Dynamic vs Static Metrics: Attributes for an African Measure of Competitiveness

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“No Data Available Gray Area”

For analysts everywhere, the challenge of considering each economy in its own right seems to be far too much trouble, and so they tend towards sweeping generalizations which lump all metrics under one label – “Africa”. Some find even that far too exhausting and aggregate Africa along with Europe and the Middle East.

These regional groupings might be fine for executive Vice Presidents responsible for regional sales in a globe spanning multinational but for anyone seeking to assess and evaluate the emerging opportunities sparking interest in the continent, these aggregate metrics only serve to obfuscate and confuse the issue.

Static vs Dynamic

What distinguishes the majority of the emerging African economies from the more established ones is the prevalence of informal business activities, in addition to agriculture.

informal GNP SSA 2000
As I wrote previously, from my research on the underlying rhythms of the informal, there are two forms of income – one that is static, and thus predictable, like a regular monthly salary, and one that is dynamic i.e. volatile, such as the irregular cash flows that those in the informal sector tend to rely on for their household expenses. For many households, their cash flows have a combination of both forms – a predictable static paycheck from formal employment as well as bits and bobs from informal livelihood activities.

One can extrapolate the presence of this dynamism into the larger context of the entire operating environment – when there is a significant component that is irregular and unpredictable i.e the cash flows from the informal sector, and consider this as a key attribute that distinguishes these economies.

That is, instead of seeking metrics which maybe static, could we perhaps instead seek those that convey a measure of the dynamism that’s best characterized by the hustle of the informal marketplace?

Acceleration and Growth Trends

A great example is the rate of mobile phone penetration. Here is a snippet of data extracted from the GSMA’s statistics showing just a couple of years of change in phone penetration. Can we see how fast Ethiopia’s subscriber numbers grew, almost doubling in just 2 years?

change1Here’s another chart that truly visualizes this dynamic activity

Five-Reasons-why-Africa-is-Fertile-Ground-for-Blazing-E-Commerce-Growth_Guest_Post.docx-Google-Docs.clipularAnd if this doesn’t suffice to convey the rapid pace of change happening on teh ground, then lets take a more detailed look at trends related to this mobile phone penetration activity.

SOTIR 2014 over timeThe point is that measurements that are static, or slow to change over time, aren’t conveying dynamism of the African markets nor their opportunities. With such a low base of development, static measurements lead to African nations being ranked low on indices. But when we consider the rate of change or the acceleration of growth, we see entirely different trends than if we were looking at absolute numbers alone.

I chose these measures because mobile phones are rapidly evolving into powerful and portable computing devices, while the proliferation of mobile money solutions reek of business activity, transactions, payments and the flow of cash circulating in an economy.

ecommercessaIn this table, for example, both Egypt and South Africa lead the pack in terms of size but are they the leaders in terms of opportunity for growth or ROI?

Nigeria’s e-commerce sales grew 400% in the same time period as it took for South Africa to double and for Egypt to grow by 80%. Ghana and Ethiopia grew 300% while Kenya came in close enough. Where would you place your bets for e-commerce investment?

Connectivity and Communications

The final attribute that emerges from the patterns I’ve seen in the ‘prepaid economy’ and the informal and rural markets is that of flexibility and facetime. This isn’t the post to get into those details, which are available on demand, but the point here is to look at local and social activities, fuelled by the phone, that are hallmarks of the increasingly connected emerging consumers.

mobile phone

Source: http://www.biztechafrica.com/article/mobile-africa-2015-african-phone-use-decoded/9962/

You’ll find me on Facebook” is the de facto business card of the African informal sector and/or startup, SME, telco or bank. The ability to communicate, thus negotiate, is key to the flexibility of the informal, and the perceived intimacy of social media mimics the hyper-local, social trusted networks of transactional flow and culture. As I write these sentences, I realize that embedded within each is volumes of densely packed insights that I promise myself I’ll return to in subsequent posts and articles.

These are the trends that drive adoption of Uber in Lagos and Nairobi, and the emergence of local variations for informal services. These are also connected to increasing visibility of geek culture and tech savviness among that favourite metric of demographers – the African youth.

An African Index of Competitiveness

Biashara is teh Swahili word for business, and a better descriptor of the informal trade and business sectors, as it covers the smallest livelihood activity that every family must conduct. A Biashara Competitiveness Index that could reflect the true picture, incorporating as it would the dynamic aspect of the informal sector, one that has failed most other attempts to measure and define.

Are the metrics I’ve displayed necessarily the ones that would contribute to this index? I don’t know, at this point, but I do know that when we look at the opportunity space and overlook the changes taking place and the innovative solutions in industries like financial services, cross border transactions, e-commerce etc we’re missing out on the ground reality by relying on metrics more suited for formal and/or developed economies for comparison.

If we can find a way to convey the pace of change, the acceleration of innovation and the flux, to capture and communicate the dynamism of the operating environment, we’d be better able to assess which markets offer us the best opportunities or where future growth may lie than static indicators. I’ll continue working on this.

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One Comment

  • Great post! My quick thoughts. The premise: “any product or process that can be subject to digitization can spread at the speed of thought and can potentially have exponential growth.” Consider money as coins and money as an Mpesa Code.

    What prompts the dynamism? I think it is the nature of the underlying technology or the “making it easy” of some static part of a process. Consider how easy it is to form Peer-to-Peer Groups on Facebook/Whatsapp or set up of a Shoe shop and sourcing clients at “Soko Nyeusi/Black Market” a group on Facebook? . Many informal Businesses have been launched thus.

    Example of industry disruption by changes in underlying technology :
    Energy Sector. The poor can access Solar energy without being noticed. The price and efficiency of it is improving faster than traditional electricity(inflation, loans, high overheads). The mega power supply complex has been “miniaturized” into smaller energy units requiring nothing but the sun, a small loan and solar fittings. Just received news Clean energy revolution is ahead of schedule. http:bv.ms/1FmvPES

    Smartphones are the fastest-spreading technology in humanity’s history. By proxy it is pushing Banking, Medicine, Crowdsourcing, Consultancy, the App Economy, Event Management etc forward. Anything that can be digitized = opportunity.

    Biashara Index. – Given the task, i would propose first mapping the productive sectors. A great start is the WTO Sectoral Classification of Services

    Within it, i would map out the industries undergoing exponential/dynamic growth for example, Traditional Architecture is not as dynamic as “Property Letting/Selling” as the latter is subject to information and it’s exponential nature catalysed by digital platforms. The former is a profession with rigid rules and barriers to entry that keep off the dynamism.

    Advanced countries map out their economies and produce futuristic projections. For example estimates that the Internet of Things(IoT) will result in $1.7 trillion in value added to the global economy in 2019. And accompanying buzz of Google investing USD 3 Billion etc. Mapping the data triggers investment and speculation on an industry that did not even exist before! We need to adopt the same mindset in mapping the Pre-paid Economy. Our space is a bit quiet with no “Buzz”
    This is a great opportunity to fill that grey /No-data-available map.

    Finally within a particular sector, there is Static and Dynamic Businesses. The static ones are a bit stiff to growth.

    There is no major industry that does not have an informal component. Water has water vendors/hawkers yet we are seeing entry into this space by the most bold players proposing to make water accessible to every household. The global water crisis affects a billion people directly. It has been the domain of World Bank-style institutions. Twenty-five poorest countries already spend twenty percent of their GDP on water. Opportunity? Four billion people spending thirty cents a day is a $ 1.2 billion market every day. It’s $ 400 billion a year.
    Dean Kamen has come up with a technology called “Slingshot” that can purify 1,000 liters (250 gallons) of water a day using the same amount of energy it takes to run a hair dryer. One such machine in a slum is a tremendous disruption!

    Final example :By mid-2014, just six years into their existence, Airbnb had over 600,000 listings in 34,000 cities and 192 countries and had served over 11 million guests. Government does not even know AirBnb exists in Kenya. Maybe they do? I guess it is grey on their map and the Maasai Mara Lodges and the Hiltons are blue. Yet, the Pre-paid Economy thrives below the radar unmapped.

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