African FDI and GDP Growth – the Telecom Sector

African FDI and GDP growth go hand-in-hand. The growth of foreign direct investment in Africa has created opportunities for African governments and local telecom companies.

The telecom sector in Africa

As a crucial player in the emergence of our information society, the telecommunication sector in developed countries has evolved as mobile communication is surpassing landline usage. Concurrently, mobile phones are being used more for data – SMS, video, chat, wide-ranging internet usage – than voice traffic.

Mobile communications in African countries not only reflects this trend, but outstrips it. Compared to a global growth rate of 3 %, the sub-Saharan Africa mobile phone market is projected to attain an annual growth rate of 4.6 % between 2019 and 2025. In units, that translates to an expected increase of 167 million unique mobile subscribers – from 456 million at the end of 2018 to 623 million unique mobile subscribers by 2025.

FDI and Africa’s Telecoms sector

Innovation is one of the major factors driving economic development in the knowledge economy. Add to that the United Nations’ prediction that “more than half the global population growth between now and 2050 will occur in Africa”, and it is clear that foreign investment in the telecommunication industry is aiding the continent’s digital journey.

The current impact of FDI on the development gap of African countries affects world development indicators:

• Economic development is elevated as LEDC (Less Economically Developed Countries) advance from reliance on primary industries to tertiary and service industries related to information technology.
• Human development has the potential to be positively impacted by telecoms capital as education and health services, for example, reach previously inaccessible areas of Africa. Better working conditions are encouraged in the host country.
• Material development increases as telecommunication and technology foster African start-ups and young entrepreneurs. Modern practices and high-quality jobs result from FDI.

Telecommunication technologies are no longer merely a means of communication, but an instrument for transforming lives!

Telecom and Investment and Growth

In a 2019 study, the links between foreign direct investment, information and communication technology (ICT), and economic growth dynamics such as gross domestic product (GDP) growth in sub-Saharan Africa are illustrated in-depth. The abstract found that penetration of telecommunication services irrefutably modulates the inflow of FDI, bringing about encouraging net effects on regional economic growth.

From an investors point of view, the determinants of FDI include the market size, labour cost, return on investment, openness, domestic investment, exchange rates. On the flip side, though, only the African markets that exhibit political stability will sustain any level of FDI inflows in the long run. Unnecessary state intervention, the high cost of devices and internet connectivity, and rising competition are barriers to entry.

Countries across Africa who wish to achieve higher GDP and better standards of living need to ensure they are attractive to FDI in telecom.

The Role of Africa in Global Telecom Investment

With the continent’s market size and its potential growth, Africa is a hot ticket location for foreign investors as they pour money into telecommunications infrastructure – expanding fibre coverage, boosting cloud computing, and adopting new mobile networks.

This has, in turn, led to zealous backing of data storage centres such as a recent $300 million investment by the US International Development Finance Corporation for the “acquisition and expansion of existing data centre assets” in South Africa and Kenya and the building of data centres in Nigeria, Ghana and other new markets in the region.

African telecom investment future

Opportunities for growth in the African telecommunications sector still abound, chiefly because the continent’s population continues to increase. But to stay ahead of the curve, investment in telecoms must address challenges and evolve accordingly:

• Bearing in mind that 59.5 % of all web traffic in Africa originates from mobile devices (excluding tablets), implementing a network architecture for the future requires innovative and cost-effective integration of alternate technologies.
• Invest in expanding revenue streams by leveraging digital services, IoT, and AR/VR communication solutions.
• Focus on optimizing networks for machine-to-machine data traffic and using collected data to elevate network performance and customer experiences.

Should you need a reliable internet service provider for your African FDI and GDP growth needs, contact the AFR-IX telecom team today.