The digital economy’s transformative presence in Africa illustrates the power of the market to give people what they value.
By Martha Njolomole on Fee.org
“Since its founding in 2008, Airbnb hosts across Africa have earned more than $400 million in direct income from renting out their properties via the service.” – Reuters, 2018
When safari guide Goodwin Ndosi first heard the word “Airbnb,” he thought it was a person, not a business. “I don’t know him, who is he?” he asked.
After learning more, he was determined to start his own rental business through the platform. First, he rented out his own room while he camped in a tent outside. Goodwin was determined to improve, grow, and expand his business, and went from a single guest in the first four months to some 200 in the first year.
Goodwin’s entrepreneurship was a boon to his community. He paid for his sister to go to culinary school so that she could provide meals for the guests. She later went on to open her own restaurant. He hired seven others and paid for them to go to trade school to invest in making them more valuable employees.
Today, he is opening more rental properties and pursuing his second business degree. His entrepreneurial mindset and determination paired with Airbnb’s technology opened up a whole new world of opportunity for Goodwin, his guests, his employees, and his community.
Not an Isolated Incident
The digital economy has taken many forms around the globe, with Uber and Airbnb leading global expansion efforts to lower-income countries. Destinations across Africa have emerged as some of the fastest-growing Airbnb markets in the world. Of the eight fastest-growing countries in the world for Airbnb guest arrivals, three are located in Africa: Nigeria, Ghana, and Mozambique.
Local populations have been big financial beneficiaries of this growth. In 2018, for instance, the ripple effect of the Airbnb community in South Africa resulted in an economic impact of $678 million, supporting more than 22,000 jobs.
Uber has sparked a wave of innovation and new enterprises modeled on its platform, and these technologies are spreading across African countries. Most of these platforms are being specially geared to fit Africa’s economic structure and therefore have established a heavy presence in sectors where infrastructure and market gaps exist.
For instance, students from King’s College London have developed an app dubbed “Uber for Cows” (Movr) which helps connect truck drivers with farmers in remote areas who want to get their cattle to market. The most famous development has to be the Hello Tractor App (“Uber for Tractors”), which allows farmers to get ahold of unused tractors in their locality. This platform transforms the agricultural sector by making it less laborious for poor farmers to produce while increasing their yield.
Other services like Little (a ride-hailing app backed by telecoms operator Safaricom in Kenya), Flare (Uber for Ambulances in Nairobi, Kenya), and GetMyBoat (peer-to-peer boat lending in South Africa, Kenya, Tanzania, Mozambique, Namibia, and other African countries) are closing service gaps that exist in healthcare, tourism, and day-to-day transportation. Some other services have opened up new markets to artisans (e.g. Lynk in Kenya) and domestic workers (such as Domestly in South Africa), and others have created new opportunities for gig work. For instance, Jumia (an online retail shopping platform based in Nigeria) has signed 100,000 commission-based affiliates to help customers make orders through their platform.
Revolutionizing Capital in Africa
The lack of integrated ownership (property rights) systems has been the biggest obstacle preventing Africans from capitalizing on their assets. Due to the informality that persists in most African countries, people rarely use their assets to invest in complex economic transactions that fuel value creation and productivity. The digital economy, in this case, presents an opportunity for people to turn noncommercial capital, individual space, and skills into valuable commercial assets, as evidenced by rising micro-entrepreneurship.
By digitally connecting buyers and sellers, the gig economy is surpassing infrastructural barriers, reducing transaction costs, and turning idle assets into productive capital. The benefits are being felt all over the world, but also present a greater significance to African countries.
African societies have a lot of inefficiencies but that also means more opportunities for entrepreneurs to develop new products and services to close the gaps that exist. The flexibility the digital economy offers makes it extremely adaptable to Africa’s economic structure.
Through this new technology, local entrepreneurs are finding ways to provide people with services they need and demand. And that is the power of the market.
[Article correction 2/25/20: The previous version incorrectly stated that Cassava Smartech developed the “Uber for Tractors” app. It was actually developed by Hello Tractor.]
Martha Njolomole is an economist at the Center of the American Experiment, with a Master of Arts Degree in Economics from Troy University. Her research interests include institutional economics, international development, and public policy.