Digital technologies are transforming the way consumers and businesses in Africa live, work and transact, offering companies new and innovative ways to market and sell their products in some of the world’s fastest-growing markets.

However, a recent spate of policy interventions by African governments to increase regulation of internet-based services is worrying consumers and businesses.

It raises questions about how Africa’s “digital revolution” will be affected — and whether it could be derailed. As businesses look ahead to 2019, it is important that they understand the drivers of these changes and how they will impact their partners and customers. While some will likely cause short-term cost increases and operational disruptions, overall we do not expect the uptake of digital technologies in Africa to slow.

The explosion of internet-enabled business in Africa has helped companies tap new demand, get closer to customers by leveraging data and social media, and enhance their route-to-market through online channels. Two fundamental drivers have underpinned this process: rising internet access — which is accelerating faster than in any other world region, assisted by major investments in telecommunications infrastructure, and falling costs, particularly for mobile broadband devices and services.

Companies are using these developments to capture demand created by sub-Saharan Africa’s burgeoning consumer class and still-pressing development needs. US healthcare technology firm BlueCloud, for instance, is expanding its business-to-business (B2B) service by offering cloud-based solutions to help medical practitioners in Kenya modernise their patient record management systems. In the consumer space, fashion retailer Zara is expanding its e-retail offering in several regional markets, including Senegal and Ghana.

Many firms capitalising on Sub-Saharan Africa’s internet revolution are home-grown. Nigeria-headquartered online marketplace Jumia, established in 2012, now operates in 14 countries and boasts 2-million active customers. SA’s Showmax — in many ways Africa’s answer to Netflix — offers on-demand entertainment in 36 African countries, much of it local content.

The question is whether the latest government interventions could hamper future growth and innovation. The first area of intervention concerns the rise of “digital taxes”. Many governments in the region are under growing financial pressure due to lower commodity export revenues and mounting debt servicing costs. Unable to raise much additional revenue through traditional taxes — it is difficult to raise money through personal income tax, for instance, because only a small fraction of the adult population is employed in the formal economy — authorities view the digital sector as a new and potentially lucrative new source of funds.

Several countries introduced new taxes in 2018. There are three main types:

  • Social media taxes: Uganda and Zambia have introduced requirements that consumers pay taxes equivalent to US3c-5c per day to access websites such as WhatsApp, Twitter and YouTube. Tanzania has imposed a $930 licence fee for bloggers.
  • Levies on mobile transactions: governments are cashing in on the region’s burgeoning mobile banking scene. In 2018, Zimbabwe and Ivory Coast both imposed new taxes on mobile money services, ranging from 0.5% to 2%.
  • Data taxes: Kenya raised the excise duty payable on data services from 10% to 15% in its 2018 budget plan. Benin also introduced a data tax, but later withdrew it after a spate of protests in the capital, Porto-Novo.

What do these measures mean for business? The immediate effect has been to increase the cost of electronic transactions and internet access, which will likely exacerbate price sensitivity and cautious spending behavior — particularly by lower-income consumers (who constitute the bulk of the consumer class) and smaller business customers. The effectiveness of social media-based marketing could also dip for these segments as they ration their use of such platforms.

Looking ahead, rising competition in the mobile technology space will probably counteract the cost impact, meaning that in the longer-term the downward cost trend will probably continue. Moreover, the sheer efficiency and scalability of internet-enabled products and platforms means digital innovations will be increasingly integral to companies’ business models.

The second area where SSA governments are intervening pertains to restrictions on access to online content and services. It is relevant to note here that most governments in the region impose some form of online censorship. All except SA are considered “not free” or only “partly free” by Freedom’s House’s 2018 Freedom of the Net report. Nevertheless, several governments have taken additional steps to tighten control, with mixed implications for business.

Two examples stand out:

  • Regulation of content: authorities in Tanzania and Ethiopia are introducing tighter laws to curtail “false information”. While the measures are aimed at containing political dissent and should have minimal direct impact on international companies doing business there, Tanzania’s policy includes rules that could be used to restrict independent data collection, potentially curbing companies’ ability to monitor market trends.
  • Internet black-outs: at least 10 African markets — most recently Zimbabwe but including Cameroon and Gabon — have imposed wholesale internet shutdowns with the aim of curbing protest activity. These occurrences are highly disruptive for businesses’ supply chains and distribution channels, and effectively halt multinational corporations’ ability to transact with their partners and customers.

While these new regulatory developments will force businesses to adapt and, in some cases, take precautionary measures, the fundamental drivers of Africa’s digital revolution remain in place. Expect the region to remain a hotbed of innovation for the foreseeable future.

• Attwell is head of Frontier Strategy Group’s sub-Saharan Africa practice.