This is an excerpt from The Future of Fintech in Africa 2023 report.
In recent years, Africa has awoken to a new dawn when it comes to digital transformation and innovation with the cloud. The continent displays numerous promising indicators of a region ripe for fintech investment and development, but the scale, complexity, and the benefits of new technologies like the cloud must be understood and permitted to flourish.
With cloud, IT services required to provide digital products can be outsourced to third party providers, allowing organisations to leverage software-as-aservice (SaaS), infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS). Now free to focus on their core business, fintech industry participants – with support from cloud hyperscalers like Amazon Web Services, Google Cloud and Microsoft Azure – can create an end-to-end ecosystem.
Cloud allows African fintech firms to be diverse and nascent
Africa is by no means Silicon Valley, and yet it is technologically diverse and nascent. The continent is moving in the right direction with the establishment of technology hubs and expansion of technology-related business that can be attributed to growth of computer engineering talent.
Initiatives such as Microsoft’s 4Afrika, launched in Rwanda in 2013, aimed to increase internet accessibility via smart devices, educate developers and promote new technologies, working with entrepreneurs, startups, partners, and governments.
Briter Brmostabs research reveals that Nigeria has a staggering 90 technology hubs, with South Africa following with 78, Egypt with 56 and Kenya, 50. However, most hubs in Africa have received less than $100,000 in funding and 62% of the hubs have under 10 paid employees.
Legacy infrastructure prevents organisations from migrating to cloud
While there is a push towards increased efficiency and innovation, cloud is providing a springboard for fintech firms to become more efficient and traditional financial institutions to innovate. Cloud adoption has accelerated since the Covid-19 pandemic, but prior to 2020, use was pervasive across medium and large organisations.
According to an article posted on the Nanyang Technological University website, small to medium businesses have fared well when it comes to cloud adoption and adapting their processes, particularly because larger organisations are not flexible in comparison and remain lumbered with legacy infrastructure.
The article references Omdia research and states that “it takes longer, about five to ten years, for big firms to make the transition to cloud computing. It predicts that large firms will spend more on the cloud over the medium term to 2025.”
It continues: “New digital technologies, such as artificial intelligence, which require greater data storage and computing power than most firms would be able to afford or expend capital on optimally, is motivating cloud adoption beyond just cost reasons. Incidentally, the African case is uniquely receptive to cloud computing, as SMEs constitute about 90% of all firms and account for 80% of jobs.
“Besides, the few big African firms do not suffer similar legacy constraints as their foreign counterparts, as their size has been contemporaneous with the evolution of the internet, and their need for a digital service proposition is a relatively recent one.”
Sourcing to and hosting data with foreign cloud providers is preferred
Cloud and data centre capacity in Africa is expected to evolve rapidly over the coming years, driven by the growing demand for digital services and the increasing availability of cloud-based solutions. This will present opportunities for African businesses and governments to drive innovation, improve efficiency, and enhance economic growth.
According to Data Science Nigeria, this development will occur among local cloud and data centre infrastructure providers and there will be less of a reliance on providers based outside of the continent. Alongside this, beyond cloud, adoption and implementation of edge computing and 5G networks can also support in increasing the speed and efficiency of data processing and providing a better service to customers.
One such example is MainOne, a Nigerian telecommunications services company that operates a submarine cable system and provides cloud and data centre services to businesses. MainOne’s Tier III data centre is one of the largest and most advanced in West Africa and is designed to provide businesses with reliable and secure colocation and cloud services, according to Data Science Nigeria.
“The expansion of mobile connectivity throughout the region is a major force behind the cloud and data centre capacity revolution in Africa. Demand for digital services like e-commerce, mobile banking, and online schooling is rising quickly as more Africans have access to smartphones and mobile internet. Through the provision of flexible and affordable means for the delivery of these services, cloud-based solutions present an efficient way to meet this demand.”
By virtue of industries like the fintech sector flourishing in the continent and need large amounts of data storage and processing capabilities, governments and private sector organisations must work together to invest in internet infrastructure and increase internet access across the continent. In turn, Africa will be able to “fully realise the potential of cloud-based solutions to transform the continent’s economy and society.”
As Hannes Wessels, country head at Binance South Africa posited, the African data centre revolution has become a critical move toward deploying technology for the future. “With the continent’s rapid digital transformation, data centres play a critical role in ensuring that data is safely stored and made available to users.
“This transformation will result in the rise of edge data centres, which will bring computing closer to end users, decreasing latency and increasing data processing speeds. Furthermore, there will be a substantial increase in the adoption of cloud computing services in Africa, allowing businesses to reduce capital expenditure while focusing on core operations.” It could be argued that this is already happening in 2023.
South Africa, despite its not so efficient power infrastructure, remains the destination for data centres as showcased by Microsoft, Amazon, Google, Huawei, and Oracle having built their data centres in South Africa. Although, as per reports by the Africa Data Centres Association (ADCA), the $2 billion African data centre market is expected to be worth $5 billion by 2026.
Teraco was in the works to build a $220 million data centre in Johannesburg, South Africa; Raxio Group planned to set up data centres in the Democratic Republic of Congo; IX Africa Data Centre revealed plans to construct a data centre in Nairobi, Kenya; and Icolo said they would do the same in Mombasa, Kenya.
In addition to this, Wingu.africa built the first hyperscale data centre in Addis Ababa, Ethiopia and other data centre investments in the pipeline will be in Senegal, financed by Morocco’s N+ONE and in Togo, financed by the World Bank, which will be its first carrier-neutral data centre. Despite this, IBM secured cloud deals with Africa’s largest banks across South Africa, Nigeria, Morocco, and Mozambique in 2021.
Sopra Banking Software data revealed that in 2020, it was estimated that only 1.5% of the world’s data centres are in Africa.
“More than 30 Tier III multi-tenant data facilities have come online in Africa since 2016. However, of the continent’s 80-plus metropolitan areas with a population of more than 1 million people, only about 33 percent have at least one such data center. Africa’s data center facilities are unevenly distributed and do not satisfy the quickly growing demand. More than 65 percent of the continent’s capacity as in South Africa in 2020, and just a handful of countries account for the bulk of the rest. According to one estimate, nearly half of Sub-Saharan Africa’s economic output and broadband connections are served by only 10 percent of the continent’s data centers,” Sopra revealed.
In conversation with Bruce Paveley, chief technology officer at TymeBank, “more and more fintechs will need in-country processing capability, increasing demand for home soil capacity in the countries, especially where ‘processing data on home soil’ is applicable .”
The cloud oligopoly may no longer dominate the market
In the same way that there are concerns about the American cloud oligopoly that continues to run the show across Europe, authorities are also keeping a watchful eye on the dominance of Chinese tech firms in Africa, where “a third of Huawei’s cloud and e-government deals are concentrated,” as reported by Reconnecting Asia.
Mike Scott, head of product partnerships and Web3 at Yoco, adds that while cloud “promises an ideal – get your server capacity quickl y, at a low cost, and from anywhere. Within African countries, we’ve found a couple of practical barriers to this utopia.”
Scott continues: “One of these is local regulations. Within our continent, we have countries with restrictive or simply just outdated regulations about what data should be in the country vs on-site. May a company use the cloud to run solutions deployed in this context? That is difficult to evaluate. It is easier to confirm that the solution will meet regulatory requirements if it is deployed in a country.”
Deploying in a country raises another barrier, as Scott explains because this means “servers need to be hosted in a data centre in that country, and that raises the question of available capacit y, infrastructure, and support skills in data centres in countries. One possible solution would be cloud service providers hosting in more countries in future, but Azure for example has a single option in Africa (in South Africa) and it is not in their roadmap to have in-country regions in a large number of African countries.”
Steve Haley, director of market development and partnerships at the Mojaloop Foundation also has an opinion on this. “In the short term, most countries will continue to allow private sector actors to link up bilaterally with many offerings requiring new approvals from the regulators. In five to 10 years, more regulators will start offering payment utilities and standards for instant payments and open banking which will make these collaborations more efficient.
“Regulations around data sovereignty and the use of the public cloud are limited to the positive impact that the cloud could have. More nuanced regulations will be introduced which will enable countries to maintain the sovereignty and security of their citizens while exploiting the efficiencies of the public cloud.”
Cloud is still new for African organisations, but adoption is increasing even if there is a preference for partnering with the cloud oligopoly to store data. What is clear though is that new internet cables on the shores of the continent will enable faster data transmission, but basic requirements like electricity, which remains in short supply in many African countries, will continue to be a constraint, add to costs, and become a hindrance to innovation.
To achieve success, new power generation capacity needs to be added at the same rate as internet infrastructure growth and advancements across the digital economy. As a concluding comment, Fábio Matos, chief technical officer at Jumo, says that today, “with the long and rapidly growing list of services offered, cloud providers have become the de facto standard for tech infrastructure in most sectors.
“As such, the African finance and fintech sectors should fully embrace cloud technology, as this will improve operational efficiency, data security and compliance, while enabling new data analytics and machine learning use cases. This will ultimately foster better customer engagement, financial inclusion, and innovation, which should be everyone’s main goals.”
