#RevolutionInterrupted? What MNCs need to know about Africa’s new digital regulations

Digital technologies are transforming the way customers in Sub-Saharan Africa (SSA) live, work, and transact, offering multinationals (MNCs) new and innovative ways to market and sell their products and services. However, a recent spate of policy interventions by SSA governments to increase regulation of internet-based services is worrying consumers and businesses.

It raises questions about how SSA’s digital revolution will be affected and whether it could be derailed.

As MNCs 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 are likely to cause short-term cost increases and operational disruptions – overall, we do not expect the uptake of digital technologies to slow.

New opportunities to capture demand

The explosion of internet-enabled business in SSA has helped MNCs 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.

SSA features the largest share of mobile money accounts globally

Companies are using these developments to capture demand created by SSA’s burgeoning consumer class and still-pressing development needs.

US healthcare technology firm BlueCloud, for instance, is expanding its B2B service by offering cloud-based solutions to help medical practitioners in Kenya modernize their patient record management systems. In the consumer space, fashion retailer Zara is expanding its e-retail offering in several SSA markets, including Senegal and Ghana.

Many firms capitalizing on SSA’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. South Africa’s Showmax – SSA’s answer to Netflix – offers on-demand entertainment in 36 African countries; much of it is local content.

The question is whether the latest government interventions could hamper future growth and innovation.

Digital taxes expand across the region

The first area of intervention concerns the rise of “digital taxes.”

Many SSA governments 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 formally employed – authorities view the digital sector as a new and potentially lucrative new source of funds.

Several 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 3-5 US cents per day to access websites such as WhatsApp, Twitter and YouTube. Tanzania has imposed a US$ 930 license fee for bloggers
  • Levies on mobile transactions: Governments are cashing in on the region’s mobile banking scene. In 2018, Zimbabwe and Côte d’Ivoirehave both imposed new taxes on mobile money services, ranging from 0.5-2%
  • 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

What do these measures mean for MNCs?

The immediate impact has been to increase the cost of electronic transactions and internet access, developments that will likely exacerbate price sensitivity and cautious spending behavior – particularly by lower-income consumers (who constitute the bulk of the consumer class) and smaller B2B 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.

Authorities clampdown on content and services

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 South Africa 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: Markets such as Tanzania and Ethiopia are introducing tighter laws to curtail “false information.” While the measures are aimed at containing political dissent and should have minimal impact on MNCs, Tanzania’s policy is especially concerning and includes rules restricting independent data collection, undermining MNCs’ ability to monitor – and align with their partners on – market trends
  • Internet black-outs: At least 10 SSA markets, including Cameroon and Gabon, have recently imposed wholesale, albeit temporary, internet shutdowns with the aim of curbing protest activity. These occurrences are highly disruptive for businesses’ supply chains and distribution channels, and effectively halt MNCs’ ability to transact with their partners and customers

With SSA facing dozens of elections in 2019, including Nigeria, DR Congo, Mozambique – many of which are likely to be accompanied by political unrest – MNCs should expect and prepare for further internet blackouts. Where possible, they should develop contingency plans to minimize disruptions and their associated costs.

If you are a client, track the latest developments in SSA via FrontierView or reach out to your Client Relationship Director to discuss strategy implications for your business. If you are not a client, but would like advice on your SSA strategy, please contact us to learn more.

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