remains below 2 percent in sub-Saharan Africa, while South Africa's fiber-based broadband subscriptions represent almost half of all fiber-based broadband subscriptions in sub-Saharan Africa.29
Data centers
US$180 billion
potential growth in Africa’s GDP by 2025.
Source: FC and Google’s e-Conomy Africa 2020 report
Latency issues and concerns over data sovereignty are driving data center localization in Africa.30
Although most African countries are currently relatively unrestricted regarding personal data, this might change in the future, in ways that would make it necessary to store regulated data in local data centers.31 Currently, Africa accounts for only 1 percent of global data center capacity.32 According to the African Data Centres Association, roughly two-thirds of that capacity is located in South Africa.33 To bring the rest of the continent up to a similar density to South Africa would require roughly 700 new data centers of 1,000 MW capacity.34
Indeed, Africa's data center market is expected to grow to US$3 billion by 2025.35 In 2020 and 2021 alone, four major pan-continental deals and investment commitments totaling US$2 billion were concluded. These included Equinix's purchase of Main One (US$320 million), West Indian Ocean Cable Company (WIOCC)'s investment in Open Access Data Centres (US$500 million), Digital Realty's investment commitment to Africa (US$500 million) and Liquid Intelligent Technologies' (Liquid) US$500 million investment into its subsidiary, Africa Data Centres (ADC). ADC received a US$300 million investment from the US International Development Finance Corporation (DFC) to acquire and expand data centers and enter new markets.36 ADC has opened a new facility in Johannesburg and is constructing others in Nigeria, Togo and Kenya,37 and it plans to build ten data centers in ten African countries over two years.38 To date, Liquid has also received US$259 million worth of investment from the International Finance Corporation (IFC) to expand its data center capacity and roll out fiber-optic cables in Africa.39 Local African businesses—including Vodacom/Safaricom, MTN, Rack Centre Nigeria, ADC and Teraco—have been at the forefront of this growing industry and together own more than 95 percent of Africa's data center capacity. International investors in hyperscalers have also begun to enter the market in recent years.40
Financing challenges
To date, most African digital infrastructure projects have been funded through equity investments, rather than debt financings, and this is likely to continue.
For instance, a consortium of partners that include Facebook, MTN, Vodafone and Orange is funding the 2Africa cable, and Google and its co-investors are privately funding the Equiano project.41 Limited recourse or non-recourse funding has yet to be seen at scale. The IFC invested US$250 million in Liquid through equity and debt, and IFC's latest investment in February 2021 was by participating in Liquid's bond placement on Euronext Dublin.42 The IFC's US$300 million investment in ADC was structured as a full-recourse corporate loan.43
Yet as digital infrastructure assets demand larger capital expenditures, the need for more structured financing solutions will likely grow. The high costs of constructing and operating mega-data centers might also encourage shifts toward alternative funding sources that deploy capital more efficiently.
Energy is another important consideration. Expansion of co-location data centers and competitive pricing of services increasingly depends on energy costs and efficiency, since energy can account for 40 percent or more of a data center's operating expenses. Without cheap and reliable power, operating data centers in Africa will be challenging.44 In South Africa, data center operators are highly exposed to the power shortages and regular load-shedding that plague the country, heightening reliance on expensive diesel or battery-power solutions.45
Conclusion
According to the IFC and Google's e-Conomy Africa 2020 report, Africa's internet economy is one of the largest overlooked investment opportunities available, with a potential to add US$180 billion to Africa's GDP by 2025.46
Africa has the world's youngest, fastest-growing and increasingly urbanized workforce, which is driving a rapid increase in its consumption of online services. Increased connectivity, in turn, creates more opportunities for innovative entrepreneurs with new technologies. However, digital transformation can only be fully realized if high-quality access to communication networks and services is made available at affordable prices.
Accelerating the type and pace of investments into digital infrastructure in Africa will be critical to ensure the growth of Africa's economies and livelihoods for years to come.
White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.
This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
View full image: Figure 1: Internet access (PDF)
